defm14a
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED
IN
PROXY STATEMENT
SCHEDULE 14A
INFORMATION
Proxy Statement Pursuant to
Section 14(a) of
the Securities Exchange Act of
1934
Filed by the
Registrant x
Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to
§ 240.14a-12
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TechTeam Global, Inc.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which
transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4) Proposed maximum aggregate value of
transaction:
(5) Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF
INFORMATION CONTAINED IN THIS FORM ARE NOT REQUIRED TO
RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB
CONTROL NUMBER.
TECHTEAM GLOBAL,
INC.
27335 West 11 Mile Road
Southfield, Michigan 48033
July 30, 2010
Dear Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of TechTeam Global, Inc., which will be held on
Tuesday, August 31, 2010, at 10:00 a.m. (local time) at The
Langham Hotel, 250 Franklin Street, Boston, Massachusetts 02110,
and any adjournments, postponements, continuations or
reschedulings thereof (the Special Meeting).
We have agreed to sell all of our shares of capital stock of
TechTeam Government Solutions, Inc. (TTGSI), through
which we own and operate our government information technology
services business, to Jacobs Technology Inc. (Jacobs
Technology), a wholly owned subsidiary of Jacobs
Engineering Group Inc. (collectively, Jacobs),
pursuant to the terms and conditions of a Stock Purchase
Agreement dated as of June 3, 2010 (the Stock
Purchase Agreement). In accordance with the terms and
conditions of the Stock Purchase Agreement, we will sell all of
our shares in TTGSI to Jacobs Technology for a net purchase
price of $59,000,000, consisting of a base cash payment of
$41,479,706 to be received at closing, plus a cash payment of
$17,520,294 to be placed in escrow, each subject to such
additions, subtractions and other adjustments provided for by,
and the other provisions set forth in, the Stock Purchase
Agreement and an Escrow Agreement (the Escrow
Agreement). The full text of the Stock Purchase Agreement
and the Escrow Agreement is included as Exhibit A
and Exhibit B, respectively, to the Proxy
Statement that accompanies this letter.
At this Special Meeting, you will be asked to consider and vote
upon the following proposals, each as described more fully in
the accompanying Proxy Statement:
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(i)
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a proposal to adopt and approve the Stock Purchase Agreement and
the consummation of the transactions contemplated by the Stock
Purchase Agreement and all other agreements, documents,
certificates and instruments contemplated thereby (the
Stock Sale);
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(ii)
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a proposal to adjourn the Special Meeting, if necessary, to
facilitate the approval of the preceding proposal, including to
permit the solicitation of additional proxies if there are not
sufficient votes at the time of the Special Meeting to approve
the preceding proposal;
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(iii)
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such other business as properly may come before the Special
Meeting.
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After careful consideration, our board of directors has
unanimously determined that the Stock Sale is expedient and in
the best interests of the Company and our stockholders. Our
board of directors has unanimously approved the Stock Sale and
unanimously recommends that you vote FOR the
approval and adoption of the Stock Sale, and
FOR the approval of one or more adjournments
of the Special Meeting, if necessary, to facilitate the approval
and adoption of the Stock Sale, including to permit the
solicitation of additional proxies FOR the
approval and adoption of the Stock Sale, if there are not
sufficient votes at the time of the Special Meeting for such
approval and adoption.
Our Board has not made any determination as to whether approval
of the Stock Sale is required by applicable Delaware law, and
such approval is not required by our Certificate of
Incorporation, as amended, our Amended and Restated Bylaws or
other governing documents. However, the parties to the Stock
Purchase Agreement have agreed that, as a condition to the
consummation of the Stock Sale, our stockholders must approve
the Stock Sale to the same extent as if such stockholder
approval was required by applicable Delaware law. Accordingly,
the Stock Sale cannot be consummated until such time as it is
approved by the affirmative vote of the holders of at least a
majority of the outstanding shares of our common stock entitled
to vote at the Special Meeting, and all other closing conditions
contained in the Stock Purchase Agreement have been satisfied or
waived. Therefore, an abstention or failure to vote will have
the same effect as a vote AGAINST
the approval of the Stock Sale.
Your vote is important, regardless of the number of shares
you hold. Whether or not you plan to attend the Special
Meeting, please complete, date, sign and return the enclosed
proxy or voting instruction card as soon as possible in the
envelope provided, or vote electronically by the Internet or by
telephone as provided in the accompanying Proxy Statement.
Voting by written proxy will ensure your representation at the
Special Meeting if you do not attend in person. Returning the
proxy card does not deprive you of your right to attend the
Special Meeting and vote your shares in person. If you attend
the Special Meeting, you can revoke your proxy at any time
before it is exercised at the meeting and vote your shares
personally by following the procedures described in the
accompanying Proxy Statement.
If you have any questions about the accompanying Proxy Statement
or the Special Meeting or require assistance in submitting your
proxy card, please contact TechTeam Global, Inc., Attention:
Investor Relations, 27335 West 11 Mile Road, Southfield,
Michigan 48033, or by calling us at
(248) 357-2866;
or The Altman Group, Inc., the firm assisting us in the
solicitation of proxies, 1200 Wall Street West, Lyndhurst, New
Jersey 07071, toll-free at
(877) 283-0320.
Banks and brokerage firms can call The Altman Group collect at
(201) 806-7300.
We look forward to seeing you at the Special Meeting.
Sincerely,
Seth W. Hamot
Chairman of the Board of Directors
TECHTEAM GLOBAL,
INC.
27335 West 11 Mile Road
Southfield, Michigan 48033
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 31, 2010
TO OUR STOCKHOLDERS:
Notice is hereby given that a Special Meeting of Stockholders
(the Special Meeting) of TechTeam Global, Inc. (the
Company) will be held at The Langham Hotel, 250
Franklin Street, Boston, Massachusetts 02110, at 10:00 a.m.
(local time) on Tuesday, August 31, 2010. The Special
Meeting is being held for the following purposes:
1. To adopt and approve (a) that certain
Stock Purchase Agreement dated as of June 3, 2010 (the
Stock Purchase Agreement), by and among Jacobs
Engineering Group Inc., Jacobs Technology Inc. (collectively,
Jacobs) and the Company, (b) the consummation
of the sale of all of the outstanding capital stock of TechTeam
Government Solutions, Inc. (TTGSI) to Jacobs
Technology Inc. pursuant to the terms of the Stock Purchase
Agreement, and (c) the consummation of all of the other
transactions contemplated by the Stock Purchase Agreement and
all other agreements, documents, certificates and instruments
required to be delivered pursuant thereto (the matters described
in clauses (a), (b) and (c) above being referred to
collectively as the Stock Sale Proposal);
2. To approve one or more adjournments of the
Special Meeting, if necessary, to facilitate the approval of the
Stock Sale Proposal, including to permit the solicitation of
additional proxies if there are not sufficient votes at the time
of the Special Meeting to approve the Stock Sale Proposal (the
Adjournment Proposal); and
3. To transact such other business as may
properly come before the Special Meeting, or any adjournment,
postponement, continuation or rescheduling thereof.
The foregoing items of business are more fully described in the
Proxy Statement accompanying this notice.
Our Board of Directors unanimously recommends that you vote
FOR the approval of the Stock Sale Proposal
and FOR the approval of the Adjournment
Proposal, using the enclosed proxy or voting instruction card or
by voting by the Internet or telephone, as described in the
accompanying Proxy Statement.
Only stockholders of record of the Companys common stock,
par value $.01 per share, as shown on the transfer books of the
Company, at the close of business on July 30, 2010, are
entitled to notice of, and to vote at, the Special Meeting or
any adjournments, postponements, continuations or reschedulings
thereof. A list of the stockholders as of the record date will
be available for inspection by stockholders at the
Companys offices during business hours for a period of
10 days prior to the Special Meeting.
All stockholders are cordially invited to attend the Special
Meeting in person. However, to ensure your representation at the
Special Meeting, and regardless of whether you plan to attend
the Special Meeting, you are urged to complete, sign, date and
return the enclosed proxy or voting instruction card as promptly
as possible in the postage prepaid envelope enclosed for that
purpose or to vote by the Internet or telephone. Instructions on
how to vote by the Internet or telephone are included in the
accompanying Proxy Statement.
If you have any questions about the accompanying Proxy Statement
or the Special Meeting or require assistance in submitting your
proxy, please contact TechTeam Global, Inc., Attention: Investor
Relations, 27335 West 11 Mile Road, Southfield, Michigan
48033, or by calling us at
(248) 357-2866;
or The Altman Group, Inc., the firm assisting us in the
solicitation of proxies, 1200 Wall Street West, Lyndhurst, New
Jersey 07071, toll-free at
(877) 283-0320.
Banks and brokerage firms can call The Altman Group collect at
(201) 806-7300.
By order of the Board of Directors,
Michael A. Sosin
Corporate Vice President, Secretary and
General Counsel
July 30, 2010
Southfield, Michigan
IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING AND
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
VOTE BY TELEPHONE OR THE INTERNET, OR BY COMPLETING, SIGNING,
DATING AND
RETURNING THE ACCOMPANYING PROXY OR VOTING INSTRUCTION CARD
IN THE
ENCLOSED POSTAGE-PAID ENVELOPE TODAY. SEE THE SPECIAL
MEETING --
VOTING IN THE ACCOMPANYING PROXY STATEMENT FOR FURTHER
DETAILS.
IF YOU DO ATTEND
THE SPECIAL MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY
AND VOTE YOUR SHARES IN PERSON.
TABLE OF
CONTENTS
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iii
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2
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2
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2
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6
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13
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14
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14
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14
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14
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16
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16
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20
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23
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23
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26
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27
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28
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30
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33
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39
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39
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39
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39
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40
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40
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79
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79
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88
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95
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95
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98
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100
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102
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104
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104
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111
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111
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111
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111
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112
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112
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114
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114
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115
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119
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121
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122
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128
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130
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132
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135
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145
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145
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A-1
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B-1
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C-1
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D-1
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E-1
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F-1
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G-1
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H-1
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I-1
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ii
COMMONLY USED
TERMS
Throughout this Proxy Statement, unless otherwise defined or
the context otherwise indicates:
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the term Adjournment Proposal refers to the proposal
that our stockholders approve one or more adjournments of the
Special Meeting, if necessary, to facilitate the approval of the
Stock Sale Proposal, including to permit the solicitation of
additional proxies if there are not sufficient votes at the time
of the Special Meeting to approve the Stock Sale Proposal;
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the term Board of Directors or Board
refers to the board of directors of TechTeam;
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the term Commercial Business refers to the business
of the Company other than the Government Solutions Business;
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the term Common Stock refers to shares of the
outstanding common stock, $.01 par value, of TechTeam;
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the terms the Company, we,
our, ours and us refer to
TechTeam Global, Inc., a Delaware corporation, and its
subsidiaries, taken together as a whole on a consolidated basis;
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the term Escrow Agreement refers to the Escrow
Agreement by and among TechTeam, Jacobs and JP Morgan Chase,
National Association, as escrow agent, to be entered into
concurrently with the closing of the Stock Sale, and as it may
be amended, restated, modified or superseded from time to time
in accordance with its terms, a copy of which has been included
as Exhibit B to this Proxy Statement;
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the term Government Solutions Business refers to the
business of TTGSI, including, without limitation, the business
of providing, whether as a prime contractor, subcontractor or
otherwise, information technology-based and other professional
services to governmental authorities, and certain specified
commercial customers identified in the Stock Purchase Agreement,
and as further described or defined in the Stock Purchase
Agreement;
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the terms Jacobs Technology and Jacobs
Engineering refer to Jacobs Technology Inc., a Tennessee
corporation, and Jacobs Engineering Group Inc., a Delaware
corporation, respectively, and the term Jacobs
refers to Jacobs Technology and Jacobs Engineering, collectively;
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each of TechTeam and Jacobs is sometimes referred to as a
party or, collectively, the parties;
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the term Special Meeting means the meeting of the
stockholders of TechTeam that has been called by the Board to
approve the Stock Sale Proposal and the Adjournment Proposal,
and any adjournments, postponements, continuations or
reschedulings thereof;
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the term Stock Purchase Agreement refers to the
Stock Purchase Agreement, dated as of June 3, 2010, by and
among TechTeam and Jacobs, and as it may be amended, restated,
modified or superseded from time to time in accordance with its
terms, a copy of which (excluding the exhibits and schedules
thereto) has been included as Exhibit A to this
Proxy Statement;
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the term Stock Sale refers to the proposed sale of
all of the outstanding shares of capital stock of TTGSI to
Jacobs Technology pursuant to the Stock Purchase Agreement, and
the other transactions contemplated by the Stock Purchase
Agreement and the other agreements, documents, certificates and
instruments to be delivered pursuant thereto;
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the term Stock Sale Proposal refers to the proposal
that our stockholders adopt and approve, collectively, the Stock
Purchase Agreement and the consummation of the Stock
Sale; and
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the term TechTeam refers solely to TechTeam Global,
Inc., a Delaware corporation; and
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the term TTGSI refers to TechTeam Government
Solutions, Inc., a Virginia corporation, and its subsidiaries,
collectively, all of which are direct or indirect wholly owned
subsidiaries of TechTeam.
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iii
TECHTEAM GLOBAL,
INC.
27335 West 11 Mile Road
Southfield, Michigan 48033
PROXY
STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of TechTeam
Global, Inc., for use at the Special Meeting of Stockholders of
TechTeam and at any adjournment, postponement, continuation or
rescheduling thereof, to be held at The Langham Hotel, 250
Franklin Street, Boston, Massachusetts 02110 at 10:00 a.m.
(local time), on Tuesday, August 31, 2010, for the purposes
set forth herein and in the attached Notice of Special Meeting
of Stockholders. Accompanying this Proxy Statement is the
Boards proxy card or a voting instruction card for the
Special Meeting, which you may use to indicate your vote on the
proposals described in this Proxy Statement.
This Proxy Statement and the accompanying Notice of Special
Meeting of Stockholders and Proxy Card are first being mailed to
stockholders entitled to vote at the Special Meeting on or about
August 3, 2010.
Your vote is important, no matter how many or how few shares
you own. Whether or not you plan to attend the Special Meeting,
please vote today by telephone or the Internet, or by
completing, signing, dating and returning the enclosed proxy or
voting instruction card in the postage-paid envelope provided,
as described in this Proxy Statement.
At the Special Meeting, you will be asked to vote on the
following:
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1.
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the approval of the Stock Sale Proposal;
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2.
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the approval of the Adjournment Proposal; and
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3.
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such other business as may properly come before the Special
Meeting.
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Our Board of Directors unanimously recommends that you vote
FOR the approval of the Stock Sale Proposal
and FOR the approval of the Adjournment
Proposal, using the enclosed proxy or voting instruction card or
by voting by the Internet or telephone, as more fully described
in this Proxy Statement.
1
SUMMARY TERM
SHEET
This summary highlights selected information about the Stock
Sale from this Proxy Statement and may not contain all the
information that is important to you. You should carefully read
this entire Proxy Statement, including each of the exhibits
hereto. The Stock Purchase Agreement is attached as
Exhibit A to this Proxy Statement. Each item in this
summary refers to the page of this Proxy Statement on which the
applicable subject is discussed in more detail.
The Parties to
the Stock Sale (page 39)
TechTeam
Global, Inc.
We are a leading provider of information technology outsourcing
and business process outsourcing services to large and medium
sized businesses, as well as to governmental organizations. Our
primary services include service desk, technical support,
desk-side support, security administration, infrastructure
management and related professional services. Our business
consists of two main components our Commercial
Business and our Government Solutions Business. Together, our IT
Outsourcing Services segment, IT Consulting and Systems
Integration segment and Other Services segment comprise our
Commercial Business. Our Government Technology Services segment
comprises our Government Solutions Business. In addition to
managing our Commercial Business by service line, we also manage
it by the following geographic markets: the Americas (defined as
North America excluding our
government-based
subsidiaries), Europe, Latin America, and Asia.
TechTeam is a Delaware corporation and our principal executive
offices are located at 27335 West 11 Mile Road, Southfield,
Michigan 48033. Our telephone number is
(248) 357-2866.
TechTeams Common Stock is listed on the NASDAQ Global
Market under the ticker symbol TEAM.
TechTeam Government Solutions, Inc. is a Virginia corporation
and one of our wholly owned subsidiaries through which we
principally own and operate our Government Solutions Business.
TTGSIs principal executive offices are located at 3863
Centerview Drive, Suite 150, Chantilly, Virginia 20151, and
its telephone number is
(703) 956-8200.
Jacobs
Engineering Group Inc.
Jacobs Engineering is one of the largest technical professional
services firms in the United States, providing a broad range of
technical, professional and construction services through
offices and subsidiaries located principally in North America,
Europe, the Middle East, Asia and Australia. Jacobs Engineering
is a Delaware corporation. Its principal executive offices are
located at 1111 South Arroyo Parkway, Pasadena, California
91105, and its telephone number is
(626) 578-3500.
The common stock of Jacobs Engineering is currently listed on
the New York Stock Exchange under the ticker symbol
JEC.
Jacobs
Technology Inc.
Jacobs Technology, a wholly-owned subsidiary of Jacobs
Engineering, provides technical professional services to
government and commercial clients. Jacobs Technology is a
Tennessee corporation. Its principal executive offices are
located at 600 William Northern Boulevard, Tullahoma, Tennessee
37388, and its telephone number is
(931) 455-6400.
The Stock
Sale
Background of
the Stock Sale (page 40)
Beginning in September 2008, our Board began the process of
reviewing various strategic alternatives to enhance stockholder
value and position TechTeam for stability and growth, including,
but not limited to, alternatives that contemplated the
separation of the Government Solutions Business from the
Commercial Business. In connection with this review by our
Board, we recognized that TechTeam consists
2
of two substantially unrelated, relatively independent and
sub-scale
businesses which do not have any significant synergies between
them and that both require significant investment to succeed,
grow and thrive. We also recognized that TechTeam does not have
the financial flexibility or capital resources to continue to
invest in both business segments and that retaining both the
Commercial Business and the Government Solutions Business would
entail an allocation of resources that either
sub-optimizes
one business in favor of the other or
sub-optimizes
both businesses.
For a chronological description of the material contacts and
events leading up to and relating to the Stock Sale and the
entering into of the Stock Purchase Agreement with Jacobs, see
Proposal 1 Background of the Stock
Sale.
Recommendation
of Our Board of Directors (page 79)
After careful consideration, our Board has unanimously:
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approved the Stock Purchase Agreement and the Stock Sale;
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determined the Stock Sale to be expedient and in the best
interests of our stockholders; and
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recommended that our stockholders vote
FOR the approval of the Stock Sale
Proposal and the Adjournment Proposal.
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Reasons for
Recommending that Stockholders Approve the Stock Sale Proposal
(page 79)
In evaluating the Stock Sale, our Board consulted with our
senior management, outside legal counsel and financial advisor.
Our Board also consulted with outside legal counsel regarding
its fiduciary duties, legal due diligence matters and the terms
of the Stock Purchase Agreement and related agreements. After
carefully considering these consultations and the other factors
referenced in Proposal 1 Reasons for
Recommending that Stockholders Approve the Stock Sale
Proposal, our Board concluded that the Stock Sale was
expedient and in the best interests of TechTeam and our
stockholders and unanimously recommended that our stockholders
vote FOR the approval of the
Stock Sale Proposal.
Opinion of
TechTeams Financial Advisor (page 88)
In connection with the Stock Sale, TechTeams financial
advisor, Houlihan Lokey Howard & Zukin Capital, Inc.,
or Houlihan Lokey, delivered a written opinion, dated
June 3, 2010, to our Board as to the fairness, from a
financial point of view and as of the date of the opinion, to
TechTeam of the $59,000,000 cash consideration to be received in
the Stock Sale by TechTeam. The full text of Houlihan
Lokeys written opinion, dated June 3, 2010, which
describes the procedures followed, assumptions made,
qualifications and limitations on the review undertaken and
other matters considered by Houlihan Lokey in preparing its
opinion, is attached to this Proxy Statement as
Exhibit E. Houlihan Lokeys opinion was
furnished for the use and benefit of our Board (in its capacity
as such) in connection with its evaluation of the $59,000,000
cash consideration, only addressed the fairness, from a
financial point of view, to TechTeam of such consideration, and
does not address any other aspect or implication of the Stock
Sale.
The summary of Houlihan Lokeys opinion in the Proxy
Statement is qualified in its entirety by reference to the full
text of its written opinion. Houlihan Lokeys opinion
should not be construed as creating any fiduciary duty on
Houlihan Lokeys part to any party. Houlihan Lokeys
opinion was not intended to be, and does not constitute, a
recommendation to our Board, any securityholder or any other
person as to how to act or vote with respect to any matter
relating to the Stock Sale.
Purpose of the
Stock Sale (page 98)
We currently operate two principal business segments, the
Government Solutions Business and the Commercial Business. The
Government Solutions Business is comprised of our government
technology services business operated by TTGSI and its
wholly-owned subsidiaries. The Commercial Business
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focuses primarily on providing IT outsourcing services, IT
consulting and systems integration services and technical
staffing and learning services to Fortune 1000 and multinational
companies as well as small to mid-sized companies.
The purpose of the Stock Sale is to separate the Government
Solutions Business from the Commercial Business and realize the
maximum value of the Government Solutions Business and thereby
enable us to focus our resources on the Commercial Business,
which we believe has the greater opportunity for growth,
profitability and increasing stockholder value. The Stock Sale,
if approved by our stockholders and consummated, would result in
the Government Solutions Business being sold to Jacobs
Technology.
The Stock Sale is the result of our Boards review over the
past year of various strategic alternatives to enhance
stockholder value and position TechTeam for stability and
growth. In connection with this review by our Board, we
recognized that TechTeam consists of two substantially
unrelated, relatively independent and
sub-scale
businesses which do not have any significant synergies between
them and that both require significant investment to succeed,
grow and thrive. We also recognized that TechTeam does not have
the financial flexibility or capital resources to continue to
invest in both business segments and that retaining both the
Commercial Business and the Government Solutions Business would
entail an allocation of resources that either
sub-optimizes
one business in favor of the other or
sub-optimizes
both businesses. Faced with the decision of which business to
retain, if any, we believe that the Commercial Business offers
better short- and long-term prospects than the Government
Solutions Business and has greater opportunity for growth,
profitability and increasing stockholder value.
Post-Closing
Strategies (page 100)
We believe that the intrinsic value of TechTeam has been hidden
by the juxtaposition of two substantially unrelated, relatively
independent and
sub-scale
businesses. While we believe that the sale of the Government
Solutions Business to Jacobs Technology is an important step
toward unlocking the intrinsic value of the Commercial Business,
we believe that various strategic alternatives may exist which,
in conjunction with the Stock Sale, may have the potential to
further enhance value for our stockholders. We are committed to
evaluating all such potentially attractive strategic
alternatives that come to our attention consistent with our
ongoing commitment to enhance value for all TechTeam
stockholders. Our Board believes that the Stock Sale may enhance
interest by potential acquirers of the Commercial Business, as
the Commercial Business could potentially be acquired by a
company that would no longer be required to address the security
concerns of the U.S. federal government associated with
foreign ownership of suppliers with top-secret cleared services
and facilities.
Notwithstanding any enhanced interest that potential acquirers
may have in the Commercial Business due to the Stock Sale,
certain terms of the Stock Purchase Agreement, including, but
not limited to, the indemnification and escrow provisions, may
adversely affect our ability to explore various strategic
alternatives with respect to our Commercial Business. Under the
Stock Purchase Agreement, TechTeam has agreed to indemnify
Jacobs for various matters, including any breach or violation of
any representation, warranty, covenant or undertaking made by us
in the Stock Purchase Agreement or any related agreement,
subject to certain limitations and exceptions. There is
significant uncertainty as to the amount, if any, that we will
ultimately have to pay to Jacobs to resolve indemnification
claims and, accordingly, there is significant uncertainty as to
the amount, if any, of the indemnification escrow fund that will
ultimately be returned to us. These uncertainties may make it
difficult for a potential acquirer of the Commercial Business to
appropriately value the Commercial Business, including, but not
limited to, its contingent liabilities and our interest in the
indemnification escrow fund.
