This excerpt taken from the SBN 10-Q filed Aug 14, 2006.
As a result of the unacceptable trends with our current hospitality product line, not including HIS, we reassessed the cost structure and took actions in July 2006 with the effective reduction of 10% of the work force spread between sales, support and development. These reductions are expected to reduce annual operating expenses by approximately $1.7 million. Severance expenses of approximately $200,000 will be recorded in the quarter ending September 30, 2006.
On August 14, 2006 we completed the acquisition of MAI Systems Corporation (MAI), and its subsidiary Hotel Information Systems, Inc. (HIS), a leading provider of property management systems, for approximately $27.1 million plus transaction costs. A subsidiary of SoftBrands was merged into MAI and all of outstanding capital stock of MAI was converted into the right to receive cash and an interest in an escrow account. Through this merger, MAI became a wholly-owned subsidiary of Softbrands. We
financed the transaction primarily through the issuance of debt. Equity capital was also provided by our existing preferred shareholders. We believe:
· HIS brings us new software solutions that are based on .NET and Java technologies. HIS has invested in research and development over the last five years, developing products using Internet technology, which makes them platform neutral, deployable in any geography and highly scalable.
· HIS provides us with a significant customer base that allows us to leverage our global distribution, professional services, and product support infrastructure.
· The addition of HIS products allows us to serve a wider segment of the hotel market. Today, our Medallion product primarily appeals to independent hotels and groups. HIS serves hotel groups and chains, in addition to large independent hotels. We believe that moving into the chain and group segment will help improve profitability.
· HIS products offer a migration path to our hospitality customers with legacy systems. Our customers interested in migrating from LANmark and IGS now have a better option for migration.
· HIS has a strong U.S. and Asian presence, while SoftBrands gets nearly half of its hospitality revenue from Europe.
As indicated above, we financed the HIS transaction with the issuance of debt and equity. The key terms are as follows:
Debt On August 14, 2006, we executed a Credit Agreement providing $21 million used to finance the HIS acquisition under a term loan maturing in seven years. The principal amount of the term loan is repayable in 78 equal monthly installments, commencing March, 2007. The Credit Agreement also provides for a revolving line of credit under which we may borrow up to $9 million. Borrowings bear interest, payable monthly, ranging from 1.0% to 1.75% over the lenders prime rate, or from 2.0% to 2.75% over the London interbank rate, depending on the level of earnings before interest, taxes depreciation and amortization for the twelve months preceding the monthly calculation date. We paid a $275,000 closing fee in connection with the Credit Agreement, $137,500 of which was paid upon execution of a commitment letter on July 28, 2006 and the remaining $137,500 was paid when the agreement was signed. The revolving credit facility also carries a 0.25% unused line fee, a letter of credit fee equal to 2.5% per annum and servicing fees of $1,000 per month. Borrowings under the Credit Agreement are secured by all of our assets.
Preferred Stock - On August 14, 2006, we closed on the sale of 5,000 shares of its Series D Convertible Preferred Stock (Series D Stock) and warrants (the Warrants) to purchase 333,333 shares of common stock for gross sales proceeds of $5,000,000, which proceeds were used as partial consideration for the MAI acquisition. An additional 1,667 shares of Series D Stock and warrants to purchase 111,333 shares of common stock for gross proceeds of $1,667,000 may be purchased by certain current shareholders through September 4, 2006. The Series D Stock carries an 8% dividend and converts to common at a price of approximately $1.67 per share. The warrants are priced at $1.84 per share. Other terms of the Series D Stock are substantially the same as Series C Convertible Preferred Stock (Series C Stock). As a condition to such sale, we also exchanged 18,000 shares of Series C Stock on a share for share basis for 18,000 shares of Series C-1 Convertible Preferred Stock (Series C-1 Stock). The Series C-1 Stock is identical to the Series C Stock except with respect to its dividend rate, which is 8% rather for the Series C-1 Stock rather than the 6% payable on the Series C Stock.