Due to the possibility that the Stock Sale may have the effect
of enhancing the interest by potential acquirers of the
Commercial Business, we have prepared for either of two
potential alternatives: the continued operation of the
Commercial Business as an independent, publicly-traded company;
or a sale or other disposition of the Commercial Business.
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However, stockholders are reminded that, other than the sale
of the Government Solutions Business to Jacobs Technology
pursuant to the Stock Sale, they are not being asked to consider
or approve any strategic proposals, alternatives or transactions
at this time. In addition, stockholders are cautioned that there
can be no assurance as to whether and when any specific
transaction relating to the Commercial Business will be
authorized or consummated and that no timetable has been set for
the completion of any such transaction.
Effects of the
Stock Sale and of Not Consummating the Stock Sale
(page 102)
If the Stock Sale Proposal is approved by our stockholders and
the Stock Sale is consummated, we expect to focus our operations
and business exclusively on our Commercial Business. However,
following the Stock Sale, our ability to generate, in the
short-term, the level of total revenue and net income that we
generated prior to the Stock Sale will be reduced.
Recognizing that the revenue from the Government Solutions
Business covered a portion of TechTeams selling, general
and administrative expenses, TechTeam took action in the first
quarter of 2010 to reduce the expense structure of its
Commercial Business to become better aligned with
TechTeams expected post-closing revenue. However,
uncertainty remains regarding TechTeams future
performance, including, but not necessarily limited to:
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TechTeams ability to continue to generate new business
from new and existing customers;
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TechTeams ability to maintain existing revenue from
current customers; and
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the costs of continuing to be a public reporting company, which
will not be significantly reduced in either the short-term or
long-term.
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In addition, under the Stock Purchase Agreement, we have agreed
to indemnify Jacobs for a period of up to 36 months after
the closing of the Stock Sale for losses resulting from the
breach of our representations, warranties and covenants
contained in the Stock Purchase Agreement, and various other
specified matters. We have also agreed to indemnify Jacobs for
losses resulting from specified matters, such as for taxes,
fraud and intentional misrepresentation, for periods that
continue after the expiration of the
36-month
period described above. These indemnification obligations could
cause us to be liable to Jacobs under certain circumstances,
which could decrease the cash available for distribution to us
from the escrow account used to secure the payment of certain
indemnification claims that may be made by Jacobs during such
36-month period, as well as our general cash on hand and other
corporate assets. See The Stock Purchase
Agreement Purchase Price; Escrow.
There are also serious risks and uncertainties to both the
Government Solutions Business and the Commercial Business if the
Stock Sale Proposal is not approved by our stockholders and the
Stock Sale is therefore not consummated. These risks and
uncertainties include the following:
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the Government Solutions Business could continue to be adversely
affected by a number of unfavorable conditions in the
U.S. government information technology services market,
including a trend of the U.S. government to in-source
certain information technology services and the challenge of
competing against small disadvantaged businesses and large
contractors for the award of new business;
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the short- and long-term prospects of the Government Solutions
Business could continue to decline under the ownership of
TechTeam, and TechTeams continued ownership and management
of the Government Solutions Business could impair or otherwise
limit TechTeams ability to realize the short- and
long-term prospects of the Commercial Business;
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managements focus would be divided between two
substantially unrelated, relatively independent and
sub-scale
businesses which do not have any significant synergies between
them and require significant investment to succeed, grow and
thrive;
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given that we do not have the financial flexibility or capital
resources to appropriately invest in and grow both the
Commercial Business and the Government Solutions Business,
retaining both business segments would entail an allocation of
resources that either
sub-optimizes
one business in favor of the other, or
sub-optimizes
both businesses;
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we may not be able to fully take advantage of the opportunities
available to the Commercial Business;
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the purchase price attainable for the Government Solutions
Business in the future could be significantly less than that
proposed in the Stock Sale, if performance of the Government
Solutions Business does not improve from its performance during
the past three quarters, and thus our ability to sell the
Government Solutions Business on terms and conditions that are
attractive to us may be adversely affected;
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the other strategic alternatives available to us could be
adversely affected;
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we may have more difficulty complying with our debt covenants,
which could result in an event of default under our credit
facility; and
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there could be substantial uncertainty regarding the direction
and prospects for each of our business units.
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Use of
Proceeds of the Stock Sale (page 104)
We estimate that the net cash proceeds to be received by us from
the Stock Sale at closing will be approximately
$38.6 million, after deducting the amounts to be paid into
escrow and estimated fees and expenses payable by us related to
the Stock Sale. We intend to use the net cash proceeds from the
Stock Sale for, among other things, to pay off our current
outstanding indebtedness under our existing credit facility of
approximately $12.7 million. The net cash proceeds that we
receive from the Stock Sale would also enable our Board to
consider, from time to time, repurchasing Common Stock for cash
as market and business conditions warrant. Further, the
remaining net cash proceeds of the Stock Sale will be used for
working capital, general corporate purposes and to selectively
invest in the growth of our Commercial Business. While we may
use some of the net cash proceeds to be received by us from the
Stock Sale to pursue strategic business acquisitions related to
the growth of our Commercial Business, no specific acquisition
targets have been identified at this time. See
Post-Closing Strategies.
Appraisal
Rights (page 111)
Under Delaware law, stockholders are not entitled to any
appraisal or dissenters rights with respect to either the
Stock Sale Proposal or the Adjournment Proposal.
The Stock
Purchase Agreement
Purchase
Price; Escrow (page 114)
In exchange for the sale of all of the stock of TTGSI, we will
be paid by Jacobs a net purchase price of $59,000,000,
consisting of a base cash payment of $41,479,706 to be received
at closing, plus a cash payment of $17,520,294 to be placed in
escrow, each subject to such additions, subtractions and other
adjustments provided for by, and the other terms and provisions
set forth in, the Stock Purchase Agreement and the Escrow
Agreement. Of the $17,520,294 to be deposited into escrow,
$14,750,000 will be held in escrow to secure the payment of any
future indemnification claims that may be made by Jacobs against
us during the
36-month
period after the closing date, and $2,770,294 will be used to
secure the payment to Jacobs by us of any post-closing net
tangible book value adjustment that has the effect of reducing
the purchase price, as described below.
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Potential
Post-Closing Adjustment to the Purchase Price
(page 115)
The aggregate cash purchase price paid by Jacobs in the Stock
Sale may be adjusted based upon the difference, if any, between
the final closing net tangible book value of the Government
Solutions Business as of the close of business on the closing
date of the Stock Sale and the target net tangible book value
amount, which is $12,189,759. The net tangible book
value of the Government Solutions Business means the net
book value of the assets of the Government Solutions Business
(excluding goodwill, intangibles and intercompany balances),
minus the liabilities of the Government Solutions Business
(excluding intercompany balances), and excluding certain
deferred tax assets, deferred tax liabilities and other
specified tax liabilities.
Within 90 days after the closing date, Jacobs will prepare
an unaudited balance sheet of the Government Solutions Business
as of the closing date, including a preliminary unaudited
statement of the closing net tangible book value. The amount by
which the finally determined closing net tangible book value
exceeds $12,189,759 will be paid by Jacobs to us and, given
that, in such case, no payment will be due to Jacobs from us as
a result of the net tangible book value adjustment, the amount
held in escrow to secure such payment will be released and paid
to us. If such closing net tangible book value is less than
$12,189,759, the amount of such resulting shortfall will be paid
to Jacobs from the amount held in escrow to secure such payment
from us to Jacobs. Should the shortfall exceed the aggregate
amount so held in escrow, we have agreed to pay Jacobs the
amount of such excess.
The amount that will be held in escrow to secure any
post-closing net tangible book value purchase price adjustment
that would result in a payment from us to Jacobs will be
$2,770,294. As noted above, this amount does not represent a
maximum limit on our potential liability to Jacobs for a
post-closing net tangible book value adjustment. Due to the
uncertainty relating to the ultimate amount of the post-closing
net tangible book value adjustment, we cannot currently predict
the exact amount of the purchase price or the net cash proceeds
that we will receive in connection with the Stock Sale.
Agreements
Related to the Interim Conduct of the Government Solutions
Business (page 119)
Under the Stock Purchase Agreement, we have agreed that, except
as otherwise contemplated by the Stock Purchase Agreement and
subject to certain other exceptions, between June 3, 2010
and the closing of the Stock Sale, we will conduct the
Government Solutions Business, and will cause TTGSI to conduct
the Government Solutions Business, in the ordinary course of
business consistent, in all material respects, with past
practice and custom. During this period, subject to such
exceptions, we have also agreed to use our best efforts to
preserve intact, in all material respects, the present business
organization and assets of the Government Solutions Business.
Further, from June 3, 2010 to the closing of the Stock Sale
(or the earlier termination of the Stock Purchase Agreement), we
have agreed not to take specified actions with respect to TTGSI
and the Government Solutions Business. See The Stock
Purchase Agreement Agreements Related to the Interim
Conduct of the Government Solutions Business.
Access;
Notices of Certain Events (page 121)
Between June 3, 2010 and the closing of the Stock Sale,
subject to certain limitations and exceptions, we have agreed
to, and to cause TTGSI to, cooperate with Jacobs
reasonable requests in its investigation of TTGSI and the
Government Solutions Business, and to notify Jacobs of specified
events or circumstances promptly.
Other
Covenants and Agreements (page 122)
Escrow Agreement. We, Jacobs and JPMorgan
Chase Bank, National Association, as escrow agent, will enter
into the Escrow Agreement at the closing of the Stock Sale.
Under the terms of the Escrow Agreement, upon closing of the
Stock Sale, the escrow agent will receive from the aggregate
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amount of the purchase price, subject to the terms and
conditions of the Stock Purchase Agreement and the Escrow
Agreement:
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$14,750,000, which will be held to secure the payment of any
future indemnification claims against us by Jacobs; and
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$2,770,294, which will be held to secure any post-closing net
tangible book value purchase price adjustment that would result
in a reduction of the purchase price and a payment from us to
Jacobs.
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Amounts used to secure the payment of future indemnification
claims against us by Jacobs will be released to Jacobs as
required by the terms and conditions of the Stock Purchase
Agreement and the Escrow Agreement with respect to our
indemnification obligations. On the first business day following
the 24-month
anniversary of the closing of the Stock Sale, the escrow agent
will distribute to us an amount equal to $4,916,667, reduced by
all amounts previously paid with respect to indemnity claims and
reduced by the amount of any pending escrow claims. On the first
business day following the
36-month
anniversary of the closing, the escrow agent will distribute to
us an amount, if any, equal to the sum of the amount remaining
in such indemnification escrow fund minus the amount of all
pending escrow claims.
Amounts used to secure the payment to Jacobs by us of any
post-closing net tangible book value purchase price adjustment
will be paid upon the final determination of the net tangible
book value adjustment to the purchase price in accordance with
the Stock Purchase Agreement. See
Proposal 1 The Stock Purchase
Agreement Potential Post-Closing Adjustment to the
Purchase Price.
Non-Compete Agreement. At or prior to the
closing of the Stock Sale, we will execute a non-compete
agreement with TTGSI and Jacobs. Until the earlier of the fifth
anniversary of the closing of the Stock Sale or such time
thereafter when we may undergo a change of control, other than
the Stock Sale, we will agree not to:
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directly or indirectly participate or engage in the Government
Solutions Business or acquire, own, invest or provide credit or
other financial accommodation (other than to our customers in
the ordinary course of business) to any person (other than
Jacobs or TTGSI) that engages in the Government Solutions
Business anywhere in the United States;
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directly or indirectly solicit employees or customers of TTGSI
or the Government Solutions Business or otherwise interfere in
the relationship between TTGSI and such employees or customers
for the purpose of inducing any employee to leave the employ of
TTGSI or inducing any customer to cease doing business in whole
or in part with TTGSI;
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hire any employee formerly employed in the Government Solutions
Business within six months after the termination of such
employees employment; and
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interfere with any relationship between TTGSI and any of its
suppliers.
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The non-compete agreement further provides that, subject to
customary exceptions, we may not disclose after the closing any
confidential information relating to the Government Solutions
Business or TTGSI other than to representatives of Jacobs.
Transition Services Agreement. At or prior to the
closing of the Stock Sale, we will execute a Transition Services
Agreement with Jacobs Technology. Under the Transition Services
Agreement, we will provide certain transition services to Jacobs
Technology for no additional consideration.
Other Actions and Agreements. The parties have
agreed to use their reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable law to consummate the
Stock Sale. We have also agreed, among other things, to:
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have each officer or member of the board of directors of TTGSI
who is also an employee or officer of TechTeam resign as of the
closing date, except as otherwise requested by Jacobs;
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cause the release of all liens on the shares of TTGSI capital
stock and on the assets of TTGSI pursuant to any of our or our
affiliates indebtedness;
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have TTGSI take any actions necessary to terminate TTGSIs
401(k) plan;
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guarantee the collectability within 18 months of the
closing date of all accounts receivable of TTGSI, both billed
and unbilled, that are included in the closing net tangible book
value of TTGSI, as finally determined (net of certain allowances
and deductions); and
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pay up to $235,000 towards the procurement by Jacobs of
professional liability tail insurance and extended
reporting period/run-off coverage for employment practices
liability insurance, directors and officers
liability insurance and fiduciary liability insurance.
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Except as otherwise provided in the Stock Purchase Agreement,
Jacobs has agreed that it intends to cause TTGSI to initially
retain all employees that were employed by TTGSI as of the
closing date, including David A. Kriegman, TTGSIs
President and Chief Executive Officer. The parties also agreed
to a cross license with respect to certain know-how of TTGSI and
the Commercial Business for certain limited purposes.
Conditions to
Completion of the Stock Sale (page 130)
The parties obligations to complete the Stock Sale are
subject to the satisfaction or waiver of specified closing
conditions, which include, for example:
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the absence of any applicable law in effect which would
restrain, enjoin, prohibit or make illegal the consummation of
the Stock Sale;
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the absence of any pending or threatened proceeding (other than
one brought or threatened by Jacobs or its affiliates) which
challenges or seeks to restrain, enjoin or prohibit the Stock
Sale;
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the approval by our stockholders of the Stock Sale Proposal;
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each of our representations and warranties contained in the
Stock Purchase Agreement being true and correct in all material
respects when made and as of the closing date; and
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neither TechTeam nor Jacobs becoming aware of any
organizational conflict of interest, as defined
under the Federal Acquisition Regulations, or similar impact on
TTGSI or Jacobs, that would result from the consummation of the
Stock Sale.
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In addition, the obligations of Jacobs Technology to complete
the Stock Sale are subject to our satisfaction (or Jacobs
Technologys waiver) of specified conditions, including the
following:
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making our closing deliveries, and otherwise performing and
complying in all material respects with all of our other
covenants and obligations under the Stock Purchase Agreement;
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receiving all consents and governmental approvals to the
transaction required to be obtained under the Stock Purchase
Agreement;
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no material adverse effect having occurred with respect to the
Government Solutions Business, us or Jacobs;
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the absence of any pending or threatened proceedings which could
reasonably be expected to have a material adverse effect on us
or the Government Solutions Business or could reasonably be
expected to materially and adversely affect the Government
Solutions Business, TTGSI or Jacobs;
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the payment, satisfaction or discharge of all non-permitted
liens on the assets and properties of TTGSI;
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TTGSI not entering into teaming agreements or similar contracts
or government bids which
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Jacobs reasonably believes would materially and adversely affect
Jacobs, its affiliates or TTGSI following the consummation of
the Stock Sale; and
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retaining the employment of certain TTGSI employees identified
in the schedules to the Stock Purchase Agreement.
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Furthermore, our obligations to complete the Stock Sale are
subject to the satisfaction by Jacobs (or our waiver) of
specified conditions, including the following:
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each of Jacobs representations and warranties contained in
the Stock Purchase Agreement being true and correct as of the
closing date, except for breaches or inaccuracies that would
not, individually or in the aggregate, have a material adverse
effect with respect to Jacobs;
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Jacobs making all of its closing deliveries and performing and
complying in all material respects with each of its other
covenants and obligations under the Stock Purchase
Agreement; and
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no material adverse effect having occurred with respect to
Jacobs, us or the Government Solutions Business.
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Subsequent to the signing of the Stock Purchase Agreement, two
employees of TTGSI, who were included in the schedules to the
Stock Purchase Agreement as being among those employees of TTGSI
who needed to remain with TTGSI following the closing of the
Stock Sale, notified us that they were resigning from TTGSI to
pursue other opportunities. Accordingly, at least one of the
conditions to the obligations of Jacobs Technology to complete
the Stock Sale will not be satisfied at the closing and, in the
absence of Jacobs Technology executing a waiver of this
condition as it relates to these resignations, Jacobs Technology
has both the right not to consummate the Stock Sale and the
right, at any time, to terminate the Stock Purchase Agreement.
As of the date of this Proxy Statement, while we have requested
such a waiver from Jacobs Technology, no such waiver has been
granted and no assurances can be given as to whether Jacobs
Technology will ultimately agree to waive this condition.
Indemnification;
Survival of Indemnification Obligations
(page 133)
After the closing of the Stock Sale, we have agreed to indemnify
and hold Jacobs, its affiliates, and each of their respective
officers, directors, stockholders, employees and agents,
harmless from losses or claims arising out of, among other
things:
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any breach of a representation or warranty in the Stock Purchase
Agreement by us;
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any breach or non-fulfillment by us of any covenant or
undertaking contained in the Stock Purchase Agreement or any
ancillary document;
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any third party claim arising out of, connected with or related
to any act, error, omission or conduct of the Government
Solutions Business prior to the closing of the Stock Sale,
except as included in the closing date balance sheet;
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any claim arising out of, connected with or related to TTGSI
violating or not complying with the provisions of any applicable
law prior to the closing;
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any liability for any taxes owed by TTGSI for periods prior to
the closing;
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any failure by Jacobs to collect any accounts receivable of
TTGSI for which TechTeam has guaranteed collectability under the
Stock Purchase Agreement; and
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any claim arising out of, connected with, incident or relating
to our annual incentive plan or TTGSIs government
incentive plan.
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Subject to certain exceptions set forth in the Stock Purchase
Agreement, our indemnity obligations have certain limitations,
including:
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a $25,000 individual claim threshold;
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a $250,000 aggregate claims threshold;
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a maximum liability of $14,750,000 for certain claims for
indemnification for the first 24 months after the closing
date and $9,833,333 for the period beginning on the first day of
the 25th month and ending on the last day of the
36th month after the closing (less the amount of claims in
excess of $4,916,667 applied against the foregoing cap within
the first 24 months after the closing); and
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a maximum liability for all indemnification claims equal to the
purchase price, as adjusted pursuant to the Stock Purchase
Agreement; and
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that our indemnification obligations are Jacobs sole
remedy for any claims relating to breaches of representations,
warranties, covenants and undertakings contained in the Stock
Purchase Agreement.
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Also, Jacobs has agreed to indemnify us for losses arising out
of, among other things, any breach of any representation or
warranty of Jacobs in the Stock Purchase Agreement, any breach
or non-fulfillment of any covenant or undertaking of Jacobs in
the Stock Purchase Agreement or in any related agreement, and
the operation of TTGSI after the closing date.
Termination of
the Stock Purchase Agreement; Termination Fee and Reimbursement
of Expenses (pages 135, 139)
We and Jacobs may by mutual written consent terminate the Stock
Purchase Agreement at any time prior to the closing date of the
Stock Sale. In addition, upon providing written notice, the
Stock Purchase Agreement may be terminated:
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by us or Jacobs, if the Stock Sale has not been completed on or
before October 1, 2010, unless the failure of the closing
to have occurred by that date is attributable to a failure by
such party to act as required under the Stock Purchase Agreement;
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by us or Jacobs, if a governmental authority has permanently
restrained, enjoined or prohibited the Stock Sale and such order
was not primarily due to a failure by such party to act as
required under the Stock Purchase Agreement;
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by us or Jacobs, if any closing condition cannot be satisfied,
which was not due to such partys failure to do so;
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by Jacobs, if a material adverse effect has occurred with
respect to the Government Solutions Business or any event or
circumstance has occurred which could reasonably be expected to
have a material adverse effect with respect to the Government
Solutions Business or TechTeam;
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by us, if a material adverse effect has occurred with respect to
Jacobs, TechTeam or the Government Solutions Business or any
event or circumstance has occurred which could reasonably be
expected to have a material adverse effect with respect to
Jacobs, TechTeam or the Government Solutions Business;
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by Jacobs, in the event:
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of certain breaches of our representations, warranties or
covenants such that the closing condition with respect thereto
would not be satisfied;
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that TTGSI enters into certain types of contracts that
impermissibly restrict TTGSIs ability to compete, and
which Jacobs reasonably believes would materially and adversely
affect it or TTGSI after the closing; or
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that any proceeding is initiated, threatened or pending which
could reasonably be expected to materially and adversely affect
the Government Solutions Business, TTGSI or Jacobs (including,
without limitation, any such proceeding relating to any alleged
violation of, or non compliance with, any applicable law or any
allegation of fraud or intentional misrepresentation); or
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by us, in the event of:
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certain breaches of Jacobs representations, warranties or
covenants such that the closing condition with respect thereto
would not be satisfied; and
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any of our representations and warranties becoming inaccurate
after June 3, 2010 such that the closing condition with
respect thereto would not be satisfied.
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Moreover, the Stock Purchase Agreement may be terminated by us
or Jacobs, upon providing written notice, if we hold the Special
Meeting and our stockholders vote on the Stock Sale Proposal but
do not approve it. However, under such circumstances we would be
required to pay Jacobs up to $750,000 of all reasonable
documented
out-of-pocket
fees and expenses that have been paid or that may become payable
by Jacobs or on its behalf in connection with the preparation
and negotiation of the Stock Purchase Agreement and in
connection with the Stock Sale.
The Stock Purchase Agreement may also be terminated under the
following circumstances, subject to us paying Jacobs a
termination fee of $2,360,000, in addition to the reimbursement
of Jacobs expenses as described above:
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by us, subject to certain conditions set forth in the Stock
Purchase Agreement, immediately prior to entering into a
definitive agreement with respect to a superior proposal;
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by Jacobs if any of the following triggering events have
occurred:
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our Board fails to recommend that our stockholders vote to
approve the Stock Sale Proposal;
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our Board withdraws or modifies its recommendation as to the
Stock Sale Proposal in a manner adverse to Jacobs;
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our Board or any of our directors takes any other action that is
or becomes disclosed publicly or to a third party and which can
reasonably be interpreted to indicate that our Board or the
director does not support the Stock Sale or that the Stock Sale
is not in the best interests of our stockholders;
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we fail to hold the Special Meeting in accordance with the Stock
Purchase Agreement;
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our Board fails to reaffirm, unanimously and without
qualification, its recommendation as to the Stock Sale Proposal
when requested by Jacobs;
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our Board has approved, endorsed or recommended a competing
transaction proposal;
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we, TTGSI or any of our or its representatives fail to comply
with our or its obligations regarding competing transaction
proposals;
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a tender or exchange offer relating to our securities has been
commenced, which tender or exchange offer contemplates that
TTGSI or the Government Solutions Business shall remain with us
or be sold to another person other than Jacobs as a part
thereof, and we have not have sent to our stockholders, within
ten business days after the commencement
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of such tender or exchange offer, a statement disclosing that
our Board recommends rejection of such tender or exchange offer;
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we have entered into a letter of intent, memorandum of
understanding, term sheet, agreement in principle, merger
agreement, asset or stock purchase agreement, option agreement,
share exchange agreement, or other similar agreement related to
any competing transaction proposal or our Board resolves or
agrees to take any such action;
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a competing transaction proposal is publicly announced, and we
fail to issue a press release announcing our opposition to such
competing transaction proposal within five business days after
such proposal is announced; or
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by us as a result of any of our representations and warranties
becoming inaccurate as of a date subsequent to June 3, 2010
(as if made on such subsequent date) such that the closing
condition with respect thereto would not be satisfied, and we
enter into a definitive agreement with respect to a superior
proposal on or before October 1, 2010;
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by us, if a material adverse effect has occurred with respect to
us or the Government Solutions Business, or if any event or
circumstance has occurred which could reasonably be expected to
have a material adverse effect with respect to us or the
Government Solutions Business, and we enter into a definitive
agreement with respect to a Superior Proposal on or before
October 1, 2010; or
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if the closing of the Stock Sale does not occur on or before
October 1, 2010 for any reason, in each case concurrently
with or following the occurrence of a change of control of
TechTeam (as defined in the Stock Purchase Agreement), except in
cases where the Stock Purchase Agreement is terminated or the
closing of the Stock Sale does not occur as a result of a
failure on the part of Jacobs to perform a material obligation
to be performed by Jacobs at or prior to the closing of the
Stock Sale.
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Subsequent to the signing of the Stock Purchase Agreement, two
employees of TTGSI, who were included in the schedules to the
Stock Purchase Agreement as being among those employees of TTGSI
who needed to remain with TTGSI following the closing of the
Stock Sale, notified us that they were resigning from TTGSI to
pursue other opportunities. Accordingly, at least one of the
conditions to the obligations of Jacobs Technology to complete
the Stock Sale will not be satisfied at the Closing and, in the
absence of Jacobs Technology executing a waiver of this
condition as it relates to these resignations, Jacobs Technology
has both the right not to consummate the Stock Sale and the
right, at any time, to terminate the Stock Purchase Agreement.
As of the date of this Proxy Statement, while we have requested
such a waiver from Jacobs Technology, no such waiver has been
granted and no assurances can be given as to whether Jacobs
Technology will ultimately agree to waive this condition.
Material
U.S. Federal Income Tax Consequences
(page 111)
The sale of the stock of TechTeam Government Solutions, Inc. to
Jacobs Technology will be a taxable transaction for us. We will
realize gain or loss measured by the difference between the
proceeds received by us on such sale and our tax basis in such
stock. For purposes of calculating gain, the proceeds received
by us will include the cash and any other consideration we
receive in the transaction.
The sale of the stock of TechTeam Government Solutions, Inc.
will not result in any direct U.S. federal income tax
consequences to our stockholders. For a more detailed
explanation of the U.S. federal income tax consequences of
the sale, see Material U.S. Federal Income Tax
Consequences.
Tax matters are complex, and the tax consequences of the
Stock Sale and their effect on you will depend on the facts of
your particular situation. You are urged to consult with your
own tax advisor with respect to your own individual tax
consequences.
13
Regulatory
Matters (page 112)
Under the Federal Acquisition Regulations, there may be issues
related to the change in ownership of a contractor that
appropriately should be addressed in a formal agreement between
the contractor and the U.S. government, such as when a
contractor asks the U.S. government to recognize a
successor in interest. Under those circumstances, additional
notifications and U.S. government consents would be
necessary.
TTGSI maintains a Top Secret facility clearance that permits it
to maintain personnel security clearances needed to perform
contracts requiring personnel to access classified information
or facilities. TTGSI is required to report to the
U.S. Department of Defenses Defense Security Service
any change of ownership, including stock transfers that affect
control of TTGSI. TTGSI must also disclose any change to the
information previously submitted for key management personnel
including, as appropriate, the names of the individuals it is
replacing.
Security
Ownership of Certain Beneficial Owners and Management
(page 142)
As of July 1, 2010, our directors and executive officers
beneficially owned 3,119,915 shares of Common Stock
representing approximately 27.9% of the outstanding Common
Stock. We believe that each of our directors and executive
officers will vote FOR the approval of
the Stock Sale Proposal and FOR
approval of the Adjournment Proposal.
Voting Agreements
(page 123)
In order to induce Jacobs to enter into the Stock Purchase
Agreement, Costa Brava Partnership III L.P. and
Emancipation Capital, LLC, which beneficially own in the
aggregate approximately 18.3% of our outstanding Common Stock,
have entered into separate voting agreements with Jacobs. Under
these voting agreements, each of these stockholders has agreed
to, among other things, vote our Common Stock held by them
FOR the Stock Sale Proposal. They have
also agreed to vote their shares against the approval of a
competing transaction proposal or any proposal made in
opposition to or in competition with the Stock Sale, and against
any actions intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, discourage or adversely
affect the Stock Sale. Costa Brava Partnership III L.P. is
an affiliate of Seth W. Hamot, a member of our Board.
Emancipation Capital, LLC is an affiliate of Charles Frumberg, a
member of our Board. See The Stock Purchase
Agreements Other Covenants and
Agreements Voting Agreements.
Interests of
Certain Persons in the Stock Sale (page 104)
In considering the recommendation of our Board that you should
vote FOR the approval of the Stock
Sale Proposal, you should be aware that some of our directors
and executive officers have personal interests in the Stock Sale
that are, or may be, different from, or in addition to, your
interests. These interests, to the extent material, are
described in Proposal 1 Interests of
Certain Persons in the Stock Sale. Our Board was aware of
such interests and considered them, among other matters, in
evaluating the Stock Purchase Agreement and the Stock Sale.
The following table summarizes the total quantifiable severance
benefits and other amounts that would be payable to each
executive officer in accordance with the terms of change of
control agreements we have entered into with each executive
officer. The table assumes that the termination of the executive
officers employment occurred effective as of July 1,
2010, the hypothetical consummation date of the Stock Sale. We
have presented this table for illustrative purposes only as if
the Stock Sale would constitute a change of control,
a sale of all or substantially all of the assets or
a sale of the majority of the assets with respect to
TechTeam or TTGSI (or events of similar nature), as defined
under the applicable change of control agreement. However, our
Board has not made any such specific determination or finding
with respect to TechTeam and has not otherwise concluded that
the Stock Sale would, if coupled with a termination of the
executive officers employment without cause or a
termination of employment by the
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executive officer for good reason, constitute an event that
would trigger a severance payment with respect to TechTeam under
any of these agreements.
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Aggregate Amount That
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Could Be Received Under
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Applicable Change of
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Executive Officer
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Control Agreements
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Kevin P. Burke
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$
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572,116
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Gary J. Cotshott
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610,365
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Christopher E. Donohue
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597,864
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David A. Kriegman
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619,247
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Margaret M. Loebl
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685,736
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Armin Pressler
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321,547
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Michael A. Sosin
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392,448
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Furthermore, TTGSI has entered into a two-year employment
agreement with Mr. Kriegman, at a base salary of $300,000
per year, which will take effect upon the completion of the
Stock Sale. Pursuant to this employment agreement,
Mr. Kriegman would be entitled to receive a $300,000
retention payment to be made by Jacobs after the closing, if he
remains employed by TTGSI or Jacobs Technology, or one of their
affiliates, for two years.
15
QUESTIONS AND
ANSWERS ABOUT THE SPECIAL MEETING AND THE STOCK SALE
The following questions and answers briefly address some
commonly asked questions about the Special Meeting and the Stock
Sale. These questions and answers may not address all questions
that may be important to you as a stockholder. You should still
carefully read this entire Proxy Statement, including each of
the exhibits hereto.
This Proxy Statement is being furnished to the holders of our
Common Stock in connection with our solicitation of proxies for
use at the Special Meeting.
The Special
Meeting
Why am I
receiving these materials?
We sent you this Proxy Statement because you held shares of our
Common Stock as of July 30, 2010, the record date for the
Special Meeting, and our Board is soliciting your proxy to vote
at the Special Meeting. This Proxy Statement summarizes the
information you need to vote at the Special Meeting. You do not
need to attend the Special Meeting to vote your shares. This
Proxy Statement and the accompanying proxy card are being made
available to stockholders beginning on or about August 3,
2010. Please read this entire Proxy Statement, including each of
the exhibits to the Proxy Statement, as it contains important
information you need to know to vote at the Special Meeting.
When and where
will the Special Meeting be held?
The Special Meeting will be held at 10:00 a.m., local time,
on Tuesday, August 31, 2010, at The Langham Hotel, 250
Franklin Street, Boston, Massachusetts 02110.
What proposals
will be voted on at the Special Meeting?
Our stockholders will be asked to:
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adopt and approve the Stock Purchase Agreement and the
consummation of the Stock Sale pursuant to the Stock Purchase
Agreement (the Stock Sale Proposal);
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approve one or more adjournments of the Special Meeting, if
necessary, to facilitate the approval of the Stock Sale
Proposal, including to permit the solicitation of additional
proxies if there are not sufficient votes at the time of the
Special Meeting to approve the Stock Sale Proposal (the
Adjournment Proposal); and
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transact such other business as may properly come before the
Special Meeting.
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All holders of our Common Stock as of the close of business on
July 30, 2010, the record date for the Special Meeting,
will be eligible to vote on all matters submitted to a vote of
stockholders at the Special Meeting.
May I attend
the Special Meeting?
All stockholders and properly appointed proxy holders may attend
the Special Meeting. Stockholders who plan to attend the meeting
must present valid photo identification. If you hold your shares
through a broker, bank, fiduciary, agent, custodian or other
nominee, you should also bring proof of your share ownership,
such as a brokers statement showing that you owned shares
of Common Stock on the record date, or a legal proxy from the
nominee. A properly completed, executed and dated legal proxy is
also required if you hold your shares through a nominee and you
plan to vote in person at the Special Meeting. Stockholders of
record will be verified against an official list available at
the Special Meeting. We reserve the right to deny admittance to
anyone who cannot adequately show proof of ownership of our
Common Stock as of the record date. No cameras, recording
equipment, large bags, briefcases or packages will be permitted
into the Special Meeting.
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What is a
proxy?
A proxy is your legal designation of another person, called a
proxy, to vote your shares on your behalf. By properly signing
and returning the enclosed proxy or voting instruction card or
by voting by the Internet or telephone, you are giving the
persons who our Board of Directors has designated as the proxies
the authority to vote your shares in the manner that you
indicate on your proxy card. Our Board has designated Gary J.
Cotshott and Margaret M. Loebl to serve as the proxies for the
Special Meeting.
Who is
entitled to vote at the Special Meeting?
Only stockholders of record, as shown on the transfer books of
the Company, holding Common Stock at the close of business on
the record date will be entitled to notice of, and to vote at,
the Special Meeting. On the record date, there were
11,264,427 shares of Common Stock outstanding. The Common
Stock is the only outstanding class of capital stock of the
Company with voting rights. A stockholder is entitled to cast
one vote for each share of Common Stock held of record on the
record date on all matters to be considered at the Special
Meeting.
How does the
Board recommend that I vote on the proposals?
Our Board unanimously recommends that you vote your shares:
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FOR the approval of the Stock
Sale Proposal; and
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FOR the approval of the
Adjournment Proposal.
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All proxies that are properly signed and returned to the Company
prior to the Special Meeting or timely voted by the Internet or
telephone, and which have not been revoked, will, unless
otherwise directed by the stockholder, be voted in accordance
with the recommendations of our Board set forth in this Proxy
Statement.
How many votes
must be present to hold the Special Meeting?
A quorum is the number of shares of Common Stock
that must be present, in-person or by proxy, in order for
business to be transacted at the Special Meeting. The required
quorum for the Special Meeting is a majority of the shares of
Common Stock outstanding and entitled to vote at the Special
Meeting. All stockholders present in person or represented by
completed and signed proxy cards, Internet votes and telephone
votes, whether representing a vote
FOR,
AGAINST, abstained, or a broker
non-vote (if any), will be counted toward the presence of a
quorum.
How do I vote
my shares?
If your Common Stock is registered in your name, you are
considered to be a record owner. All record owners may vote by
the Internet, telephone, mail or in person at the Special
Meeting, in accordance with the instructions provided in this
Proxy Statement for voting by record owners. The deadline for
stockholders of record to vote by telephone or electronically
through the Internet is 11:59 p.m., Eastern Daylight Time,
on August 30, 2010.
If your shares are held in street name, you will need to
instruct the nominee as to how to vote your shares. You should
have received information from the nominee with this Proxy
Statement as to how to transmit your voting instructions. Under
applicable rules, a broker with respect to shares held in street
name may not be permitted to cast votes on any of the proposals
to be brought at the Special Meeting unless the broker has
timely received your voting instructions.
Whether or not you plan to attend the Special Meeting, we urge
you to vote promptly using one of the methods described above to
ensure your vote is received and counted. If you vote by
telephone or electronically through the Internet, you do not
need to return your proxy or voting instruction card.
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How do I vote
if I hold Common Stock in my TechTeam 401(k)
account?
If you are a TechTeam employee who is a stockholder through
TechTeams Retirement Savings Plan (the Plan),
you will receive a form of proxy with respect to all of your
shares so registered. You have the right to direct the Trustee
of the Plan how to vote the shares allocated to your account. If
no instructions are given, your shares will not be voted.
If I give a
proxy, how will my shares be voted?
Proxy cards received by us before the Special Meeting will be
voted at the Special Meeting in accordance with the instructions
contained on the proxy card. The proxy card provides a way for
you to direct how your shares will be voted. If the Special
Meeting is postponed, adjourned or rescheduled, a
stockholders proxy will remain valid and may be voted at
the postponed, adjourned or rescheduled meeting. A stockholder
still will be able to revoke the stockholders proxy until
it is voted.
What if I
submit a signed proxy card but I do not specify how I want my
shares voted?
If you submit a signed proxy card or vote by the Internet or
telephone, but do not indicate how you want your shares voted,
the persons named in the enclosed proxy will vote your shares of
Common Stock FOR the approval of the
Stock Sale Proposal and FOR the
approval of the Adjournment Proposal in accordance with the
recommendation of our Board.
If I own
shares through a broker in street name, will my
shares be voted if I do not provide instructions to my
broker?
No. Generally, brokers will not have the authority to vote your
shares with respect to the Stock Sale Proposal or the
Adjournment Proposal without your instruction.
What vote is
required to approve each proposal?
Our Board has not made any determination as to whether
stockholder approval of the Stock Sale Proposal is required by
applicable Delaware law, and such approval is not required by
our Certificate of Incorporation, as amended, our Amended and
Restated Bylaws or other governing documents. However, the
parties to the Stock Purchase Agreement have agreed that, as a
condition to the consummation of the Stock Sale, our
stockholders must approve the Stock Sale Proposal to the same
extent as if stockholder approval of the Stock Sale Proposal was
required by applicable Delaware law.
Pursuant to the terms of the Stock Purchase Agreement, the
approval of the Stock Sale Proposal requires the affirmative
vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon at the Special Meeting.
The approval of the Adjournment Proposal will require the
affirmative vote of the holders of a majority of shares of the
Common Stock present, in person or represented by proxy, at the
Special Meeting and entitled to vote on the matter.
As of the date of this Proxy Statement, the beneficial owners of
approximately 18.3% of the outstanding Common Stock have agreed
to vote FOR the approval of the Stock
Sale Proposal, subject to the terms and conditions of a Voting
Agreement entered into between each such holder and Jacobs.
Under applicable Delaware law, in determining whether the
proposals have received the requisite number of affirmative
votes, abstentions on either of these proposals will be
considered present at the Special Meeting and will have the same
effect as a vote AGAINST these
proposals. Broker non-votes (if any) will be considered present
at the Special Meeting. As to the approval of the Stock Sale
Proposal, a broker non-vote will have the same effect as a vote
AGAINST the proposal. As to the
Adjournment Proposal, a broker non-vote will be disregarded and
will have no effect on the outcome of the vote.
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Can I revoke
my proxy or change my vote?
Yes, the proxy is revocable. After voting, you may change your
vote one or more times by completing and returning a new proxy
card to the Company, by delivering to our Corporate Secretary a
written instrument revoking the proxy or by voting in person at
the Special Meeting. If you are permitted to vote by the
Internet or telephone, as described below, you may also change
your vote electronically by the Internet or telephone by
following the procedures used to submit your initial vote. The
last vote received chronologically will supersede any prior
votes. You may request a new proxy card from the Companys
Corporate Secretary.
You may revoke a proxy before its exercise by filing a written
notice of revocation with the Companys Corporate Secretary
at 27335 West 11 Mile Road, Southfield, Michigan 48033
before the Special Meeting. If your shares are held in street
name, the above-described options for revoking your proxy do not
apply and instead you must follow the instructions of your
nominee to revoke a previously given proxy.
What if other
matters are presented for my consideration at the Special
Meeting?
As of the date of this Proxy Statement, we know of no matters
that will be presented for determination at the Special Meeting
other than the Stock Sale Proposal and the Adjournment Proposal.
If any other matters properly come before the Special Meeting
calling for a vote of stockholders, proxies returned to us or
voted by telephone or through the Internet will be voted in
accordance with the recommendation of our Board or, in the
absence of such recommendation, in the discretion of the proxy
holders. The designated proxy holders are Gary J. Cotshott and
Margaret M. Loebl.
What does it
mean if I receive more than one proxy or voting instruction
card?
If your shares are registered differently or you hold your
shares in more than one account, you will receive a proxy or
voting instruction card for each account. To ensure that all of
your shares are voted, please use all the proxy and voting
instruction cards you receive to vote your shares by the
Internet or telephone and complete, sign, date and return a
proxy or voting instruction card for each account.
Who will
solicit proxies on behalf of the Board?
Proxies may be solicited on behalf of our Board, without
additional compensation, by members of our Board, certain of our
executive officers and certain other employees. The original
solicitation of proxies by mail may be supplemented by
telephone, fax, Internet and personal solicitation by our
directors, officers or other regular employees. We may also
solicit stockholders through press releases, advertisements in
periodicals and postings on our website. Brokers, banks,
fiduciaries, agents, custodians and other nominees have been
requested to forward soliciting material to the beneficial
owners of Common Stock held of record by them, and we will
reimburse such persons for their reasonable expenses incurred in
doing so.
We have retained The Altman Group to solicit proxies on our
Boards behalf. We estimate that The Altman Group will
receive fees of approximately $9,500, plus reasonable
out-of-pocket
expenses incurred on our behalf, to assist in the solicitation
of proxies. The Altman Group has advised the Company that
approximately 15 of its employees will be involved in the
solicitation of proxies by it on our behalf. In addition, The
Altman Group and certain related persons will be held harmless
and indemnified against certain liabilities arising out of or in
connection with the engagement.
Who will bear
the cost of the solicitation of proxies?
The entire cost of soliciting proxies, including the costs of
preparing, assembling, printing and mailing this Proxy Statement
and the proxy card and any additional soliciting materials
furnished to stockholders, will be borne by the Company. If
asked, we will reimburse brokers, nominees, fiduciaries and
19
other custodians holding shares in their names for the
reasonable expenses they incur in forwarding solicitation
materials to beneficial owners.
Do the
stockholders have any appraisal or dissenters rights with
regard to the Stock Sale Proposal?
No. Under Delaware law, stockholders are not entitled to
appraisal or dissenters rights with respect to the Stock
Sale Proposal.
What happens
if the Special Meeting is adjourned?
If it is necessary to adjourn the Special Meeting to a later
date or time, no notice of the adjourned meeting is required to
be given to stockholders, other than an announcement at the
Special Meeting of the time and place to which the Special
Meeting is adjourned, so long as the meeting is adjourned for
30 days or less and no new record date is fixed for the
adjourned meeting. Unless the polls have closed, your proxy will
still be in effect and may be voted at any reconvened Special
Meeting. You will still be able to change or revoke your proxy
with respect to any item until the polls have closed for voting
on such item.
How can I
access this Proxy Statement and the related materials
electronically?
You can access a copy of this Proxy Statement and the related
materials through
http://www.proxyvote.com,
through our web site, at
http://www.techteam.com/investors,
or through the SECs web site, at
http://www.sec.gov.
Unless expressly indicated otherwise, information contained on
our website is not part of this Proxy Statement. In addition,
none of the information on the other websites listed in this
Proxy Statement is part of this Proxy Statement. These website
addresses are intended to be inactive textual references only.
How can I
obtain additional copies of these materials?
Stockholders who wish to receive, free of charge, a separate
written copy of this Proxy Statement should submit a written
request to TechTeam Global, Inc., Attention: Investor Relations,
27335 West 11 Mile Road, Southfield, Michigan 48033; by
calling
(248) 357-2866;
or by visiting our Web site at
http://www.techteam.com/investors.
Please note that you may incur long-distance telephone charges
in placing a telephonic request.
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. These reports, statements
and other information are available to the public on the
Internet at the SECs website at
http://www.sec.gov
or at its Public Reference Room, located at
100 F Street, N.E., Washington, D.C. 20549. The
Companys filings with the SEC are also available free of
charge at
http://www.techteam.com/investors.
Stockholders may also obtain separate written copies of this
Proxy Statement, free of charge, by contacting The Altman Group,
the firm assisting us in the solicitation of proxies, toll-free
at
(877) 283-0320.
Banks and brokerage firms can call collect at
(201) 806-7300.
The Stock
Sale
What is the
proposed transaction?
If our stockholders approve the Stock Sale Proposal and the
other conditions to the closing of the Stock Sale are satisfied
or waived, Jacobs will purchase from us all of the outstanding
shares of capital stock of TTGSI for a net purchase price of
$59,000,000, consisting of a base cash payment of $41,479,706 to
be received at closing, plus a cash payment of $17,520,294 to be
placed into escrow, each subject to such additions, subtractions
and other adjustments provided for by, and the other terms and
provisions set forth in, the Stock Purchase Agreement and the
Escrow Agreement.
Of this amount deposited into escrow, $14,750,000 will be held
in escrow to secure the payment by us to Jacobs of any
indemnification claims that may be made by Jacobs during the
36-month
period after
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the closing date, subject to the limitations and exclusions
contained in the Stock Purchase Agreement. In addition,
$2,770,294 will be placed in escrow to secure the payment by us
to Jacobs of any post-closing net tangible book value adjustment
that results in a reduction in the purchase price. All amounts
deposited into escrow shall be held, invested and distributed
only as provided in the Escrow Agreement.
Why are we
asking for a stockholder vote?
Our Board has not made any determination as to whether
stockholder approval of the Stock Sale Proposal is required by
applicable Delaware law, and such approval is not required by
our Certificate of Incorporation, as amended, our Amended and
Restated Bylaws, or other governing documents. However, the
parties to the Stock Purchase Agreement have agreed that, as a
condition to the consummation of the Stock Sale, the Stock Sale
Proposal must be approved by our stockholders.
What is the
purpose of the Stock Sale?
The purpose of the Stock Sale is to separate the Government
Solutions Business from the Commercial Business, realize the
maximum value of the Government Solutions Business and thereby
enable us to focus our resources on the Commercial Business. The
Stock Sale, if approved by our stockholders and consummated,
would result in the Government Solutions Business being sold to
Jacobs Technology.
What are the
estimated net cash proceeds from the Stock Sale?
Jacobs Technology will purchase from us all of the outstanding
shares of capital stock of TTGSI for a net purchase price of
$59,000,000, consisting of a base cash payment of $41,479,706 to
be received at closing, plus a cash payment of $17,520,294 to be
placed into escrow, each subject to such additions, subtractions
and other adjustments provided for by, and the other terms and
provisions set forth in, the Stock Purchase Agreement and the
Escrow Agreement. Of this amount deposited into escrow,
$14,750,000 will be held in escrow to secure any indemnification
claims that may be made by Jacobs during the
36-month
period after the closing date, subject to the limitations and
exclusions contained in the Stock Purchase Agreement. Moreover,
$2,770,294 will be held in escrow to secure any post-closing net
tangible book value adjustment to the purchase price.
Consequently, we estimate that the net proceeds to be received
by us from the Stock Sale at closing will be approximately
$38.6 million, after deducting the amounts to be paid into
escrow and estimated fees and expenses payable by us related to
the Stock Sale. Costs and expenses directly attributable to the
Stock Sale are estimated to be approximately $3.9 million.
The actual amount of net cash proceeds from the Stock Sale will
vary from this estimate. See
Proposal 1 Use of Proceeds of the
Stock Sale.
How does the
Company plan to use the net cash proceeds from the Stock
Sale?
We intend to use the net proceeds from the Stock Sale for, among
other things, to pay off our current outstanding indebtedness
under our existing credit facility of approximately
$12.7 million. Further, the remaining net proceeds of the
Stock Sale will be used for working capital, general corporate
purposes and to selectively invest in the growth of our
Commercial Business. While we may use some of the net proceeds
received by us from the Stock Sale to pursue strategic business
acquisitions related to the growth of our Commercial Business,
no specific acquisition targets have been identified at this
time. See Proposal 1 Post-Closing
Strategies.
Will any of
the net proceeds from the Stock Sale be distributed to me as a
stockholder?
No. Currently, we do not intend to distribute any portion of the
net cash proceeds received by us from the Stock Sale to our
stockholders.
What will
happen if the Stock Sale Proposal is approved?
If our stockholders approve the Stock Sale Proposal, we
anticipate that we will consummate the Stock Sale promptly
following the Special Meeting and the satisfaction or waiver of
all other conditions to the Stock Sale set forth in the Stock
Purchase Agreement.
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What will
happen if the Stock Sale Proposal is not approved?
If our stockholders do not approve the Stock Sale Proposal, we
will not be able to satisfy one of the conditions to
Jacobs obligation to consummate the Stock Sale.
Additionally, failure to obtain such stockholder approval could
result in a termination of the Stock Purchase Agreement, which
would require us to reimburse Jacobs for up to $750,000 of
reasonable and documented
out-of-pocket
fees and expenses paid or payable by Jacobs in connection with
the Stock Purchase Agreement and the Stock Sale.
There are also serious risks and uncertainties to both the
Government Solutions Business and the Commercial Business if the
Stock Sale Proposal is not approved by our stockholders and the
Stock Sale is therefore not consummated. See
Proposal 1 Effects of the Stock Sale
and of Not Consummating the Stock Sale.
What are the
material U.S. federal income tax consequences of the Stock
Sale?
The sale of the stock of TechTeam Government Solutions, Inc. to
Jacobs Technology will be a taxable transaction for us. We will
realize gain or loss measured by the difference between the
proceeds received by us on such sale and our tax basis in such
stock. For purposes of calculating gain, the proceeds received
by us will include the cash and any other consideration we
receive in the transaction.
The sale of the stock of TechTeam Government Solutions, Inc.
will not result in any direct federal income tax consequences to
our stockholders. For a more detailed explanation of the
U.S. federal income tax consequences of the sale, see
Proposal 1 Material
U.S. Federal Income Tax Consequences.
Will I retain
my stock certificates?
Yes. The Stock Sale does not affect any of your rights as a
stockholder of the Company, and you are not being asked to
tender or submit your stock certificates to us as part of the
Stock Sale. As of the closing of the Stock Sale, the Common
Stock will continue to remain quoted on the NASDAQ Global Market
under the ticker symbol TEAM and TechTeam will
continue to be required to file annual, quarterly and current
reports with the SEC.
Who can help
answer additional questions?
If you have additional questions about the Special Meeting or
the Stock Sale or require assistance in submitting your proxy,
you should contact us, as follows:
TechTeam Global, Inc.
Attention: Investor Relations
27335 West 11 Mile Road
Southfield, Michigan 48033
Telephone:
(248) 357-2866
or
The Altman Group, Inc.
1200 Wall Street West
Lyndhurst, New Jersey 07071
Stockholders Call Toll-Free:
(877) 283-0320
Banks and Brokerage Firms Call Collect:
(201) 806-7300
Your vote is important, regardless of how many or how few
shares you own. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the enclosed proxy or
voting instruction card and return it in the enclosed
postage-paid envelope today or vote by the Internet or
telephone.
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THE SPECIAL
MEETING
Date, Time and
Place of the Special Meeting
The Special Meeting will be held at The Langham Hotel, 250
Franklin Street, Boston, Massachusetts 02110, at 10:00 a.m.
(local time) on Tuesday, August 31, 2010. The approximate
date of which this Proxy Statement and the enclosed proxy card
will first be sent to stockholders of record is August 3,
2010.
Purpose of the
Special Meeting
At the Special Meeting, we will ask our stockholders to consider
and approve the Stock Sale Proposal. You will also be asked to
approve a proposal to adjourn the Special Meeting from time to
time, if necessary, to facilitate the approval of the Stock Sale
Proposal, including to permit the solicitation of additional
proxies if there are not sufficient votes at the time of the
Special Meeting to approve the Stock Sale Proposal.
After careful consideration, our Board has unanimously
determined that the Stock Sale is expedient and in the best
interests of TechTeam and our stockholders and has unanimously
approved the Stock Purchase Agreement and the Stock Sale. Our
Board unanimously recommends that you vote
FOR the approval of the Stock Sale
Proposal and FOR the approval of
the Adjournment Proposal.
You are urged to review carefully the information contained in
the enclosed Proxy Statement prior to deciding how to vote your
shares at the Special Meeting.
Record Date,
Voting and Quorum
Only stockholders of record, as shown on the transfer books of
the Company, holding Common Stock as of the close of business on
July 30, 2010 will be entitled to receive notice of and to
vote at the Special Meeting. On the record date, there were
11,264,427 shares of outstanding Common Stock entitled to
vote. Each holder of record of Common Stock on the record date
is entitled to cast one vote per share.
There must be a quorum present for the Special Meeting to be
held. The required quorum for the Special Meeting is a majority
of the shares of Common Stock outstanding and entitled to vote
at the Special Meeting. All stockholders present in person or
represented by completed and signed proxy cards, Internet votes
and telephone votes, whether representing a vote
FOR,
AGAINST, abstained or a broker
non-vote, will be counted toward the presence of a quorum. Once
a share is represented for any purpose at the Special Meeting,
it will be deemed present for quorum purposes for the remainder
of the meeting (including any meeting resulting from an
adjournment, postponement, continuation or rescheduling of the
Special Meeting, unless a new record date is set).
Attendance at the
Special Meeting
All stockholders and properly appointed proxy holders may attend
the Special Meeting. Stockholders who plan to attend the meeting
must present valid photo identification. If you hold your shares
in street name through a broker, bank, fiduciary,
agent, custodian or other nominee, please also bring proof of
your share ownership, such as a brokers statement showing
that you owned shares of the Company on the record date, or a
legal proxy from your nominee. A legal proxy will also be
required if you hold your shares through a nominee and you plan
to vote in person at the Special Meeting. Stockholders of record
will be verified against an official list available at the
Special Meeting. The Company reserves the right to deny
admittance to anyone who cannot adequately show proof of share
ownership as of the record date. No cameras, recording
equipment, large bags, briefcases or packages will be permitted
into the Special Meeting.
Required
Vote
Our Board has not made any determination as to whether
stockholder approval of the Stock Sale Proposal is required by
applicable Delaware law, and such approval is not required by
our Certificate of
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Incorporation, as amended, our Amended and Restated Bylaws or
other governing documents. However, the parties to the Stock
Purchase Agreement have agreed that, as a condition to the
consummation of the Stock Sale, our stockholders must approve
the Stock Sale Proposal to the same extent as if stockholder
approval of the Stock Sale Proposal was required by applicable
Delaware law.
Pursuant to the terms of the Stock Purchase Agreement, the
approval of the Stock Sale Proposal requires the affirmative
vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon. The approval of the
Adjournment Proposal requires the affirmative vote of the
holders of a majority of shares of the Common Stock present, in
person or represented by proxy, at the Special Meeting and
entitled to vote thereon.
Under applicable Delaware law, in determining whether the
proposals have received the requisite number of affirmative
votes, abstentions on either of these proposals will be
considered present at the Special Meeting and will have the same
effect as a vote AGAINST these
proposals. Broker non-votes (if any) will be considered present
at the Special Meeting. As to the approval of the Stock Sale
Proposal, a broker
non-vote
will have the same effect as a vote
AGAINST this proposal. As to the
approval of the Adjournment Proposal, a broker non-vote will be
disregarded and will have no effect on the outcome of the vote.
Voting
As described in more detail below, stockholders may vote their
shares of Common Stock:
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through the Internet at
http://www.proxyvote.com
and following the instructions printed on their proxy or voting
instruction card;
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by using the telephone number printed on their proxy or voting
instruction card;
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by completing, signing and dating the enclosed proxy or voting
instruction card, and returning it in the enclosed
postage-prepaid envelope; or
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by attending the Special Meeting and voting their shares in
person.
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Set forth below is a summary of the voting methods which
stockholders of record may utilize to submit their votes by
proxy:
Voting by the Internet or Telephone. If you are a
registered stockholder (that is, if your stock is registered in
your name), you may vote by the Internet or telephone by
following the instructions included with your proxy or voting
instruction card. If your shares are held in street name, please
check your voting instruction card, or contact your broker,
bank, fiduciary, agent, custodian or other nominee to determine
whether you will be able to vote by the Internet or telephone.
You are encouraged to vote by the Internet or telephone. The
procedures for each of these voting methods are set forth below.
Vote by the Internet. Use the Internet to vote
your shares 24 hours a day, 7 days a week. Have your
proxy card in hand when you access our Internet voting web site
at
http://www.proxyvote.com.
You will be prompted to enter your control number, which is
located on your proxy card, and then follow the directions given
to vote your shares. If you received a voting instruction card,
follow the instructions, if any, provided to vote your shares
through the Internet.
Vote by Telephone. Use any touch-tone telephone to
vote your shares 24 hours a day, 7 days a week. Have
your proxy card in hand when you call. You will be prompted to
enter your control number which is located on your proxy card
and then follow the directions given. If you received a voting
instruction card, follow the instructions, if any, provided to
vote your shares through by telephone.
Please note that although there is no charge to you for voting
by telephone or through the Internet, there may be costs
associated with Internet or telephonic access, such as usage
charges of Internet service providers and telephone companies.
We do not cover these costs; they are solely your
24
responsibility. Please note, the telephone and Internet voting
procedures available to you are valid forms of granting proxies
under the General Corporation Law of the State of Delaware.
Voting by Mail. To vote by mail, please complete,
sign, date and return as soon as possible the enclosed proxy or
voting instruction card. An envelope with postage paid, if
mailed in the United States, is provided for this purpose.
Properly executed proxies that are received in time and not
subsequently revoked will be voted as instructed on the proxies.
If you vote by the Internet or by telephone as described above,
you need not also mail a proxy to the Company.
Voting at the Special Meeting. You may vote
in person by ballot at the Special Meeting. If you want to vote
by ballot, and you hold your shares in street name, you must
first obtain a legal proxy from your broker, bank, fiduciary,
agent, custodian or other nominee and bring it to the Special
Meeting. Follow the instructions from your broker, bank,
fiduciary, agent, custodian or other nominee included with these
proxy materials, or contact your broker, bank, fiduciary, agent,
custodian or other nominee to request a legal proxy.
Sending in a signed proxy or voting by the Internet or telephone
will not affect your right to attend the Special Meeting and
vote in person since the proxy is revocable. If you vote in
person at the Special Meeting, you will revoke any prior proxy
you may have submitted.
Proxies
Our Board is asking for your proxy. A proxy is your legal
designation of another person, called a proxy, to vote your
shares on your behalf. Our Board has designated Gary J. Cotshott
and Margaret M. Loebl to serve as the proxies for the
Special Meeting. Giving our Board your proxy means you authorize
it to vote your shares at the Special Meeting in the manner you
direct. You may vote FOR or
AGAINST each of the proposals or
abstain from voting. All valid proxies received prior to the
Special Meeting will be voted. All shares represented by a proxy
will be voted, and where a stockholder specifies by means of the
proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so
made. If no choice is indicated on the proxy, the shares will be
voted FOR the approval of the Stock
Sale Proposal and FOR the
approval of the Adjournment Proposal and as the proxy holders
may determine in their discretion with respect to any other
matters that may properly come before the Special Meeting.
Stockholders who hold their shares in street name must either
direct the record holder of their shares to vote their shares or
obtain a proxy from the record holder to vote their shares at
the Special Meeting.
Stockholders who have questions about the Special Meeting or the
Stock Sale or need assistance in completing or submitting proxy
cards should contact TechTeam Global, Inc., Attention: Investor
Relations, 27335 West 11 Mile Road, Southfield, Michigan
48033, or by calling us at
(248) 357-2866;
or The Altman Group, Inc., the firm assisting us in the
solicitation of proxies, 1200 Wall Street West, Lyndhurst, New
Jersey 07071, toll-free at
(877) 283-0320.
Banks and brokerage firms can call The Altman Group collect at
(201) 806-7300.
Revocability of
Proxies
A stockholder giving a proxy has the power to revoke his or her
proxy, at any time prior to the time it is voted, by:
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filing a written notice of revocation with the Companys
Corporate Secretary at 27335 West 11 Mile Road, Southfield,
Michigan 48033, before the Special Meeting;
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submitting another properly completed proxy with a later
date; or
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attending the Special Meeting and voting in person.
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Simply attending the Special Meeting will not constitute
revocation of your proxy. If your shares are held in street
name, the above-described options for revoking your proxy do not
apply and you must instead follow the instructions of your
broker, bank, fiduciary, agent, custodian or other nominee to
revoke a previously given proxy.
The form of proxy accompanying this Proxy Statement confers
discretionary authority upon the named proxy holders with
respect to any other matters which may properly come before the
Special Meeting. As of the date of this Proxy Statement,
management knows of no such matters expected to come before the
Special Meeting which are not referred to in the accompanying
Notice of Special Meeting.
Solicitation of
Proxies; Expenses of Solicitation
Proxies may be solicited on behalf of our Board, without
additional compensation, by the members of our Board, and by
certain of our executive officers and employees. The original
solicitation of proxies by mail may be supplemented by
telephone, fax, Internet and personal solicitation by our
directors, officers or other regular employees. We may also
solicit stockholders through press releases, advertisements in
periodicals and postings on our website. Brokers, banks,
fiduciaries, agents, custodians or other nominees have been
requested to forward soliciting material to the beneficial
owners of Common Stock held of record by them, and we will
reimburse such persons for their reasonable expenses incurred in
doing so.
We have retained The Altman Group to solicit proxies on our
Boards behalf. We estimate that The Altman Group will
receive from the Company fees of approximately $9,500, plus
reasonable
out-of-pocket
expenses incurred on our behalf, to assist in the solicitation
of proxies. The Altman Group has advised us that approximately
15 of its employees will be involved in the solicitation of
proxies by The Altman Group on our behalf. In addition, The
Altman Group and certain related persons will be held harmless
and indemnified against certain liabilities arising out of or in
connection with the engagement.
The entire cost of soliciting proxies, including the costs of
preparing, assembling, printing and mailing this Proxy Statement
and the proxy card and any additional soliciting materials
furnished to stockholders, will be borne by the Company.
Proposal to
Approve Adjournment of the Special Meeting
We are submitting the Adjournment Proposal for your
consideration at the Special Meeting to authorize the named
proxies to approve one or more adjournments of the Special
Meeting, if necessary, to facilitate the approval of the Stock
Sale Proposal, including to permit the solicitation of
additional proxies if there are not sufficient votes at the time
of the Special Meeting to approve the Stock Sale Proposal. For
example, even though a quorum may be present at the Special
Meeting, it is possible that we may not have received sufficient
votes to approve the Stock Sale Proposal by the time of the
Special Meeting. In that event, we would seek to obtain the
approval of the stockholders to adjourn the Special Meeting in
order to solicit additional proxies. The Adjournment Proposal
relates only to one or more adjournments of the Special Meeting
to facilitate the approval of the Stock Sale Proposal. Any other
adjournment of the Special Meeting (e.g., an adjournment
required because of the absence of a quorum) would be voted upon
pursuant to the discretionary authority granted by the proxy. We
currently do not intend to propose to adjourn the Special
Meeting if there are sufficient votes to approve the Stock Sale
Proposal.
Our Board unanimously recommends that you vote
FOR the approval of the Adjournment
Proposal so that proxies may be used for that purpose, should it
be necessary to facilitate the approval of the Stock Sale
Proposal. Properly executed proxy cards will be voted
FOR the approval of the Adjournment
Proposal, unless otherwise noted on the proxy cards.
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If the Special Meeting is adjourned, we are not required to give
notice of the time and place of the adjourned meeting unless the
adjournment is for more than 30 days or a new record date
is fixed for the adjourned meeting. If our Board fixes a new
record date for stockholders entitled to vote at the adjourned
meeting, it must fix a new record date for notice of such
adjourned meeting. At the adjourned meeting, only such business
shall be transacted as might have been transacted at the
original meeting.
Other
Business
We are not currently aware of any business to be acted upon at
the Special Meeting other than the matters discussed in this
Proxy Statement. If other matters do properly come before the
Special Meeting, we intend that shares of our outstanding Common
Stock represented by properly submitted proxy cards will be
voted by and at the discretion of the persons named as proxies
on the proxy card. In addition, the grant of a proxy will confer
discretionary authority on the persons named as proxies on the
proxy card to vote in accordance with their best judgment on
procedural matters incident to the conduct of the Special
Meeting.
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CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
In addition to historical information, this Proxy Statement,
including the exhibits attached hereto, contains
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, or the
Exchange Act. The forward-looking statements are not historical
facts but rather are based on current expectations, estimates
and projections about our business and industry, and our beliefs
and assumptions. Words such as anticipate,
believe, estimate, expect,
intend, assume, may,
seek to, will, would,
should, could, guidance,
potential, continue,
project, forecast,
confident, prospects,
projections and plan, and variations of
these words and similar expressions, identify forward-looking
statements, although not all forward-looking statements contain
these identifying words.
These statements are not guarantees of future performance and
are subject to risks, uncertainties and other factors, many of
which are beyond our control, are difficult to predict and could
cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. These risks and
uncertainties include, but are not limited to, those described
under the headings Summary Term Sheet,
Questions and Answers About the Special Meeting and the
Stock Sale, Proposal 1 The Stock
Purchase Agreement and the Stock Sale, The Stock
Purchase Agreement, Material Considerations Relating
to the Stock Sale Proposal, and elsewhere in this Proxy
Statement. Factors, risks and uncertainties that may affect our
ability to complete the Stock Sale and that could adversely
affect our business, financial condition and operating results
include, but are not limited to:
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the failure to satisfy any of the conditions to completing the
Stock Sale, including with respect to the retention of
TTGSIs employees and the receipt of the required approval
of our stockholders and other third parties;
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the occurrence of any event, change or other circumstances,
including, but not limited to, a material adverse effect on the
Government Solutions Business, Jacobs or us, that could result
in the Stock Sale not being consummated;
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the restrictions and limitations on the conduct of the
Government Solutions Business prior to the consummation of the
Stock Sale, which may delay or prevent us from pursuing business
opportunities or other actions that could benefit us or the
Government Solutions Business pending completion of the Stock
Sale;
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restrictions on our Boards ability to solicit or engage in
discussion or negotiations with, or provide information to, a
third party regarding alternative transactions involving TTGSI;
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the outcome of any legal proceedings instituted against us and
others in connection with the proposed Stock Sale;
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the failure of the Stock Sale to close for any other reason;
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the termination fee and
out-of-pocket
expense reimbursements that we would be required to pay to
Jacobs in the event of a termination of the Stock Purchase
Agreement under certain circumstances;
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uncertainty as to the amount of the net tangible book value
adjustment to the purchase price for the acquisition of TTGSI,
including our potential liability to Jacobs in the event of a
net tangible book value adjustment that results in a reduction
of the purchase price;
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the amount of the costs, fees, expenses and charges relating to
the Stock Sale;
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uncertainties related to the amount of our future
indemnification obligations and other liabilities under the
Stock Purchase Agreement, including our inability to receive
some or all of the portion of the purchase price that will be
escrowed to secure our payment to Jacobs of such indemnification
obligations, and that in certain cases the cap on our potential
indemnification liability to Jacobs is equal to the full
purchase price;
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uncertainties as to how the Stock Sale and the terms of the
Stock Purchase Agreement, including the escrow and the
indemnification provisions, may affect our ability to explore
various strategic alternatives with respect to our Commercial
Business;
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our inability to recognize the anticipated benefits of the Stock
Sale;
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uncertainties related to our proposed strategy of separating the
Government Solutions Business from the Commercial Business;
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uncertainties regarding our Boards review of potential
strategic alternatives for the Commercial Business, the timing
of such review and the outcome of such review;
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our inability to successfully operate the Commercial Business
after the Stock Sale on a stand-alone basis;
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the fact that the Stock Sale will leave us as a significantly
smaller public company, with fewer revenue-producing assets and
a less-diversified business;
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uncertainties as to the amount, if any, of our cash that our
stockholders may receive in the future;
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the implementation of our strategic repositioning and market
acceptance of our refocused strategy;
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quarterly fluctuations in our financial results;
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our ability to exploit fully the value of our technology
outsourcing services;
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delays in the implementation of our business strategy or the
development of new service offerings;
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changes in a customers business or requirements thereof;
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difficulties in providing service solutions for our customers;
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the global economic recession and financial crisis;
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the performance of our contracts by suppliers, customers and
partners;
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the difficulty of aligning expense levels with revenue changes;
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complexities of global, national, regional and local political
and economic developments; and
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other risks that are described herein, including but not limited
to the items discussed in Material Considerations Relating
to the Stock Sale Proposal and Item 1A
Risk Factors of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 (the 2009
Form 10-K),
a copy of which is reproduced as Exhibit F to this
Proxy Statement.
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Unpredictable or unknown factors could also have material
adverse effects on us. Forward-looking statements that were
believed to be true at the time made may ultimately prove to be
incorrect or false. All forward-looking statements included in
this Proxy Statement, or in the documents to which we refer you
in this Proxy Statement, are expressly qualified in their
entirety by the foregoing cautionary statements. You should not
place undue reliance upon our forward-looking statements. Our
forward-looking statements are based on the information
available to us as of the date of this Proxy Statement, or, in
the case of forward-looking statements included in any
referenced documents, as of the date of the filing thereof. We
undertake no obligation to update or revise, or to publicly
release the results of, or any update or revision to, these
forward-looking statements.
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SUMMARY SELECTED
HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following tables present selected historical consolidated
financial information for us and TTGSI and our selected pro
forma consolidated financial information giving effect to the
consummation of the sale of the Government Solutions Business to
Jacobs Technology pursuant to the Stock Sale, as more fully
described below.
Our selected audited historical consolidated financial
information as of December 31, 2009 and 2008 and for each
of the years ended December 31, 2009, 2008 and 2007
presented below was derived from our audited consolidated
financial statements included in the 2009
Form 10-K,
a copy of which is reproduced as Exhibit F to this
Proxy Statement. Our selected audited historical consolidated
balance sheet as of December 31, 2007 was derived from our
audited consolidated balance sheet included in our Annual Report
for the year ended December 31, 2008, as filed with the SEC
on March 16, 2009 (the 2008
Form 10-K),
a copy of which is not included in this Proxy Statement. Our
selected unaudited historical consolidated financial information
as of March 31, 2010 and for the three months ended
March 31, 2010 and 2009 presented below was derived from
our unaudited consolidated financial statements included in our
Form 10-Q
for the quarter ended March 31, 2010, which was filed with
the SEC on May 10, 2010, a copy of which is reproduced as
Exhibit G to this Proxy Statement (the
March 31, 2010
Form 10-Q).
The selected unaudited historical consolidated financial
information of TTGSI presented below as of and for each of the
years ended December 31, 2009, 2008 and 2007, and as of and
for the three months ended March 31, 2010 and 2009, was
derived from the available financial information contained in
the accounting records of TTGSI and its subsidiaries and is
substantially representative of the financial results of the
Government Solutions Business to be sold to Jacobs Technology in
the Stock Sale as of such dates and for such periods.
The unaudited pro forma consolidated financial information was
derived from our unaudited pro forma consolidated financial
statements, a copy of which is reproduced as Exhibit H
to this Proxy Statement, and the historical financial
information provided herein. The unaudited pro forma
consolidated statement of operations information presented below
for the three months ended March 31, 2010, and for each of
the years ended December 31, 2009, 2008 and 2007, assumes
that the Stock Sale had occurred as of January 1, 2010,
2009, 2008 and 2007, respectively. The unaudited pro forma
consolidated balance sheet information as of March 31, 2010
presented below was prepared to give effect to the consummation
of the Stock Sale, as if it had occurred on that date.
The following selected historical and pro forma financial
information should be read in conjunction with:
|
|
|
|
|
our audited historical consolidated financial statements as of
December 31, 2009 and 2008 and for each of the years ended
December 31, 2009, 2008 and 2007 and the notes thereto
contained in the 2009
Form 10-K,
a copy of which is reproduced as Exhibit F to this
Proxy Statement;
|
|
|
|
our audited historical consolidated balance sheet as of
December 31, 2007 contained in the 2008
Form 10-K,
a copy of which is not provided in this Proxy Statement;
|
|
|
|
our unaudited historical consolidated financial statements as of
and for the three months ended March 31, 2010 and for the
three months ended March 31, 2009, and the notes thereto
contained in the March 31, 2010
Form 10-Q,
a copy of which is reproduced as Exhibit G to this
Proxy Statement;
|
|
|
|
our unaudited pro forma consolidated financial statements as of
March 31, 2010 and for the three months ended
March 31, 2010 and March 31, 2009, and for each of the
years ended December 31, 2009, 2008 and 2007, and the
adjustments provided therewith, which is included in
Exhibit H to this Proxy Statement;
|
|
|
|
the unaudited historical consolidated financial statements of
TTGSI as of March 31, 2010 and
|
30
|
|
|
|
|
for the three months ended March 31, 2010 and 2009, and as
of and for each of the years ended December 31, 2009, 2008
and 2007, and the notes thereto, a copy of which is included in
Exhibit I to this Proxy Statement; and
|
|
|
|
|
|
Part II, Item 7 of the 2009
Form 10-K
and Part I, Item 2 of the March 31, 2010 Form
10-Q
entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations.
|
The following selected financial information is being provided
for information purposes only. It is not intended to represent
or be indicative of the results of operations or financial
position that would have been reported if TTGSI had been
operated as a separate entity as of the respective dates
presented and during the periods ended on such dates, or if the
Stock Sale had been completed as of the dates presented. The
following selected financial information may not be
representative of the future financial position or results of
operations of us or TTGSI.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information (Unaudited):
|
|
For the Three Months Ended March 31, 2010
|
|
|
For the Three Months Ended March 31, 2009
|
|
(in thousands, except per
|
|
TechTeam
|
|
|
TechTeam
|
|
|
TTGSI
|
|
|
TechTeam
|
|
|
TechTeam
|
|
|
TTGSI
|
|
share information)
|
|
Historical
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
32,854
|
|
|
$
|
32,854
|
|
|
$
|
--
|
|
|
$
|
35,887
|
|
|
$
|
35,887
|
|
|
$
|
--
|
|
Government Technology Services
|
|
|
15,156
|
|
|
|
--
|
|
|
|
15,156
|
|
|
|
20,218
|
|
|
|
--
|
|
|
|
20,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
48,010
|
|
|
$
|
32,854
|
|
|
$
|
15,156
|
|
|
$
|
56,105
|
|
|
$
|
35,887
|
|
|
$
|
20,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
7,409
|
|
|
$
|
7,409
|
|
|
$
|
--
|
|
|
$
|
8,495
|
|
|
$
|
8,495
|
|
|
$
|
--
|
|
Government Technology Services
|
|
|
3,045
|
|
|
|
--
|
|
|
|
3,045
|
|
|
|
5,433
|
|
|
|
--
|
|
|
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
10,454
|
|
|
$
|
7,409
|
|
|
$
|
3,045
|
|
|
$
|
13,928
|
|
|
$
|
8,495
|
|
|
$
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(3,327
|
)
|
|
$
|
(3,019
|
)
|
|
$
|
(1,323
|
)
|
|
$
|
3,336
|
|
|
$
|
932
|
|
|
$
|
1,587
|
|
Income (loss) before income taxes
|
|
$
|
(3,318
|
)
|
|
$
|
(2,831
|
)
|
|
$
|
(1,502
|
)
|
|
$
|
2,790
|
|
|
$
|
691
|
|
|
$
|
1,281
|
|
Net income (loss)
|
|
$
|
(2,653
|
)
|
|
$
|
(2,389
|
)
|
|
$
|
(924
|
)
|
|
$
|
1,650
|
|
|
$
|
329
|
|
|
$
|
798
|
|
Basic earnings (loss) per common share
|
|
$
|
(0.25
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
$
|
0.16
|
|
|
$
|
0.03
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(0.25
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
$
|
0.16
|
|
|
$
|
0.03
|
|
|
|
|
|
Weighted average number of common shares outstanding --
basic
|
|
|
10,662
|
|
|
|
10,662
|
|
|
|
|
|
|
|
10,588
|
|
|
|
10,588
|
|
|
|
|
|
Weighted average number of common shares outstanding --
diluted
|
|
|
10,662
|
|
|
|
10,662
|
|
|
|
|
|
|
|
10,613
|
|
|
|
10,613
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information:
|
|
For the Year Ended December 31, 2009
|
|
|
For the Year Ended December 31, 2008
|
|
|
For the Year Ended December 31, 2007
|
|
(in thousands, except per
|
|
TechTeam
|
|
|
TechTeam
|
|
|
TTGSI
|
|
|
TechTeam
|
|
|
TechTeam
|
|
|
TTGSI
|
|
|
TechTeam
|
|
|
TechTeam
|
|
|
TTGSI
|
|
share information)
|
|
Historical
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
134,801
|
|
|
$
|
134,801
|
|
|
$
|
--
|
|
|
$
|
171,340
|
|
|
$
|
171,340
|
|
|
$
|
--
|
|
|
$
|
152,942
|
|
|
$
|
152,942
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Technology Services
|
|
|
76,440
|
|
|
|
--
|
|
|
|
76,440
|
|
|
|
88,615
|
|
|
|
--
|
|
|
|
88,615
|
|
|
|
69,254
|
|
|
|
--
|
|
|
|
69,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
211,241
|
|
|
$
|
134,801
|
|
|
$
|
76,440
|
|
|
$
|
259,955
|
|
|
$
|
171,340
|
|
|
$
|
88,615
|
|
|
$
|
222,196
|
|
|
$
|
152,942
|
|
|
$
|
69,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
30,049
|
|
|
$
|
30,049
|
|
|
$
|
--
|
|
|
$
|
36,204
|
|
|
$
|
36,204
|
|
|
$
|
--
|
|
|
$
|
30,903
|
|
|
$
|
30,903
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Technology Services
|
|
|
20,437
|
|
|
|
--
|
|
|
|
20,437
|
|
|
|
24,232
|
|
|
|
--
|
|
|
|
24,232
|
|
|
|
18,867
|
|
|
|
--
|
|
|
|
18,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
50,486
|
|
|
$
|
30,049
|
|
|
$
|
20,437
|
|
|
$
|
60,436
|
|
|
$
|
36,204
|
|
|
$
|
24,232
|
|
|
$
|
49,770
|
|
|
$
|
30,903
|
|
|
$
|
18,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(20,201
|
)
|
|
$
|
(6,211
|
)
|
|
$
|
(16,831
|
)
|
|
$
|
7,797
|
|
|
$
|
(2,217
|
)
|
|
$
|
7,473
|
|
|
$
|
10,295
|
|
|
$
|
2,911
|
|
|
$
|
6,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(21,894
|
)
|
|
$
|
(6,912
|
)
|
|
$
|
(17,823
|
)
|
|
$
|
7,150
|
|
|
$
|
(1,328
|
)
|
|
$
|
5,937
|
|
|
$
|
9,639
|
|
|
$
|
3,189
|
|
|
$
|
5,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(18,633
|
)
|
|
$
|
(6,411
|
)
|
|
$
|
(14,038
|
)
|
|
$
|
2,968
|
|
|
$
|
(2,293
|
)
|
|
$
|
3,653
|
|
|
$
|
6,296
|
|
|
$
|
2,340
|
|
|
$
|
3,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share
|
|
$
|
(1.75
|
)
|
|
$
|
(0.60
|
)
|
|
|
|
|
|
$
|
0.28
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
$
|
0.61
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share
|
|
$
|
(1.75
|
)
|
|
$
|
(0.60
|
)
|
|
|
|
|
|
$
|
0.28
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
$
|
0.60
|
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding --
basic
|
|
|
10,618
|
|
|
|
10,618
|
|
|
|
|
|
|
|
10,529
|
|
|
|
10,529
|
|
|
|
|
|
|
|
10,355
|
|
|
|
10,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding --
diluted
|
|
|
10,618
|
|
|
|
10,618
|
|
|
|
|
|
|
|
10,555
|
|
|
|
10,555
|
|
|
|
|
|
|
|
10,506
|
|
|
|
10,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 (Unaudited)
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
Balance Sheet Information:
|
|
TechTeam
|
|
|
TechTeam
|
|
|
TTGSI
|
|
|
TechTeam
|
|
|
TTGSI
|
|
|
TechTeam
|
|
|
TTGSI
|
|
|
TechTeam
|
|
|
TTGSI
|
|
(in thousands)
|
|
Historical
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
Historical
|
|
|
Historical
|
|
|
Historical
|
|
|
Historical
|
|
|
Historical
|
|
|
Historical
|
|
|
Cash and cash equivalents
|
|
$
|
14,210
|
|
|
$
|
52,770
|
|
|
$
|
1
|
|
|
$
|
15,969
|
|
|
$
|
--
|
|
|
$
|
16,881
|
|
|
$
|
3
|
|
|
$
|
19,431
|
|
|
$
|
32
|
|
Working capital
|
|
$
|
33,838
|
|
|
$
|
60,574
|
|
|
$
|
8,302
|
|
|
$
|
36,954
|
|
|
$
|
12,143
|
|
|
$
|
42,427
|
|
|
$
|
18,090
|
|
|
$
|
43,173
|
|
|
$
|
12,026
|
|
Goodwill and other intangible assets, net
|
|
$
|
46,770
|
|
|
$
|
8,496
|
|
|
$
|
38,274
|
|
|
$
|
47,270
|
|
|
$
|
38,794
|
|
|
$
|
77,361
|
|
|
$
|
62,340
|
|
|
$
|
76,686
|
|
|
$
|
65,264
|
|
Total assets
|
|
$
|
119,367
|
|
|
$
|
113,940
|
|
|
$
|
61,508
|
|
|
$
|
122,520
|
|
|
$
|
66,338
|
|
|
$
|
167,363
|
|
|
$
|
93,705
|
|
|
$
|
182,169
|
|
|
$
|
102,963
|
|
Total current liabilities
|
|
$
|
28,463
|
|
|
$
|
20,609
|
|
|
$
|
11,376
|
|
|
$
|
27,095
|
|
|
$
|
11,612
|
|
|
$
|
38,474
|
|
|
$
|
12,579
|
|
|
$
|
51,175
|
|
|
$
|
24,839
|
|
Total long-term liabilities
|
|
$
|
10,617
|
|
|
$
|
10,504
|
|
|
$
|
21,029
|
|
|
$
|
11,796
|
|
|
$
|
24,699
|
|
|
$
|
30,156
|
|
|
$
|
37,061
|
|
|
$
|
33,963
|
|
|
$
|
37,712
|
|
Total shareholders equity
|
|
$
|
80,287
|
|
|
$
|
82,827
|
|
|
$
|
29,103
|
|
|
$
|
83,629
|
|
|
$
|
30,027
|
|
|
$
|
98,733
|
|
|
$
|
44,065
|
|
|
$
|
97,031
|
|
|
$
|
40,412
|
|
As of March 31, 2010, the Companys unaudited book
value per share on a consolidated historical and pro forma basis
was $7.15 and $7.38, respectively.
32
MATERIAL
CONSIDERATIONS RELATING TO THE STOCK SALE PROPOSAL
You should carefully review the considerations described
below as well as the other information provided to you or
referenced in this Proxy Statement in deciding how to vote on
the Stock Sale Proposal. For a discussion of additional
considerations, we refer you to the documents we file from time
to time with the SEC, particularly the 2009
Form 10-K,
a copy of which is reproduced as Exhibit F to this
Proxy Statement. Additional considerations not presently known
to us or that we currently believe are immaterial may also
adversely affect our business and operations. If any of the
following considerations actually occur, our business, financial
condition or results of operations could be materially and
adversely affected, the value of our common shares could
decline, and you may lose all or part of your investment. Please
note that the considerations discussed below also include
forward-looking statements and our actual results may differ
substantially from those discussed in those forward-looking
statements. See Cautionary Statements Regarding
Forward-Looking Information.
There is no
assurance that the Stock Sale will be completed, and our
inability to consummate the Stock Sale could harm the market
price of our Common Stock and our business, results of
operations and financial condition.
We cannot assure you that the Stock Sale will be consummated.
The consummation of the Stock Sale is subject to the
satisfaction or waiver of a number of conditions, including,
among others, the requirement that we obtain stockholder
approval of the Stock Sale Proposal, the requirement to obtain
certain government and other approvals, requirements with
respect to the accuracy of our representations and warranties,
requirements with respect to the satisfaction or waiver of our
closing covenants and the requirement that certain employees
will continue to be employed by TTGSI. In addition, Jacobs may
terminate the Stock Purchase Agreement if, among other things,
such closing conditions are not satisfied by October 1,
2010 and if we do not cure any breaches occurring after
June 3, 2010 of our representations and warranties
contained in the Stock Purchase Agreement within five business
days of notice of such breach.
We cannot guarantee that we will be able to meet all of the
closing conditions of the Stock Purchase Agreement. For example,
subsequent to the signing of the Stock Purchase Agreement, two
employees of TTGSI, who were included in the schedules to the
Stock Purchase Agreement as being among those employees of TTGSI
who needed to remain with TTGSI following the closing of the
Stock Sale, notified us that they were resigning from TTGSI to
pursue other opportunities. Accordingly, at least one of the
conditions to the obligations of Jacobs Technology to complete
the Stock Sale will not be satisfied at the closing. As of the
date of this Proxy Statement, while we have requested a waiver
of this condition from Jacobs Technology with respect to this
matter, no such waiver has been granted and no assurances can be
given as to whether Jacobs Technology will ultimately agree to
waive this condition.
If we are unable to meet all of the closing conditions, Jacobs
would not be obligated to close the Stock Sale. In addition, as
a result of our failure to meet the condition described above
with respect to the retention of TTGSIs employees, Jacobs
has the right, at any time, to terminate the Stock Purchase
Agreement. We also cannot be sure that other circumstances, for
example, a material adverse effect, will not arise that would
also allow Jacobs to terminate the Stock Purchase Agreement
prior to closing. If the Stock Sale is not approved by
stockholders or does not close, our Board will be forced to
evaluate other alternatives, which may be less favorable to us
than the proposed Stock Sale.
As a result of the execution of the Stock Purchase Agreement,
employees of the Government Solutions Business may become
concerned about the future of the Government Solutions Business
and seek other employment. Also, as a result of our execution of
the Stock Purchase Agreement and the announcement of the Stock
Sale, third parties may be unwilling to enter into material
agreements with us with respect to the Government Solutions
Business. New or existing customers may prefer to enter into
agreements with our competitors who have not expressed an
intention to sell their business because customers may perceive
that such new relationships are likely to be more stable. The
failure to maintain these relationships may give Jacobs the
right to terminate the Stock Purchase Agreement and the Stock
33
Sale. If we fail to complete the proposed Stock Sale, the
failure to maintain existing business relationships or enter
into new ones could adversely affect our business, results of
operations and financial condition.
In addition, if the Stock Sale is not consummated, our
directors, executive officers and other employees will have
expended extensive time and effort and will have experienced
significant distractions from their work during the pendency of
the transaction and we will have incurred significant
transaction costs, in each case, without any commensurate
benefit. After focusing on the potential sale of the Government
Solutions Business for an extended period, if the Stock Sale is
not consummated, we may not be able to develop and implement a
strategy for the future growth and development of the Government
Solutions Business that would generate a return similar to or
better than the return which would be generated by the Stock
Sale. Furthermore, the perception of our continuing business
could potentially result in a loss of customers, business
partners and employees if the Stock Sale is not consummated. The
occurrence of one or more of the foregoing circumstances could
likely have a material and adverse effect on our business, stock
price, results of operations and financial condition.
The Stock
Purchase Agreement imposes substantial restrictions on our
ability to operate the Government Solutions Business, which may
delay or prevent us from undertaking business opportunities that
may be beneficial to the Government Solutions Business, pending
completion of the Stock Sale.
The Stock Purchase Agreement contains significant restrictions
on our ability to operate the Government Solutions Business
prior to the closing described under The Stock Purchase
Agreement Agreements Related to the Interim Conduct
of the Government Solutions Business. For example, we are
subject to restrictions on our ability to discuss and negotiate
with, and provide information to, a potential acquirer regarding
any competing proposals to the Stock Sale, and our ability to,
among other things:
|
|
|
|
|
transfer or issue any stock of, or liquidate, recapitalize or
change the organizational documents of, TTGSI;
|
|
|
|
|
|
hire any new senior-level employees into TTGSI, except as
provided in the Stock Purchase Agreement;
|
|
|
|
|
|
change TTGSIs accounting methods or practices;
|
|
|
|
enter into a merger or consolidation of TTGSI;
|
|
|
|
sell any portion of the Government Solutions Business or the
assets of TTGSI;
|
|
|
|
enter into certain material contracts; or
|
|
|
|
incur, assume, guarantee or extend any indebtedness.
|
Our ability to comply with these provisions before completion of
the Stock Sale or termination of the Stock Purchase Agreement is
subject to various risks and uncertainties. Any failure by us to
comply with all applicable covenants in the Stock Purchase
Agreement could result in a breach of the terms of the Stock
Purchase Agreement, which may result in the termination of the
Stock Purchase Agreement and a failure to complete the Stock
Sale. Even if we are able to comply with all of the applicable
provisions and restrictions on the operation of the Government
Solutions Business, these restrictions could harm us by, among
other things, prohibiting, limiting or restricting our ability
to take advantage of mergers, acquisitions and other corporate
opportunities with respect to the Government Solutions Business
or to take certain actions that management may deem to be
necessary or desirable to operate or grow the Government
Solutions Business or to increase its profitability. Thus, such
prohibitions, limitations and restrictions could have a material
adverse effect upon the Government Solutions Business and our
financial condition and results of operations.
34
If our
stockholders do not approve the Stock Sale Proposal, we may not
receive an offer from another potential acquirer of the
Government Solutions Business on satisfactory terms or at
all.
If our stockholders do not approve the Stock Sale and the Stock
Purchase Agreement is subsequently terminated, we may decide to
seek another strategic transaction with respect to the
Government Solutions Business. However, we may not be able to
find a potential acquirer of the Government Solutions Business
willing to pay an equivalent or more attractive price than that
which would be paid pursuant to the Stock Sale, and in fact any
purchase price that we do find may be less.
We are not
permitted to terminate the Stock Purchase Agreement except in
limited circumstances, and we may be required to pay a
substantial termination fee to Jacobs if the Stock Purchase
Agreement is terminated.
The Stock Purchase Agreement does not generally allow us to
terminate it, except in certain limited circumstances. If the
Stock Purchase Agreement is terminated under certain
circumstances for specified reasons, we would be obligated to:
|
|
|
|
|
pay Jacobs a termination fee of $2,360,000, and
|
|
|
|
reimburse Jacobs for up to $750,000 of its reasonable and
documented
out-of-pocket
fees and expenses related to the preparation and negotiation of
the Stock Purchase Agreement and the Stock Sale.
|
We would be required to pay to Jacobs the expense reimbursement
and termination fee in the event of, among other things:
|
|
|
|
|
our termination of the Stock Purchase Agreement upon the receipt
of a superior proposal (as defined in the Stock Purchase
Agreement) that results in, immediately after the termination of
the Stock Purchase Agreement, us entering into a definitive
agreement with respect thereto in compliance with the terms of
the Stock Purchase Agreement;
|
|
|
|
concurrently or after a change of control of TechTeam, the Stock
Purchase Agreement is terminated for any reason or the closing
does not occur by October 1, 2010; or
|
|
|
|
Jacobs termination of the Stock Purchase Agreement upon
the occurrence of certain triggering events, as discussed in
more detail in The Stock Purchase Agreement
Termination.
|
See The Stock Purchase Agreement No
Negotiations and The Stock Purchase
Agreement Termination Fee and Reimbursement of
Expenses. We would also be required to pay Jacobs this
expense reimbursement (without the termination fee) if the Stock
Purchase Agreement is terminated by any party after the Special
Meeting has been held and the stockholders do not approve the
Stock Sale Proposal.
Any payment of the termination fee or the expense reimbursement
would substantially increase the cost of completing any
alternative transaction involving the Government Solutions
Business and would effectively reduce any net proceeds available
to us resulting from the consummation of such an alternative
transaction.
The Stock
Purchase Agreement may expose us to contingent liabilities, and
we may never ultimately receive any of the cash portion of the
purchase price deposited into escrow for indemnification
purposes.
Under the Stock Purchase Agreement, we have agreed to indemnify
Jacobs for any breach or violation of any representation,
warranty, covenant or undertaking made by us in the Stock
Purchase Agreement and for other matters, subject to certain
limitations and exceptions. Of the total cash purchase price of
$59,000,000, $14,750,000 will be deposited into escrow to secure
our indemnification obligations to Jacobs for a period of up
36 months after closing. However, Jacobs right to
seek indemnification from us for certain indemnification claims
may not be limited by this
36-month
time period or to any time limitations at all and may not be
limited by any amounts contained in the indemnification escrow
fund. As a result,
35
significant successful indemnification claims by Jacobs could
have an adverse effect on our results of operations and
financial condition. Furthermore, it is possible that we may not
ultimately receive any of the escrowed portion of the purchase
price. Moreover, these uncertainties may make it difficult for a
potential acquirer of the Commercial Business to value the
Commercial Business, including, but not limited to, our interest
in the indemnification escrow fund. Given these uncertainties,
you should not place disproportionate emphasis on the amount of
the purchase price that is paid into escrow to satisfy our
post-closing
indemnification obligations.
Furthermore, the Stock Sale may be completed without us being
released from certain guarantees that we have provided with
respect to the obligations of TTGSI. While Jacobs has agreed to
use its best efforts to cause it to be substituted for us with
respect to such guarantees and to indemnify us and our
affiliates against any loss if such substitution does not occur,
we cannot assure you that we will be substituted by Jacobs with
respect to such guarantees or that Jacobs obligation to
indemnify us will ultimately make us whole for any loss or
expense we may ultimately incur in connection with such
guarantees.
The terms of
the Stock Purchase Agreement, including the indemnification and
escrow provisions, may adversely affect our ability to explore
various strategic alternatives with respect to our Commercial
Business.
Our Board believes that the sale of the Government Solutions
Business may enhance interest by potential acquirers of the
Commercial Business, as the Commercial Business could
potentially be acquired by a company that would no longer be
required to address the security concerns of the
U.S. federal government associated with foreign ownership
of suppliers with top-secret cleared services and facilities.
Notwithstanding any enhanced interest that potential acquirers
may have in the Commercial Business, certain terms of the Stock
Purchase Agreement, including, but not limited to, the
indemnification and escrow provisions, may adversely affect our
ability to explore various strategic alternatives with respect
to our Commercial Business.
As noted above, under the Stock Purchase Agreement, TechTeam has
agreed to indemnify Jacobs for various matters, including any
breach or violation of any representation, warranty, covenant or
undertaking made by us in the Stock Purchase Agreement, subject
to certain limitations and exceptions. There is significant
uncertainty as to the amount, if any, that we will ultimately
have to pay to Jacobs to resolve indemnification claims and,
accordingly, there is significant uncertainty as to the amount
of the indemnification escrow fund, if any, that will ultimately
be returned to us. These uncertainties may make it difficult for
a potential acquirer of the Commercial Business to appropriately
value the Commercial Business, including, but not limited to,
its contingent liabilities and our interest in the
indemnification escrow fund.
Stockholders are reminded that, other than the sale of the
Government Solutions Business to Jacobs Technology pursuant to
the Stock Sale, they are not being asked to consider or approve
any strategic proposals, alternatives or transactions at this
time. In addition, stockholders are cautioned that there can be
no assurance as to whether and when any specific transaction
relating to the Commercial Business will be authorized or
consummated and that no timetable has been set for the
completion of any such transaction.
The amount of
consideration we ultimately receive in the Stock Sale may vary
depending on the outcome of a post-closing net tangible book
value adjustment.
Of the total cash purchase price of $59,000,000, $2,770,294 will
be deposited into escrow to secure our obligation to make a
payment to Jacobs in the event that the post-closing net
tangible book value adjustment results in a reduction of the
purchase price. If after closing it is determined that the net
tangible book value of the Government Solutions Business as of
the close of business on the closing date of the Stock Sale is
less than the target net tangible book value amount, which is
$12,189,759, the
36
purchase price will be adjusted downward in an amount equal to
the difference. However, to the extent that this differential
exceeds the amount in the post-closing adjustment escrow fund,
we will be required to pay the shortfall to Jacobs, in addition
to the amount contained in the post-closing adjustment escrow
fund.
As noted above, the amount that will be held in escrow to secure
any
post-closing
net tangible book value purchase price adjustment does not
represent a maximum limit on our potential liability to Jacobs
for a post-closing net tangible book value adjustment. Due to
the uncertainty relating to the ultimate amount of the
post-closing net tangible book value adjustment, we cannot
currently predict the exact amount of the purchase price or the
net cash proceeds that we will receive in connection with the
Stock Sale.
If the Stock
Sale is consummated, we will be a smaller public company with
continuing public company reporting expenses and ongoing
operating expenses, all of which may be disproportionate to our
size and scope of operations.
Once the Stock Sale is completed, we will remain a publicly
traded company and will continue to be subject to SEC rules and
regulations applicable to such companies, including the periodic
and current reporting requirements under the Exchange Act and
the Sarbanes-Oxley Act of 2002. We will also be a company with
significantly fewer operating assets. As a result, we will
continue to incur expenses associated with us being a
publicly-traded company and additional ongoing operating
expenses which may be viewed to be excessive in relation to the
size and scope of our operations. Further, a number of our fixed
and other expenses will not be reduced or eliminated after the
Stock Sale is completed, even though we will have fewer
revenue-producing assets. As a result, we may be required to
seek further reductions of our costs and expenses, which we
cannot assure you may be implemented in a timely manner or at
all, or even if implemented will achieve the desired outcome.
Our failure in successfully implementing such measures may
adversely affect our results of operations and financial
condition.
You will not
receive any of the net cash proceeds from the Stock Sale, and we
could spend or invest the net cash proceeds from the Stock Sale
in ways in which our stockholders may not agree.
The purchase price for the Stock Sale (other than amounts placed
into escrow) will be paid directly to us. Currently, we do not
intend to distribute any portion of the net cash proceeds from
the Stock Sale to our stockholders and we intend to use such net
cash proceeds to repay our outstanding indebtedness under our
existing credit facility and to invest in the growth of our
Commercial Business. Ultimately, however, we may use all or a
portion of the net cash proceeds from the Stock Sale for other
purposes. The net cash proceeds that we receive from the Stock
Sale would also enable our Board to consider, from time to time,
repurchasing Common Stock for cash as market and business
conditions warrant. We could spend or invest the net cash
proceeds from the Stock Sale in ways with which our stockholders
may not agree. The investment of these proceeds may not yield a
favorable return.
If we
consummate the Stock Sale, we will be dependent on a less
diversified business.
The Business we propose to sell constitutes a significant
portion of our operations and assets. As such, our revenues and
net income following the closing of the Stock Sale will decrease
significantly from those existing prior to the Stock Sale. If we
consummate the Stock Sale, our results of operations and
financial condition will be dependent solely on the operations
of our Commercial Business, which would be comprised of our
three remaining operating segments. Accordingly, our operations
will be less diversified and we believe that the effect on our
future results of operations and financial condition of the
risks pertaining to our Commercial Business will be magnified.
See Item 1A Risk Factors in the
2009
Form 10-K,
a copy of which is reproduced as Exhibit F to this
Proxy Statement. We cannot assure you that, after the Stock
Sale, we can grow the revenues of our Commercial Business or
maintain its profitability.
37
A significant
portion of our working capital could be expended in pursuing
business acquisitions that are not consummated.
We may use some of the net cash proceeds received by us from the
Stock Sale to selectively invest in the growth of our Commercial
Business which may include the pursuit of specific business
acquisitions. The investigation of subsequent specific business
acquisitions and the negotiation, drafting and execution of
relevant agreements, disclosure documents and other instruments
will require substantial time and attention and substantial
costs for accountants, attorneys and others. In addition, we may
opt to make down payments or pay exclusivity or similar fees in
connection with structuring and negotiating a business
acquisition. If a decision is made not to complete a specific
business acquisition, the costs incurred up to that point in
connection with the abandoned transaction, potentially including
down payments or exclusivity or similar fees, will not be
recoverable. Furthermore, even if an agreement is reached
relating to a specific acquisition target, we may fail to
consummate the transaction for any number of reasons including
those beyond our control. Any such event will result in a loss
to us of the related costs incurred, which could materially and
adversely affect our subsequent attempts to locate and combine
with another business. While we may use some of the net cash
proceeds received by us from the Stock Sale to pursue specific
business acquisitions related to the growth of our Commercial
Business, no specific acquisition targets have been identified
at this time.
38
INFORMATION ABOUT
THE PARTIES TO THE STOCK SALE
TechTeam Global,
Inc.
We are a leading provider of information technology outsourcing
and business process outsourcing services to large and medium
sized businesses, as well as to governmental organizations. Our
primary services include service desk, technical support,
desk-side support, security administration, infrastructure
management and related professional services. Our business
consists of two main components our Commercial
Business and our Government Solutions Business. Together, our IT
Outsourcing Services segment, IT Consulting and Systems
Integration segment and Other Services segment comprise our
Commercial Business. Our Government Technology Services segment
comprises our Government Solutions Business. In addition to
managing our Commercial Business by service line, we also manage
this business by the following geographic markets: the Americas
(defined as North America excluding our government-based
subsidiaries), Europe and Latin America, and Asia.
TechTeam was incorporated under the laws of the State of
Delaware in 1987. Our principal executive offices are located at
27335 West 11 Mile Road, Southfield, Michigan 48033, and
our telephone number is
(248) 357-2866.
The Common Stock is traded on the NASDAQ Global Market under the
ticker symbol TEAM.
TechTeam Government Solutions, Inc. is one of our wholly owned
subsidiaries through which we principally own and operate our
Government Solutions Business that we intend to sell to Jacobs
Technology. TechTeam Government Solutions, Inc. was incorporated
under the laws of the Commonwealth of Virginia in 1984. TTGSI
has two wholly owned subsidiaries: Sytel, Inc., a Maryland
corporation and R.L. Phillips, Inc., a Delaware corporation.
TTGSIs principal executive offices are located at 3863
Centerview Drive, Suite 150, Chantilly, Virginia, and its
telephone number is
(703) 956-8200.
Jacobs
Engineering Group Inc.
Jacobs Engineering is one of the largest technical professional
services firms in the United States, providing a broad range of
technical, professional and construction services through
offices and subsidiaries located principally in North America,
Europe, the Middle East, Asia and Australia. Jacobs
Engineerings principal executive offices are located at
1111 South Arroyo Parkway, Pasadena, California 91105, and its
telephone number is
(626) 578-3500.
Jacobs Engineering was incorporated under the laws of the State
of Delaware in 1987, succeeding by merger to the business and
assets of Jacobs Engineering Group Inc., a California
corporation that, in 1974, had succeeded to a business organized
originally by that companys founder, Dr. Joseph J.
Jacobs, in 1947. The common stock of Jacobs Engineering is
currently listed on the New York Stock Exchange under the ticker
symbol JEC.
Jacobs Technology
Inc.
Jacobs Technology, formerly Sverdrup Technology, Inc., was
incorporated under the laws of the State of Tennessee in 1950.
Jacobs Technology, a wholly owned subsidiary of Jacobs
Engineering, provides technical professional services to
government and commercial clients. Jacobs Technologys
principal executive offices are located at 600 William Northern
Boulevard, Tullahoma, Tennessee 37388, and its telephone number
is
(931) 455-6400.
39
PROPOSAL 1
ADOPTION AND APPROVAL OF THE STOCK PURCHASE AGREEMENT
AND THE CONSUMMATION OF THE STOCK SALE
The following is a description of the material aspects of the
Stock Sale, including background information relating to the
proposed Stock Sale. While we believe that the following
description covers the material terms of the Stock Sale and
other arrangements between Jacobs and us, the description may
not contain all of the information that is important to you. You
should carefully read this Proxy Statement and the other
documents to which we refer, including the Stock Purchase
Agreement, a copy of which is attached hereto as
Exhibit A, for a complete understanding of the terms
of the Stock Sale.
Background of the
Stock Sale
The following is a chronological description of the material
contacts and events leading up to or relating to the Stock Sale.
For a more complete understanding of this description, we
encourage you to read the entire Proxy Statement, including, but
not limited to, the Stock Purchase Agreement attached as
Exhibit A to this Proxy Statement.
On September 24, 2008, our Board convened a meeting to
discuss various matters, including, but not limited to,
reviewing with our management its strategies for our two
principal businesses, the Government Solutions Business and the
Commercial Business. One or more representatives of our senior
management were also present for this meeting. Management
provided our Board with an assessment of the state of the
Government Solutions Business and the Commercial Business.
Management discussed with our Board various trends in the
government information technology services market, the
competitors in this market, and how the Government Solutions
Business was positioned relative to its competitors as well as
an assessment of the Government Solutions Business
strengths, weaknesses, opportunities and challenges. Among the
challenges facing the Government Solutions Business that
management noted were the significant contracts that would be
eligible to be re-competed in 2009 (including the contract with
the Air National Guard that would eventually expire on
September 30, 2009 and which accounted for approximately
16.0% of the revenue for the Government Solutions Business for
the fiscal year ended December 31, 2008 and accounted for
approximately 17.8% of the revenue for the Government Solutions
Business for the nine months ended September 30, 2009).
Management also noted that mid-tier businesses, such as the
Government Solutions Business, are being increasingly subject to
challenge by larger competitors bidding on smaller projects.
Accordingly, management noted growth in the Government Solutions
Business was important for it to be successful in competing
against these larger competitors. At this meeting, management
also discussed with our Board potential strategic alternatives
to enhance stockholder value, including continuing to execute
TechTeams current strategies for operating both the
Government Solutions Business and the Commercial Business,
exploring the sale of the Government Solutions Business in order
to support additional investments in the Commercial Business,
and exploring the sale of the entirety of the Company. Following
discussion, our Board agreed to continue the discussion at a
meeting of our Board to be held on September 29, 2008.
On September 29, 2008, our Board convened a meeting to
continue the discussion of various strategic alternatives that
had begun at the meeting of our Board held on September 24,
2008. One or more representatives of our senior management were
also present for this meeting. At this meeting, management again
discussed with our Board potential strategic alternatives to
enhance stockholder value, including, without limitation,
executing on TechTeams current strategies for operating
the Government Solutions Business and the Commercial Business,
exploring the sale of the Government Solutions Business in order
to support additional investments in the Commercial Business,
and exploring the sale of the entirety of the Company. Our Board
and our senior management discussed the potential risks and
benefits of attempting to execute on the current strategies for
operating both the Government Solutions Business and the
Commercial Business, and the potential benefits and effects of
separating the Government Solutions Business from the Commercial
Business. There was also a discussion of the potential risks of
attempting to divest the Government Solutions Business,
including, but not limited to, the disruption to TechTeam of
initiating a sales process for the Government Solutions Business.
40
On October 31, 2008, Charles Frumberg, Emancipation
Capital, LLC and various affiliates thereof (collectively,
Emancipation Capital) filed an initial
Schedule 13D with the SEC to report that, as of
October 30, 2008, they were deemed to beneficially own, in
the aggregate, approximately 6.17% of TechTeams
outstanding shares. In its Schedule 13D, Emancipation
Capital indicated that it believed that TechTeam should take
certain actions to maximize stockholder value, as communicated
over time by Emancipation Capital to several members of
TechTeams management and our Board. Specifically,
Emancipation Capital indicated that it believed that TechTeam
should sell the Government Solutions Business and use the
proceeds of the sale to retire indebtedness and repurchase up to
50% of TechTeams outstanding shares. Emancipation Capital
indicated that it believed that these actions would
substantially strengthen TechTeams balance sheet and
improve the strategic position of its core business and that the
results of these actions would be a stronger and more focused
business.
On November 25, 2008, our Board convened a meeting to
continue its prior discussions of TechTeams strategic
alternatives that had begun in September 2008. One or more
representatives of our senior management were also present for
this meeting. At this meeting, our Board discussed with our
senior management the investments necessary to achieve optimal
scale in both the Government Solutions Business and the
Commercial Business and the limited ability of TechTeam to
borrow money to provide funding for these investments due to, in
part, the global economic crisis. Our Board also discussed with
our senior management the recent correspondence received from
Emancipation Capital recommending, among other things, that
TechTeam should sell the Government Solutions Business.
Following a discussion on the process that would need to be
undertaken to evaluate various strategic alternatives and the
timing of such a process, our Board determined to continue its
discussions with respect to strategic alternatives at the
meeting of our Board scheduled for December 10, 2008.
On December 10, 2008, our Board convened a meeting and
continued its prior discussions of various strategic
alternatives that may be available to TechTeam. One or more
representatives of our senior management were also present for
this meeting. To assist our Board members in their consideration
of various strategic alternatives, a number of investment
banking firms were considered by our Board to serve as
TechTeams financial advisor. Our Board discussed with
these prospective financial advisors the state of the credit and
equity markets, the ability of companies to raise capital in the
current market environment, the mergers and acquisitions market
for federal contracting companies focused on information
technology services, and whether potential acquirers of the
Government Solutions Business would have access to capital to
close a transaction. Our Board and our senior management also
discussed the potential risks of attempting to divest the
Government Solutions Business.
On January 15, 2009, our Board convened a meeting and
continued its prior discussions of TechTeams strategic
alternatives. One or more representatives of our senior
management were also present for this meeting. At this meeting,
our Board again discussed with our senior management potential
strategic alternatives to enhance stockholder value, including,
without limitation, potentially divesting the Government
Solutions Business in order to support additional investments in
the Commercial Business as well as a sale of TechTeam in its
entirety. Our Board and our senior management also discussed the
rationale for divesting the Government Solutions Business,
including, but not limited to, the different strategies needed
to operate the Government Solutions Business and the Commercial
Business, that TechTeam lacked the internal financial resources
to support both strategies and the investments required for both
businesses to achieve the necessary scale. At this meeting, our
senior management indicated that they believed strongly in the
Commercial Business and recommended that our Board explore the
divestiture of the Government Solutions Business so that the
proceeds derived from such sale could be used to grow the
Commercial Business via possible strategic acquisitions. Our
Board and our senior management discussed the potential benefits
and risks of the various strategies being considered to enhance
stockholder value. In light of the foregoing, our Board directed
our senior management to move forward with the strategy of
exploring the sale of the Government Solutions Business.
On February 11, 2009, our Board convened a meeting and,
among other things, discussed recent correspondence received
from Seth W. Hamot, Costa Brava Partnership III, LP and various
affiliates thereof (collectively, Costa Brava)
requesting that our Governance and Nominating Committee consider
the
41
following persons as nominees for directors of our Board at the
2009 annual meeting of TechTeams stockholders: Seth W.
Hamot, Andrew R. Siegel, Charles Frumberg, James A. Lynch and
Dov H. Scherzer, and indicating that if these individuals were
not nominated, Costa Brava would submit a slate for
consideration by our stockholders at our 2009 annual meeting of
stockholders. One or more representatives of our senior
management were also present for this meeting. Upon
recommendation by our Boards Governance &
Nominating Committee and after consideration of the
qualifications of the individuals who had been proposed, our
Board increased its size to ten members, and appointed Seth W.
Hamot, Charles Frumberg and James A. Lynch to our Board
effective as of the close of business, Eastern time, on
February 11, 2009. In addition, in an effort to help our
senior management facilitate a possible review of strategic
alternatives, including, but not limited to, the sale of the
Government Solutions Business, our Board formed a strategy
committee composed of non-employee directors (the Strategy
Committee) and which was authorized, in consultation with
management, to:
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review, assess and recommend to the full Board merger,
acquisition,
and/or
divestiture transactions (M&A Transactions);
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provide guidance to management in the identification,
consideration, selection, negotiation and execution of any such
M&A Transactions; and
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review and analyze, in collaboration with management, and report
to the full Board regarding, other strategic alternatives
available to TechTeam for enhancing stockholder value.
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Effective as of the close of business, Eastern time, on
February 11, 2009, our Board appointed the following
non-employee members of our Board to serve on the Strategy
Committee: Andrew R. Siegel, Charles Frumberg and James A.
Lynch. Messrs. Siegel and Frumberg were also named
co-chairmen of the Strategy Committee. The Strategy Committee
was not formed in anticipation of any potential conflict issues
that could arise in connection with our Boards review of
various strategic alternatives and that could require the
formation of a special committee but rather was formed strictly
as an advisory committee to work with and assist management with
the strategic review process and, at all times, our Board
retained authority with respect to key transaction decisions and
approvals. At this meeting, our management updated our Board on
its discussions with a possible financial advisor and the Board
delegated to the Strategy Committee the authority to finalize
the terms of any such engagement.
On February 18, 2009, the Strategy Committee convened a
meeting to discuss various matters in connection with our
Boards consideration of various strategic alternatives to
enhance stockholder value, including the sale of the Government
Solutions Business. A representative of our senior management
was also present for this meeting.
On March 10, 2009, the Strategy Committee convened a
meeting to discuss various matters in connection with our
Boards consideration of various strategic alternatives to
enhance stockholder value, including, but not limited to, the
sale of the Government Solutions Business. Most of the other
members of our Board were also present for this meeting. In
addition, our senior management and a representative of our
legal counsel, Blank Rome LLP (Blank Rome), were
also present for this meeting. At this meeting, the Strategy
Committee discussed with our senior management and the other
members of our Board that were present a process by which all
acquisition inquiries would be referred to the Strategy
Committee. The Blank Rome representative provided to the members
of the Strategy Committee and the other directors who were
present an overview of their fiduciary duties as directors in
connection with our Boards review of various strategic
alternatives to enhance stockholder value.
Thereafter, we retained Houlihan Lokey to serve as
TechTeams financial advisor to assist TechTeam in
exploring potential transactions involving TechTeam, including,
but not limited to, the exploration of the sale of the
Government Solutions Business. Between April 2009 and early May
2009, our senior management, with the assistance of our
financial advisor, developed a list of parties that might be
potentially interested in acquiring the Government Solutions
Business. This list of potentially interested parties included
strategic and financial buyers. In addition, our senior
management, with the assistance of
42
our financial advisor, assembled information and materials
relating to the Government Solutions Business and developed a
strategy to conduct an organized competitive process for the
sale of the Government Solutions Business. At this time, our
senior management and financial advisor began holding regular
conference calls with Messrs. Frumberg and Siegel, the
Co-Chairs of
the Strategy Committee, to review the status of the proposed
process and the proposed list of potentially interested parties.
Also during this time, our senior management started preparing
an electronic data room containing materials and information
relating to the Government Solutions Business.
Beginning in May 2009 and continuing until October 2009, a total
of 97 parties were contacted regarding the potential sale of the
Government Solutions Business, including 56 strategic and 41
financial buyers. Of the 97 parties approached during this
period, 62 parties executed confidentiality agreements and
thereafter received additional information and materials
relating to the Government Solutions Business.
On May 6, 2009, our Board convened a meeting to discuss
various matters. One or more representatives of our senior
management were also present for this meeting.
Messrs. Frumberg and Siegel, on behalf of the Strategy
Committee, updated our Board on the status of the process to
explore the sale of the Government Solutions Business.
On May 8, 2009, Party C-A, a foreign strategic buyer,
executed a confidentiality agreement with TechTeam and
thereafter received additional information and materials
relating to the Commercial Business.
On May 15, 2009, Jacobs Engineering executed a
confidentiality agreement with TechTeam and thereafter received
additional information and materials relating to the Government
Solutions Business.
On May 18, 2009, a representative of Party C-A indicated
that Party C-A was interested in evaluating an acquisition of
TechTeam that would involve substantially all of TechTeams
current operations.
On May 27, 2009, Party G-A executed a confidentiality
agreement with TechTeam and thereafter received additional
information and materials relating to the Government Solutions
Business.
Beginning in June 2009 and continuing until October 2009,
representatives of the senior management of the Government
Solutions Business made presentations to representatives of 20
of the parties that had executed a confidentiality agreement,
including Jacobs Engineering and Party
G-A, and
provided further information relating to the Government
Solutions Business.
On June 10, 2009, Jacobs Engineering submitted an initial
indication of interest for the acquisition of the Government
Solutions Business. In its initial indication of interest,
Jacobs Engineering indicated that, based upon the due diligence
materials that had been provided to date, it proposed a purchase
price in the range of $83.1 million to $95 million to
acquire the Government Solutions Business on a cash-free,
debt-free basis. Jacobs Engineering noted that its valuation of
the Government Solutions Business was subject to verification of
the financial information for the Government Solutions Business
that was presented to Jacobs, and completion of its due
diligence review. In addition, Jacobs Engineering indicated that
the purchase price would be paid in cash from existing resources.
Also, on June 10, 2009, Party G-A submitted an initial
indication of interest with respect to the acquisition of the
Government Solutions Business. In its initial indication of
interest, Party G-A indicated that, based upon its preliminary
review of the Government Solutions Business to date (primarily
achieved through a review of the due diligence materials that it
had been provided with) and its knowledge of the government
services industry, it was prepared to pay $75 million to
$85 million to acquire the Government Solutions Business on
a cash-free, debt-free basis. Party G-A also indicated that it
was interested in engaging in further due diligence review of
the Government Solutions Business with the intention of
submitting a definitive proposal to acquire the Government
Solutions Business. In addition, Party G-A indicated that its
definitive proposal to acquire the Government Solutions
Business, if and when made, would not be contingent upon
financing.
In addition, on June 10, 2009, two parties, Party W-A and
Party C-A, both strategic buyers based overseas, that had been
contacted regarding their potential interest in acquiring either
the Government
43
Solutions Business or the Commercial Business, and that were
provided with various due diligence materials with respect to
each of these businesses, submitted indications of interest for
the entirety of the Company.
Party W-As indication of interest contemplated the
acquisition of the entirety of the Company in the range of $8.50
to 10.00 per outstanding share in cash or for an aggregate cash
consideration in the range of approximately $93.6 million
to $110.1 million (based on 11,011,460 shares of
Common Stock outstanding on a fully diluted basis as of
March 31, 2009). In its indication of interest, Party W-A
indicated that its proposed purchase price may be further
refined based upon the outcome of its due diligence review of
TechTeam. In addition, Party W-A indicated that the consummation
of its acquisition of TechTeam would not be subject to a
financing contingency.
Party C-As indication of interest contemplated the
acquisition of the entirety of the Company for $7.07 per
outstanding share or for an aggregate consideration of
approximately $77.9 million (based on
11,011,460 shares of Common Stock outstanding on a fully
diluted basis as of March 31, 2009). In its indication of
interest, Party C-A included the following additional terms:
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the transaction structure would be in the form of an all-cash
tender offer for all issued and outstanding shares of Common
Stock which would be followed by a merger of TechTeam with and
into a subsidiary or affiliate of Party C-A;
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the proposed purchase price would be subject to deductions for
any extraordinary change of control payments as well as changes
in certain balance sheet items (e.g., accounts
receivable); and
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the purchase price would be financed with internal funds and,
accordingly, the consummation of its acquisition of TechTeam
would not be subject to a financing contingency.
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Party C-A also indicated that that the consummation of its
acquisition of TechTeam would be conditioned upon the
satisfaction or waiver of the following closing conditions,
among others:
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TechTeam having a reasonable level of working capital necessary
to operate its businesses;
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the receipt of all governmental
and/or
regulatory consents and approvals required with respect to its
acquisition of TechTeam;
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the receipt of all material third-party consents and approvals
with respect to its acquisition of TechTeam;
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the absence of pending or threatened litigation or proceedings
seeking to enjoin, prohibit or materially impact its acquisition
of TechTeam or any other material impediments to its acquisition
of TechTeam;
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the execution and delivery of employment agreements by certain
members of TechTeams management; and
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no material adverse change affecting TechTeam or its financial
condition, business, properties, assets, liabilities, results of
operations or prospects since March 31, 2009.
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Party C-A indicated that its willingness to execute definitive
acquisition agreements would be conditioned upon the completion
by Party C-A and its representatives of their due diligence
review of TechTeam and that it contemplated the execution of a
definitive acquisition agreement by August 7, 2009.
Given that agencies within the U.S. Department of Defense,
including the Air National Guard (which contract was then
subject to being re-competed and would expire on
September 30, 2009), accounted for a significant percentage
of the revenue generated by the Government Solutions Business,
TechTeam was concerned that any transaction that would result in
a foreign buyer owning the Government
44
Solutions Business would be subjected to review by (i) the
Committee on Foreign Investment in the United States
(CFIUS), an inter-agency committee of the
U.S. government that reviews the national security
implications of foreign investments in U.S. companies or
operations, and (ii) the Defense Security Service
(DSS), an agency of the U.S. Department of
Defense that is responsible for clearing facilities, personnel
and associated information systems that provide services to
agencies and instrumentalities of the U.S. Department of
Defense, and that such reviews could potentially delay the
closing of any acquisition of TechTeam by a foreign buyer.
Neither the proposal submitted by Party C-A nor the proposal
submitted by Party W-A addressed how it intended to address any
potential governmental approval issues.
On June 12, 2009, the Strategy Committee convened a meeting
to discuss various matters in connection with our Boards
consideration of various strategic alternatives to enhance
stockholder value. Present at this meeting were various
representatives of our senior management and our legal and
financial advisors. At this meeting, Houlihan Lokey updated the
Strategy Committee on the process to solicit initial indications
of interest with respect to the acquisition of the Government
Solutions Business and discussed with the Strategy Committee the
10 indications of interest that had been received as of the date
of this meeting from potential buyers of the Government
Solutions Business. Houlihan Lokey also reported that two
parties, Party C-A and Party W-A, had expressed interest in
acquiring the entirety of the Company.
On June 23, 2009, the Strategy Committee convened a meeting
to discuss various matters in connection with our Boards
consideration of various strategic alternatives to enhance
stockholder value. One or more representatives of our senior
management were also present for this meeting. At this meeting,
the Strategy Committee discussed with management that, in
connection with the process to explore the sale of the
Government Solutions Business, a number of parties had indicated
their potential interest in the Commercial Business, including
Party C-A. Accordingly, the Strategy Committee considered
whether TechTeam should commence a formal process to explore the
sale of the Commercial Business and actively solicit indications
of interest therefor. Given the significant and broad array of
differences between the Government Solutions Business and the
Commercial Business, including, but not limited to, the
different markets and customers served, and taking into account
the CFIUS and DSS issues discussed above, it was the belief of
our Board that the optimal path to enhancing value for
stockholders, were it to determine that selling the entirety of
the Company was in the best interest of TechTeams
stockholders, would be to sell the Government Solutions Business
and the Commercial Business in two separate transactions to two
separate buyers. Accordingly, the goal of the two separate
concurrent processes would be to identify the optimal pairing of
buyers for the Government Solutions Business and the Commercial
Business. The Strategy Committee discussed with our senior
management the potential risks and benefits of commencing a
process to explore the sale of the Commercial Business, which
process would generally be separate from, but be conducted on as
much a parallel timetable as possible with, the process to
explore the sale of the Government Solutions Business. There was
also a discussion of the risks to TechTeam of attempting to
manage two separate processes. Notwithstanding the potential
risks and challenges of conducting two separate but concurrent
processes, the Strategy Committee concluded that a process to
explore the sale of the Commercial Business would provide our
Board with additional and relevant data by which to evaluate the
various strategic alternatives available to it to increase
stockholder value.
In connection with the process to explore the sale of the
Commercial Business, our senior management, with the assistance
of our financial advisor, developed a list of parties that might
be interested in acquiring the Commercial Business. This list of
potentially interested parties included strategic and financial
buyers. In addition our senior management, with the assistance
of our financial advisor, assembled information and materials
relating to the Commercial Business and developed a strategy to
conduct an organized competitive process for the sale of the
Commercial Business. At this time, our senior management started
preparing an electronic data room containing materials and
information relating to the Commercial Business.
On July 7, 2009, in accordance with our Boards
directives, representatives of Houlihan Lokey discussed with
representatives of Party W-A the potential interest of Party W-A
in acquiring either the Commercial Business or the entirety of
the Company. Thereafter, in accordance with our Boards
45
instructions, the representatives of Houlihan Lokey relayed to
the representatives of Party W-A the following:
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TechTeams views as to the value of the Government
Solutions Business based on the initial indications of interest
that it had received to date;
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that our Board would give serious consideration to any
pre-emptive offer presented by Party W-A for the Commercial
Business or the entirety of the Company;
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that before proceeding further with Party W-A regarding any
proposal to acquire the entirety of the Company, our Board would
need Party W-A to detail how, given its status as a foreign
entity, it would intend to address any CFIUS and other
governmental approval issues related to its acquisition and
ownership of the Government Solutions Business and what would
justify TechTeam moving forward with Party W-A given the
possibility of a transaction either being unduly delayed or not
consummated due to issues related to CFIUS or other governmental
approval processes, particularly given that TechTeam had already
identified qualified buyers for the Government Solutions
Business that would not present such issues;
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that Party W-A needed to provide an updated indication of
interest for the entirety of the Company with separate
valuations for the Government Solutions Business and the
Commercial Business based on the due diligence information
already provided to Party W-A with respect to both
businesses; and
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given that our Board was already contemplating initiating a
competitive process to explore the sale of the Commercial
Business, Party W-A would need to propose a purchase price that
contemplated a significant premium if it wanted to preempt a
competitive process.
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On July 23, 2009, a financial buyer (Party W-B)
that had been contacted regarding its potential interest in
acquiring either the Government Solutions Business or the
Commercial Business, and that had been provided with due
diligence materials with respect to both the Government
Solutions Business and the Commercial Business, indicated that
it was interested in exploring the acquisition of the entirety
of the Company. In its indication of interest, Party W-B
indicated that, based on the due diligence information that had
been reviewed to date and other publicly available information,
it was prepared to discuss an acquisition of the entirety of the
Company for $10.55 per outstanding share or for an aggregate
consideration of approximately $116.2 million (based on
11,011,460 shares of Common Stock outstanding on a fully
diluted basis as of March 31, 2009). Party W-B also
indicated that it would need to perform additional due diligence
of TechTeam, including, but not limited to, a review of
TechTeams financial, operational, legal and regulatory
systems. In addition, Party W-B indicated that it would need
third-party financing to consummate any acquisition of TechTeam.
In late July 2009, in accordance with our Boards
directives, a representative of Houlihan Lokey responded to
Party W-B and indicated that TechTeams strategic review
process contemplated that interested parties submit separate
proposals for the Government Solutions Business and the
Commercial Business so that our Board could determine the
optimum mix of bids for these two businesses. Accordingly, Party
W-B was requested to revise its indication of interest to
include separate valuations for the Government Solutions
Business and the Commercial Business.
On August 5, 2009, Party C-A submitted an initial
indication of interest for the acquisition of the Commercial
Business. Party C-As indication of interest contemplated a
purchase price for the Commercial Business of $48 million.
In its indication of interest, Party C-A indicated that it was
no longer interested in acquiring the Government Solutions
Business and its indication of interest contemplated the
acquisition of all of the issued and outstanding shares of
Common Stock for cash following TechTeams sale or spin-off
of the Government Solutions Business. Party C-As
indication of interest also included the following additional
terms:
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the proposed purchase price would be subject to deductions for
any extraordinary change of
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control payments as well as changes in certain balance sheet
items (e.g., accounts receivable); and
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the purchase price would be financed with internal funds and,
accordingly, the consummation of its acquisition of the
Commercial Business would not be subject to a financing
contingency.
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Party C-A also indicated that the consummation of its
acquisition of the Commercial Business would be conditioned upon
the satisfaction or waiver of the following closing conditions,
among others:
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the Commercial Business having a reasonable level of working
capital necessary to operate its businesses;
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the receipt of all governmental
and/or
regulatory consents and approvals required with respect to its
acquisition of the Commercial Business;
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the receipt of all material third-party consents and approvals
with respect to its acquisition of the Commercial Business;
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the absence of pending or threatened litigation or proceedings
seeking to enjoin, prohibit or materially impact its acquisition
of the Commercial Business or any other material impediments to
its acquisition of the Commercial Business;
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the execution and delivery of employment agreements by certain
members of the Commercial Business management; and
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no material adverse change affecting the Commercial Business or
its financial condition, business, properties, assets,
liabilities, results of operations or prospects since
March 31, 2009.
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Party C-A indicated that its willingness to execute definitive
acquisition agreements would be conditioned upon the completion
by Party C-A and its representatives of their due diligence
review of the Commercial Business and that it contemplated the
execution of a definitive acquisition agreement by
October 31, 2009.
On August 12, 2009, the Strategy Committee convened a
meeting (the August 12 Strategy Committee Meeting)
to discuss various matters in connection with our Boards
consideration of various strategic alternatives to enhance
stockholder value. The entire Board was present at this meeting,
either in person or via teleconference. Our senior management
and representatives of our legal and financial advisors were
also present for this meeting. At this meeting, our Board and
management were updated on the current status of the process to
explore the sale of the Government Solutions Business and the
process to separately explore the sale of the Commercial
Business. At this meeting, the Blank Rome representative
discussed with our Board an overview of its fiduciary duties in
connection with its review of various strategic alternatives.
At the August 12 Strategy Committee Meeting, a representative
from Houlihan Lokey discussed with our Board and management
that, as of the date of this meeting, 54 strategic buyers and 38
financial buyers had been contacted regarding their potential
interest in acquiring the Government Solutions Business. It was
noted that, of those contacted, 10 parties continued to express
interest in pursuing a potential transaction, nine of which had
submitted indications of interest for the acquisition of the
Government Solutions Business on a cash-free, debt-free basis
with proposed purchase prices ranging from $75 million to
$95 million. At this meeting, our Board discussed various
factors that could affect the purchase prices that would be
proposed for the Government Solutions Business, including, but
not limited to:
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the financial outlook for the remainder of the fiscal year ended
December 31, 2009;
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the outcome of the process by which the contract between the
Government Solutions Business and the Air National Guard (the
ANG Contract) was being re-competed; and
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whether the sale of the Government Solutions Business is
structured as a stock purchase transaction with:
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terms more customarily associated with sales of a public
company, as opposed to a division (e.g., no escrow, limited
representations and warranties, no survival of representations
and warranties after closing and no post-closing indemnification
of the buyer, etc.); or
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terms more customarily associated with the sale of a private
company (e.g., escrow, detailed representations and warranties,
survival of representations and warranties for a period
following closing, post-closing indemnification of the buyer,
etc.).
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Our Board also discussed how best to manage the process and
timing for exploring the sale of the Government Solutions
Business given the uncertainty surrounding whether the ANG
Contract would be renewed prior to its expiration on
September 30, 2009 and whether it would be renewed on
substantially similar terms, taking into account, the following
considerations, among others:
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the likely significance that a potential buyer would attach to a
decision by the Air National Guard not to renew the ANG Contract
or not to renew the ANG Contract on substantially similar terms
given that the ANG Contract accounted for approximately 16.0% of
the revenue for the Government Solutions Business for the fiscal
year ended December 31, 2008; and
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that any decision by the Air National Guard with respect to the
re-competition of the ANG Contract may not be known until the
end of September 2009.
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Also at the August 12 Strategy Committee Meeting, a
representative from Houlihan Lokey updated our Board and
management, noting that, as of the date of this meeting, 61
strategic buyers and 25 financial buyers had been contacted
regarding their potential interest in acquiring the Commercial
Business and, of those contacted, four parties had provided
initial indications of interest for the Commercial Business and
additional companies were in some form of dialogue with Houlihan
Lokey regarding their potential interest in the Commercial
Business. At this meeting, our Board also discussed various
factors that could affect the purchase price that would be
proposed for the Commercial Business as well as the interest of
potential buyers in continuing to participate in the process,
including, but not limited to, the near-term and long-term
financial outlook for the Commercial Business.
The initial indications of interest for the acquisition of the
Commercial Business proposed material terms and conditions,
including, without limitation, the proposed purchase price for
the Commercial Business (ranging from $40 million to
$60 million), financing conditions and exclusivity. Most of
the parties that submitted initial indications of interest with
respect to the Commercial Business were invited to visit with
our senior management and to receive further information and
materials relating to the Commercial Business, or participate in
a conference call with our senior management to review such
information and materials. Each party that participated in these
meetings was requested to either confirm its initial indication
of interest or to submit a revised non-binding indication of
interest relating to the sale of the Commercial Business.
Also at the August 12 Strategy Committee Meeting, our Board
discussed the extent to which some of the potential buyers for
the Commercial Business may have an interest in the Government
Solutions Business. Of the 61 strategic buyers contacted
regarding their interest in the Commercial Business, more than
two-thirds were based overseas. Accordingly, as noted above,
given that agencies within the U.S. Department of Defense,
including the Air National Guard (which contract was then
subject to being re-competed and would expire on
September 30, 2009), accounted for a significant percentage
of the revenue generated by the Government Solutions Business,
it was expected that any acquisition of the Government Solutions
Business by a foreign buyer would be subjected to CFIUS review
as well as review by DSS, and that such reviews, and the
potential information production demands and delays that such
reviews may entail, could discourage a potential foreign buyer
from pursuing the acquisition of the Government Solutions
48
Business. It was also noted that four of the parties that had
been contacted regarding their interest in the Commercial
Business had expressed interest in acquiring the entirety of the
Company, including Party W-A and Party W-B, with proposed
purchase prices ranging from $8.75 to $10.55 per outstanding
share or proposed aggregate purchase price consideration ranging
from approximately $96.4 million to $116.2 million
(based on 11,011,460 shares of Common Stock outstanding on
a fully diluted basis as of March 31, 2009). Given that two
separate exploratory processes were concurrently undertaken with
respect to the sale of the Government Solutions Business and the
sale of the Commercial Business, and given the goal of our Board
to be able to appropriately compare indications of interest for
the Government Solutions Business and the Commercial Business
and determine the optimal pairing of indications of interest for
the two businesses that could enhance value for stockholders,
our Board was of the view that potential buyers for the Company
in its entirety should be asked to submit separate indications
of interest for the Government Solutions Business and the
Commercial Business. In addition to being able to appropriately
compare indications of interest, it was also the belief of our
Board that, due to concerns with CFIUS and DSS clearances and
given the significant and broad array of differences between the
Government Solutions Business and the Commercial Business, the
optimal path to enhancing value for stockholders, were it to
determine that selling the entirety of the Company was in the
best interest of stockholders, would likely be to sell the
Government Solutions Business and the Commercial Business in two
separate transactions to two separate buyers.
On September 11, 2009, TechTeams management gave a
management presentation with respect to the Commercial Business
to representatives of Party C-A.
On September 30, 2009, the ANG Contract expired and the Air
National Guard in-sourced the majority of the work that the
Government Solutions Business performed under the ANG Contract.
While the Air National Guard awarded a new contract to Harris
Corporation, with the Government Solutions Business remaining as
a subcontractor to Harris Corporation, which covered the work
under the expiring contract that was not in-sourced and
additional positions, the new contract was of significantly
smaller scope and contemplated significantly less revenue and
gross margin for the Government Solutions Business than the
expiring ANG Contract. Specifically, had the Government
Solutions Business been delivering service under the new
contract for the entire fiscal year ended December 31,
2009, total U.S. federal government revenue would have been
reduced on a net basis by approximately 11.7%.
Also, on September 30, 2009, the Strategy Committee
convened a meeting to discuss various matters in connection with
our Boards consideration of various strategic alternatives
to enhance stockholder value. The entire Board was present at
this meeting. Our management and representatives of our legal
and financial advisors were also present for this meeting. At
this meeting, our Board and management were updated on the
current status of the process to explore the sale of the
Government Solutions Business and the process to separately
explore the sale of the Commercial Business.
In October 2009, potential buyers of the Government Solutions
Business were updated on the Government Solutions Business,
including, but not limited to, the outlook for the Government
Solutions Business for the remainder of the fiscal year ended
December 31, 2009, and the results of the ANG Contract
re-compete process.
On October 2, 2009, representatives of TechTeam met with
representatives of Party C-A and its financial advisor to
discuss Party C-As potential interest in TechTeam. During
the course of the meeting, Party C-A indicated that it was not
interested in acquiring the Government Solutions Business, but
that it remained interested in acquiring the Commercial Business
at a purchase price of $48 million. TechTeam indicated to
Party C-A that it believed that such a purchase price
undervalued the Commercial Business and that Party C-A would
need to increase its purchase price if it wanted to acquire the
Commercial Business.
On October 8 and October 9, 2009, at the direction of
our Board, representatives of Houlihan Lokey had a conference
call with representatives of Party G-A and Jacobs Engineering,
respectively, to discuss the current status of each partys
interest in acquiring the Government Solutions
49
Business and assess its timeline for submitting its final
indication of interest. Party G-A and Jacobs Engineering each
received an update on the Government Solutions Business.
On October 9, 2009, the Strategy Committee convened a
meeting to discuss various matters in connection with our
Boards consideration of various strategic alternatives to
enhance stockholder value. All of the non-employee members of
our Board were present at this meeting. A representative of
Blank Rome was also present for this meeting.
Messrs. Frumberg and Siegel discussed with the other
members of our Board the status of the process to explore the
sale of the Commercial Business and indicated that the purchase
prices that had been proposed by the parties that submitted
indications of interest were significantly lower than expected.
Later that day, our Board convened a meeting to discuss various
matters in connection with our Boards consideration of
various strategic alternatives to enhance stockholder value. One
or more representatives of our senior management were also
present for this meeting. Messrs. Frumberg and Siegel of
the Strategy Committee recommended to our Board that, given the
disappointing valuations attributed to the Commercial Business
by potential buyers, and for the other reasons discussed below,
the process to explore the sale of the Commercial Business
should be suspended. Following discussion, our Board determined
to suspend the process to explore the sale of the Commercial
Business.
In deciding to suspend the process to explore the sale of the
Commercial Business, our Board considered a number of factors,
including, but not limited to, the following:
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that 61 strategic buyers and 25 financial buyers had been
contacted regarding their potential interest in acquiring the
Commercial Business;
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that of the potential buyers contacted, only 4 parties had
submitted initial indications of interest;
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that the price ranges of the submitted initial indications of
interest had been in the range of $45 million to
$60 million;
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that our Board believed that, even at the high end of
$60 million, the initial indications of interest
undervalued the Commercial Business and did not appropriately
reflect the future prospects and intrinsic value of the
Commercial Business;
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that, after asking the prospective buyers to increase their
proposed valuations, none of the prospective buyers elected to
do so;
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that the process to explore the sale of the Commercial Business,
undertaken concurrently with the process to explore the sale of
the Government Solutions Business, was consuming a significant
amount of management time, attention and focus;
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that it was increasingly difficult to effectively conduct two
parallel exploratory sales processes while simultaneously
seeking to successfully manage both businesses;
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that suspending the process to explore the sale of the
Commercial Business might make it more likely that a successful
outcome would be achieved with respect to the sale of the
Government Solutions Business;
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that our Board could recommence the process to explore the sale
of the Commercial Business at any appropriate time;
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that the prospective buyers which had submitted initial
indications of interest for the Commercial Business had
indicated that they would continue to have potential interest in
the Commercial Business if the sale process was suspended and
would like to be contacted if our Board determined to revisit
the possibility of selling the Commercial Business;
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that completing the process to explore the sale of the
Government Solutions Business first could make it easier to
later revisit the sale of the Commercial Business since a number
of the potential buyers for the Commercial Business either did
not want to acquire the Government
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Solutions Business or could have faced regulatory approval
challenges due to their status as foreign buyers;
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that it may not have been the optimal time to explore the sale
of the Commercial Business; and
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that suspending the process to explore the sale of the
Commercial Business did not preclude our Board from considering
any offers that it received for the Commercial Business
thereafter.
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On October 15, 2009, Party C-A submitted a revised
indication of interest for the acquisition of the Commercial
Business. Party C-As indication of interest contemplated
an enterprise value for the Commercial Business, based on the
due diligence information that had been reviewed to date and
subject to further financial review of the Commercial Business,
of between $61.2 million and $67.9 million. Party
C-As indication of interest made clear that it was not
interested in acquiring the Government Solutions Business and,
accordingly, its indication of interest provided that its
acquisition of the Commercial Business would be conditioned upon
TechTeam first selling or otherwise divesting the Government
Solutions Business.
On October 23, 2009, our Board convened a meeting to
discuss various matters relating to the process to explore the
sale of the Government Solutions Business. Representatives of
our senior management and legal and financial advisors were also
present for this meeting. Messrs. Frumberg and Siegel, on
behalf of the Strategy Committee, updated our Board on the
status of the process to explore the sale of the Government
Solutions Business. Mr. Siegel noted that process letters
detailing the requirements for the submission of final
indications of interest had been sent to potential buyers of the
Government Solutions Business and that the deadline for the
receipt of such final indications of interest was
November 11, 2009. In addition, Mr. Siegel noted that
a draft stock purchase agreement had been prepared and it was
expected that potential buyers of the Government Solutions
Business would provide comments on the draft stock purchase
agreement along with their final indications of interest. The
representative of Blank Rome reviewed with our Board the draft
stock purchase agreement and various provisions thereof,
including, but not limited to, those relating to the survival
period for the representations and warranties made by TechTeam,
the cap on indemnity payments to be made by TechTeam, the
definition of material adverse effect, the
conditions to the parties respective obligations to close
the transactions contemplated by the stock purchase agreement,
the circumstances under which TechTeam would be permitted to
terminate the stock purchase agreement to accept a
superior proposal, and the amount of the termination
fee that would be payable in such an event. Following
discussion, our Board authorized the distribution of the draft
stock purchase agreement to potential buyers of the Government
Solutions Business substantially in the form presented to our
Board.
On November 2, 2009, in accordance with our Boards
directives, representatives of Houlihan Lokey had a conference
call with representatives of Party G-A to discuss the current
status of its interest in acquiring the Government Solutions
Business.
Also, on November 2, 2009, Party W-B indicated that it
would not be submitting a final indication of interest for the
Government Solutions Business as it did not believe that it
sufficiently understood the sector and believed that the
Government Solutions Business would be a difficult first
platform for it to enter the sector. While Party W-B indicated
that it had a continued interest in acquiring the entirety of
the Company or the Commercial Business, Party W-B did not
provide an updated indication of interest for the entirety of
the Company or any other data with respect to how it currently
valued the entirety of the Company or the Commercial Business.
On November 5, 2009, our Board convened a meeting to
discuss various matters in connection with our Boards
consideration of various strategic alternatives to enhance
stockholder value. TechTeams management was also present
for this meeting. Our legal and financial advisors were also
present for part of the meeting. Messrs. Frumberg and
Siegel, on behalf of the Strategy Committee, updated our Board
on the status of the process to explore the sale of the
Government Solutions Business. Mr. Siegel indicated that
the Strategy Committee was still expecting final indications of
interest to be received by November 11, 2009. At this
meeting, Mr. Siegel also discussed with the other members
of our Board the indication of
51
interest that had been received from Party C-A contemplating the
acquisition of the Commercial Business (subject to the
Government Solutions Business first being disposed of) and how
best to respond to such indication of interest.
On November 9, 2009, in accordance with our Boards
directives, a representative of Houlihan Lokey sent a letter, on
behalf of TechTeam, to a representative of Party C-A
acknowledging receipt of Party C-As indication of interest
dated October 15, 2009 for the Commercial Business and
requesting that Party C-A provide any additional information
relating to its indication of interest that it believed would be
relevant to our Board in its evaluation of such indication of
interest.
On November 18, 2009, Jacobs Engineering submitted its
final indication of interest proposing the acquisition of the
Government Solutions Business for $81 million. The final
indication of interest was in the form of a proposed letter of
intent and contemplated the execution thereof by both Jacobs
Engineering and TechTeam. Jacobs Engineerings final
indication of interest contemplated that its acquisition of the
Government Solutions Business would be structured as a stock
acquisition by either it or a wholly-owned subsidiary, that the
purchase price consideration would be all-cash, that the
acquisition of the Government Solutions Business would be on a
cash-free, debt-free basis, and the purchase price would be
subject to a post-closing net asset adjustment, based on a
definition of net assets and a target level of net assets to be
agreed upon. In addition, Jacobs Engineering indicated that the
purchase price would be paid in cash from internal funds and
that there would be no need for any other financing and,
accordingly, the acquisition would not be conditioned upon the
receipt of any financing. Jacobs Engineerings final
indication of interest also proposed the following additional
terms, among others:
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25% of the purchase price, or $20.25 million, would be
placed in an escrow account to secure the indemnification
obligations of TechTeam to Jacobs Engineering to be retained
until 36 months after the closing date;
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the escrow would serve as a non-exclusive source of
indemnification for Jacobs Engineering under the stock purchase
agreement;
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the representations and warranties made by TechTeam in the stock
purchase agreement, including both non-fundamental and
fundamental representations and warranties, would survive the
closing until 60 days following the expiration of the
applicable statute of limitations;
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the claim-based threshold for indemnity claims against TechTeam
in respect of breaches of non-fundamental representations and
warranties would be equal to $25,000;
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the threshold or tipping basket for indemnity claims
against TechTeam in respect of non-fundamental representations
and warranties would be equal to $150,000;
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the cap for indemnity claims against TechTeam in respect of
breaches of
non-fundamental
representations and warranties would be equal to 100% of the
purchase price or $81 million;
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there would be no threshold or cap for:
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indemnity claims against TechTeam in respect of breaches of
fundamental representations and warranties or covenants, or
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fraud, intentional misrepresentation and willful misconduct;
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the definition of fundamental representations and
warranties would include, among others, representations
and warranties relating to consents and approvals, government
contracts, compliance with laws, title and sufficiency of
assets, taxes, no indebtedness, and absence of certain business
practices;
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TechTeam would guarantee the collectability of the accounts
receivable acquired by Jacobs Engineering, both billed and
unbilled, for work performed prior to the closing date;
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TechTeam would procure, at its cost and expense, run-off
coverage
and/or tail
insurance having such coverage limits as Jacobs Engineering
deems advisable;
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TechTeam would agree not to compete with the Government
Solutions Business or solicit or hire any employee of Jacobs
Engineering or the Government Solutions Business for a period of
five years following the closing;
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the stock purchase agreement would provide that all key
employees of the Government Solutions Business would enter into
employment agreements with Jacobs Engineering (to become
effective after the closing) with terms of up to three years
after the closing date; and
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TechTeam would permit Jacobs Engineering and the Government
Solutions Business to continue to utilize the name
TechTeam in connection with the Government Solutions
Business for a reasonable period following the closing.
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In addition, Jacobs Engineering indicated that its obligation to
consummate the acquisition of the Government Solutions Business
would be conditioned on there being no material adverse
change to the Government Solutions Business (as such term
would be defined in the stock purchase agreement), including any
material adverse change to the prospects of the
Government Solutions Business. Jacobs Engineering also requested
an exclusivity period through December 31, 2009 to
negotiate with TechTeam the terms of its acquisition of the
Government Solutions Business and perform any necessary due
diligence.
Also, on November 18, 2009, Party G-A submitted its final
indication of interest proposing the acquisition of the
Government Solutions Business for $52.5 million. Party
G-As final indication of interest contemplated that its
acquisition of the Government Solutions Business would be
structured as a stock acquisition by a newly-created entity,
that the purchase price consideration would be all-cash, that
the acquisition of the Government Solutions Business would be on
a cash-free, debt-free basis, and the purchase price would be
subject to a post-closing net working capital adjustment based
on a definition of closing net working capital and a target
level of net working capital to be agreed upon. In addition,
Party G-A indicated that, upon the signing of a definitive stock
purchase agreement, its obligation to consummate the acquisition
of the Government Solutions Business would not be subject to
financing. Party G-As final indication of interest also
proposed the following additional terms, among others:
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10% of the purchase price, or $5.25 million, would be
placed in an escrow account to secure the indemnification
obligations of TechTeam to Party G-A to be retained until
15 months after the closing date;
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the claim-based threshold for indemnity claims against TechTeam
in respect of breaches of non-fundamental representations and
warranties would be equal to $50,000;
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the deductible for indemnity claims against TechTeam in respect
of non-fundamental representations and warranties would be equal
to 1% of the purchase price or $525,000;
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the cap for indemnity claims against TechTeam in respect of
breaches of non-fundamental representations and warranties would
be equal to 10% of the purchase price or $5.25 million;
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there would be no threshold, deductible or cap for:
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indemnity claims against TechTeam in respect of breaches of
fundamental representations or covenants, or
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TechTeams tax indemnity;
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a termination fee would be payable by TechTeam equal to 2% of
the purchase price or $1.05 million,
and/or the
reimbursement by TechTeam of Party G-As reasonable
expenses (with no cap on such expenses specified), based upon
the occurrence of certain
agreed-upon
events (including post-termination closing of an alternative
transaction); and
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if requested, prior to the closing, TechTeam would make an
election under Section 338(h)(10) of the Internal Revenue
Code of 1986, as amended (the Code).
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In its final indication of interest, Party G-A indicated that
its proposal would expire at the close of business on
November 25, 2009.
On November 20, 2009, the Strategy Committee convened a
meeting to discuss various matters in connection with our
Boards exploration of the sale of the Government Solutions
Business. Representatives from our management and legal and
financial advisors were also present for this meeting. At this
meeting, the representatives from Houlihan Lokey reviewed with
the Strategy Committee the final indications of interest that
had been received for the Government Solutions Business and the
process that had been followed in exploring the possible sale of
the Government Solutions Business. It was noted that 55
strategic and 42 financial buyers were contacted regarding their
potential interest in acquiring the Government Solutions
Business and, of those contacted, 24 strategic and 11 financial
buyers decided not to proceed prior to reviewing the various due
diligence materials, and 31 strategic and 31 financial buyers
had executed confidentiality agreements and received copies of
various due diligence materials.
Of the 62 parties that executed confidentiality agreements and
received copies of various due diligence materials with respect
to the Government Solutions Business, 22 parties submitted
non-binding initial indications of interest relating to the sale
of the Government Solutions Business. The initial indications of
interest proposed material terms and conditions relating to the
sale of the Government Solutions Business, including, without
limitation, the proposed purchase price for the Government
Solutions Business (ranging from $42 million to
$95 million) and exclusivity. Most of the parties that
submitted initial indications of interest with respect to the
Government Solutions Business were invited to visit with our
senior management and to receive further information and
materials relating to the Government Solutions Business, or
participate in one or more conference calls with our senior
management to review such information and materials. Each party
that participated in these meetings was requested to either
confirm its initial indication of interest or to submit a
revised non-binding indication of interest relating to the sale
of the Government Solutions Business.
Of the 22 parties that submitted initial indications of interest
with respect to the Government Solutions Business, no party
confirmed its initial indication of interest and only six
parties submitted final non-binding indications of interest
relating to the sale of the Government Solutions Business. The
16 parties that declined to confirm their initial indications of
interest and did not submit final indications of interest
indicated that they were not interested in pursuing a purchase
of the Government Solutions Business because of the uncertainty
of the Government Solutions Business short- and long-term
prospects as either a stand-alone enterprise or as an integrated
business unit of a larger organization, including, but not
limited to, its ability to achieve forecasted revenue and EBITDA
(particularly as it related to new business), the potential for
organizational conflicts of interest, the uncertainty regarding
near-term re-competes and the integration challenges that the
Government Solutions Business could present for strategic buyers.
The six final indications of interest that were received
proposed material terms and conditions relating to the sale of
the Government Solutions Business, including, without
limitation, proposed purchase prices for the Government
Solutions Business (ranging from $45 million to
$81 million) and exclusivity.
Jacobs Engineerings final indication of interest proposing
a purchase price of $81 million, the high-end of the range
of the final indications of interest, was deemed by the Strategy
Committee to represent the most attractive offer for the
Government Solutions Business.
On November 25, 2009, Jacobs Engineering was provided with
various revisions proposed by TechTeam to the terms and
provisions that were included in the initial draft of the letter
of intent provided by
54
Jacobs Engineering on November 18, 2009. The proposed
revisions included, but were not limited, to the following:
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the representations and warranties made by TechTeam in the stock
purchase agreement would survive the closing until
18 months following the closing, other than fundamental
representations and warranties which would survive the closing
until the expiration of the applicable statute of limitations;
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15% of the proposed purchase price, or $12.15 million,
would be placed in an escrow account to secure the
indemnification obligations of TechTeam to Jacobs Engineering,
with 50% of such amount to be released 12 months after the
closing date and the remainder to be released 18 months
after the closing date;
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in lieu of a tipping basket, there would be a
deductible for indemnity claims against TechTeam in respect of
non-fundamental representations and warranties equal to $600,000;
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the cap for indemnity claims against TechTeam in respect of
breaches of non-fundamental representations and warranties would
be equal to 25% of the purchase price or $20.25 million;
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TechTeams maximum liability for breaches of all
representations and warranties (including all fundamental
representations and warranties) would not exceed 100% of the
purchase price of $81 million, except in the case of fraud;
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TechTeam would agree not to compete with the Government
Solutions Business or solicit or hire any employee of Jacobs
Engineering or the Government Solutions Business for a period of
five years following the closing but such restrictive covenants
would terminate upon a change of control of TechTeam;
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the stock purchase agreement would provide that all key
employees of the Government Solutions Business would enter into
employment agreements with Jacobs Engineering (to become
effective after the closing) with terms of up to two years after
the closing date; and
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the stock purchase agreement would include fiduciary
out provisions that would allow TechTeam to terminate the
stock purchase agreement under certain circumstances.
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In addition, the proposed revisions to the draft letter of
intent rejected the following proposals of Jacobs Engineering:
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that TechTeam guarantee the collectability of the accounts
receivable acquired by Jacobs Engineering, both billed and
unbilled, for work performed prior to the closing date;
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that TechTeam procure, at its cost and expense, run-off coverage
and/or tail
insurance having such coverage limits as Jacobs Engineering
deems advisable; and
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that the obligation of Jacobs Engineering to consummate the
acquisition of the Government Solutions Business would be
conditioned on there being no material adverse
change to the Government Solutions business
(as such term would have been defined in the definitive stock
purchase agreement), including any material adverse change to
the prospects of such Government Solutions
business.
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On December 1, 2009, in accordance with our Boards
directives, representatives of Houlihan Lokey held a conference
call with representatives of Jacobs Engineering to discuss the
initial draft of the letter of intent provided by Jacobs
Engineering on November 18, 2009.
On the afternoon of December 3, 2009, TechTeam, together
with its legal and financial advisors, held a conference call
with Jacobs Engineering and its outside legal counsel, Paul,
Hastings, Janofsky & Walker LLP (Paul
Hastings), to discuss the letter of intent that had been
proposed by Jacobs Engineering
55
with respect to the acquisition of the Government Solutions
Business. Among those participating in this conference call were
(i) representing TechTeam, Messrs. Frumberg and
Siegel, and (ii) representing Jacobs Engineering, John
McLachlan, its Senior Vice President for Acquisitions and
Strategy, Jeff Goldfarb, its Vice President and Controller for
M&A and Public Sector, and Mike Udovic, its Vice President
and Corporate Secretary. During the course of this conference
call, TechTeam emphasized the importance of several factors,
including that any transaction to sell the Government Solutions
Business: (i) not unduly encumber our Boards ability
to explore various strategic alternatives for the Commercial
Business, (ii) provide for a fiduciary out for
TechTeam to consider competing acquisition proposals with
respect to the Government Solutions Business as well as the
entirety of the Company (including the Government Solutions
Business), (iii) have limited conditionality and,
accordingly, maximum certainty of closing, and
(iv) contemplate an expeditious timeline both for the
execution of a definitive acquisition agreement and the closing
of the transaction.
On December 4, 2009, Jacobs Engineering circulated a
revised draft letter of intent. In its revised letter of intent,
Jacobs Engineering proposed the following revisions:
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the representations and warranties made by TechTeam in the stock
purchase agreement would survive the closing until
24 months following the closing, other than fundamental
representations and warranties which would survive the closing
until sixty days following the expiration of the applicable
statute of limitations;
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15% of the proposed purchase price, or $12.15 million,
would be placed in an escrow account to secure the
indemnification obligations of TechTeam to Jacobs Engineering to
be retained until 24 months after the closing date;
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the threshold or tipping basket for indemnity claims
against TechTeam in respect of non-fundamental representations
and warranties would be equal to $250,000;
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the cap for indemnity claims against TechTeam in respect of
breaches of non-fundamental representations and warranties would
be equal to 50% of the purchase price or $40.5 million;
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TechTeams maximum liability for breaches of all
representations and warranties (including all fundamental
representations and warranties) would not exceed 100% of the
purchase price of $81 million, except in the case of fraud,
intentional misrepresentation or willful misconduct;
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there would be no threshold or cap for indemnity claims against
TechTeam in respect of:
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breaches of any covenants, or
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fraud, intentional misrepresentation and willful misconduct;
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TechTeam would agree not to compete with the Government
Solutions Business or solicit or hire any employee of Jacobs
Engineering or the Government Solutions Business for a period of
five years following the closing but such restrictive covenants
would terminate upon a change of control of TechTeam;
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the stock purchase agreement would provide that all key
employees of the Government Solutions Business would enter into
employment agreements with Jacobs Engineering (to become
effective after the closing) with terms of up to two years after
the closing date;
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TechTeam would make an election under Section 338(h)(10) of
the Code with respect to the tax treatment of the sale of the
Government Solutions Business; and
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to the extent that TechTeam determines that approval of the sale
of the Government Solutions Business is required by its
stockholders, the stock purchase agreement would
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56
include fiduciary out provisions and, related to
that, Jacobs Engineering would be entitled to a termination fee
equal to 5% of the purchase price, or $4.05 million, and
reimbursement of its expenses in the event that the stock
purchase agreement is terminated under certain circumstances.
Jacobs Engineering also requested an exclusivity period through
January 31, 2010 to negotiate with TechTeam the terms of
its acquisition of the Government Solutions Business and perform
any necessary due diligence.
On December 9, 2009, our Board convened a meeting to
discuss various matters. Our senior management was also present
for this meeting. Messrs. Frumberg and Siegel, on behalf of
the Strategy Committee, updated our Board on the status of the
process to explore the sale of the Government Solutions
Business. Mr. Siegel noted that, of the six final
indications of interest that were received, the one submitted by
Jacobs Engineering, which proposed a purchase price of
$81 million, contemplated the highest purchase price for
the Government Solutions Business. Mr. Siegel informed our
Board that TechTeam was in the process of negotiating a letter
of intent with Jacobs Engineering.
On the afternoon of December 10, 2009, representatives of
Blank Rome held a conference call with representatives of Paul
Hastings as well as Mr. Udovic to discuss various matters
related to the letter of intent that had been proposed by Jacobs
Engineering with respect to the acquisition of the Government
Solutions Business.
On the morning of December 12, 2009, Mr. Siegel
circulated a letter to John McLachlan, the Senior Vice
President, Acquisitions and Strategy, for Jacobs Engineering. In
his letter, Mr. Siegel indicated to Mr. McLachlan that
the letter of intent proposed by Jacobs Engineering contained
numerous provisions which were troubling to our Board and raised
significant doubt as to whether a transaction with Jacobs
Engineering could be completed. As an example of such
provisions, Mr. Siegel pointed to Jacobs Engineerings
request to categorize various representations and warranties to
be made by TechTeam in the stock purchase agreement as
fundamental representations, including the
representation and warranty with respect to government
contracts. The effect of including such a representation and
warranty within the definition of fundamental
representations would have been to provide Jacobs
Engineering the right to seek indemnification from TechTeam for
up to 100% of the purchase price paid for the Government
Solutions Business with respect to indemnification claims
arising out of a breach of the government contracts
representation. While Mr. Siegel indicated that, based on
the framework proposed by Jacobs Engineering, it might be futile
for the parties to continue any further discussions, he also
indicated that if the impasse could be resolved with
an in-person meeting, TechTeam and its representatives were
prepared to meet as soon as logistically practicable to address
the open issues regarding the proposed letter of intent.
On December 15, 2009, Mr. McLachlan requested that the
respective representatives of TechTeam and Jacobs Engineering
meet on December 18, 2009 to discuss the open issues
relating to the letter of intent proposed by Jacobs Engineering.
On December 17, 2009, Party G-A submitted a revised
indication of interest for the acquisition of the Government
Solutions Business for $60 million, which represented an
increase of $7.5 million from its previous indication of
interest dated November 18, 2009. Party G-As revised
indication of interest contained many of the same terms as were
contained in its final indication of interest other than
(i) the revised purchase price of $60 million,
(ii) an escrow deposit of $6 million (as opposed to
$5.25 million in its final indication of interest) to
secure the indemnification obligations of TechTeam to Party G-A;
and (iii) a term of escrow of 12 months after the
closing date (as opposed to 15 months in the final
indication of interest submitted by Party G-A). In addition, as
with its earlier indications of interest, Party G-A indicated
that, upon the signing of a definitive stock purchase agreement,
its obligation to consummate the acquisition of the Government
Solutions Business would not be subject to obtaining financing.
In its revised indication of interest, Party G-A indicated that
its proposal would expire at the close of business on
December 23, 2009.
57
On the morning of December 18, 2009, the respective
representatives of TechTeam and Jacobs Engineering met to
discuss the open issues relating to the letter of intent
proposed by Jacobs Engineering. Messrs. Frumberg and Siegel
attended on behalf of TechTeam as did representatives of our
legal and financial advisors. Jacobs Engineering was represented
at this meeting by George A. Kunberger, its Executive Vice
President, Messrs. Goldfarb and Udovic, and a
representative of Paul Hastings. At this meeting, TechTeam and
Jacobs Engineering discussed various issues relating to the
proposed letter of intent, including, but not limited to:
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the effect of a transaction between TechTeam and Jacobs
Engineering on our Boards ability to explore various
strategic alternatives for the Commercial Business;
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the ability of Jacobs Engineering to claw-back the purchase
price for the Government Solutions Business through
indemnification or other provisions;
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the definition of fundamental representations and
warranties;
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the survival period for the representations and warranties that
would be made by TechTeam in the stock purchase agreement;
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whether TechTeams indemnification obligations pursuant to
a stock purchase agreement with Jacobs Engineering would be
limited to the amount held in an escrow account;
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the extent to which the parties would share the costs of an
election made by TechTeam to have the sale of the Government
Solutions Business treated as an asset sale under
Section 338(h)(10) of the Code;
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the extent to which TechTeam would be required to guarantee the
accounts receivable balance that are recorded on the closing
balance sheet of the Government Solutions Business;
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the extent to which TechTeam would fund retention arrangements
with key employees of the Government Solutions Business;
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whether the execution of employment agreements with key
employees of the Government Solutions Business would be a
condition to the obligation of Jacobs Engineering to consummate
a transaction;
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the definition of material adverse effect and
whether the absence of a material adverse effect
with respect to the Government Solutions Business would be a
condition to the obligation of Jacobs Engineering to consummate
the acquisition of the Government Solutions Business;
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other issues affecting certainty of the closing of a transaction
with Jacobs Engineering; and
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the contemplated timeline for the signing of a stock purchase
agreement with Jacobs Engineering.
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At the conclusion of this day-long meeting, it was the
understanding of the parties that, rather than attempt to
continue to negotiate a letter of intent, they would focus their
efforts on negotiating a stock purchase agreement.
Following the conclusion of the meeting, TechTeam viewed the
following points, among others, as having been agreed to in
principle:
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the cap on TechTeams indemnification obligations pursuant
to the stock purchase agreement would be equal to 25% of the
purchase price;
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the escrow to secure TechTeams indemnification obligations
pursuant to the stock purchase agreement would be equal to 25%
of the purchase price and would be the sole recourse for all
indemnification obligations except for taxes and fraud (subject
to reaching agreement on the definition of fraud);
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TechTeam would guarantee the accounts receivable of the
Government Solutions Business as they exist on the date of
closing of the transaction but such guarantee would fall under
the 25% cap on TechTeams indemnification obligations
discussed above;
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if Jacobs Engineering requests that TechTeam make an election
pursuant to Section 338(h)(10) of the Code, the parties
would share equally the incremental costs of such an election;
and
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the purchase price to be paid by Jacobs would be netted against
$2 million to fund retention payments that would be made to
TTGSI employees by Jacobs following the closing of the Stock
Sale.
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Among the points that TechTeam viewed as open were the following:
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the duration of the period during which the representations and
warranties of TechTeam would survive the closing of the
transaction;
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the duration of the period during which a portion of the
purchase price paid for the Government Solutions Business would
be held in escrow; and
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the extent to which Jacobs Engineering could assert claims for
fraud, intentional misrepresentation or similar claims against
TechTeam outside of the escrow and in excess of the 25%
indemnification cap and how fraud would be defined by the
parties in the stock purchase agreement.
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On the evening of December 22, 2009, a representative of
Paul Hastings circulated to representatives of Blank Rome a
revised draft of the stock purchase agreement that had been
provided to Jacobs Engineering in October 2009 for review and
comment in connection with the solicitation of Jacobs
Engineerings final indication of interest.
On December 23, 2009, representatives of Blank Rome and
Paul Hastings held a conference call to discuss various issues
relating to the revised draft of the stock purchase agreement,
including, but not limited to, the circumstances under which
TechTeam could be liable for indemnification claims in excess of
the indemnification escrow amount as well as indemnification
claims asserted more than three years after the closing of the
transaction. In connection with that discussion, the
representatives discussed the carve-outs that Jacobs Engineering
was seeking to the cap on TechTeams obligations to
indemnify Jacobs Engineering pursuant to the stock purchase
agreement, particularly the carve-outs for fraud, intentional
misrepresentation and similar claims, which would have no limit
in amount or duration.
Also, on December 23, 2009, TechTeam indicated to Jacobs
Engineering its disappointment with the revised draft of the
stock purchase agreement and that, given the presence of other
parties potentially interested in pursuing the acquisition of
the Government Solutions Business, Jacobs Engineering would need
to move quickly to resolve the issues presented by its draft
stock purchase agreement.
On the evening of December 23, 2009, a representative of
Party G-A submitted a draft exclusivity agreement that
contemplated TechTeam granting Party G-A an exclusive period of
30 days to negotiate the terms of its acquisition of the
Government Solutions Business and perform any necessary due
diligence.
On December 24, 2009, Messrs. Frumberg and Siegel held
a telephone call with Mr. Kunberger to discuss the status
of Jacobs Engineerings interest in pursuing the
acquisition of the Government Solutions Business.
Mr. Kunberger indicated that Jacobs Engineering continued
to be interested in acquiring the Government Solutions Business.
Messrs. Frumberg and Siegel indicated to Mr. Kunberger
that the carve-outs that Jacobs Engineering was seeking to the
cap on TechTeams obligations to indemnify Jacobs
Engineering pursuant to the stock purchase agreement,
particularly the carve-outs for fraud, intentional
misrepresentation and similar claims, which would have no limit
in amount of duration, would be difficult for TechTeam to agree
to, particularly given their possible effect on TechTeams
ability to explore strategic alternatives for the Commercial
Business. Mr. Kunberger indicated that he would discuss
this issue with the other members of his management team.
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On the morning of December 29, 2009, Messrs. Frumberg
and Siegel held a conference call with a senior representative
of Party G-A. Also participating in the conference call were
representatives of TechTeams and Party G-As
respective advisors. The conference call focused on various
issues related to Party G-As potential interest in
acquiring the Government Solutions Business, including, but not
limited to:
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the effect of a transaction between TechTeam and Party G-A on
our Boards ability to explore various strategic
alternatives for the Commercial Business;
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the ability of Party G-A to claw-back the purchase price for the
Government Solutions Business through indemnification or other
provisions;
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the definition of fundamental representations and
warranties;
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the survival period for the representations and warranties that
would be made by TechTeam in the stock purchase agreement;
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that TechTeams indemnification obligations pursuant to a
stock purchase agreement with Party G-A needed to be limited to
the amount held in an escrow account;
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the definition of material adverse effect and
whether the absence of a material adverse effect
with respect to the Government Solutions Business would be a
condition to the obligation of Party G-A to consummate the
acquisition of the Government Solutions Business;
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other issues affecting certainty of closing of a transaction
with Party G-A; and
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the contemplated timeline for the signing of a stock purchase
agreement with Party
G-A.
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On December 30, 2009, Mr. Kunberger telephoned
Mr. Siegel to inform him that Jacobs Engineering was no
longer interested in pursuing the acquisition of the Government
Solutions Business.
On January 4, 2010, a representative of Blank Rome
circulated to a representative of Party G-As legal counsel
a revised draft of its proposed exclusivity agreement. The
representatives subsequently exchanged various additional
revised drafts of the exclusivity agreement that day and held a
conference call to negotiate various provisions of the
exclusivity agreement, including, but not limited to, that the
exclusivity agreement not restrict the ability of TechTeam to
encourage, solicit, initiate or engage in discussions or
negotiations with any person, or encourage or solicit proposals
from any person, with respect to either (a) any purchase,
sale or other disposition of the Commercial Business, or
(b) any merger, acquisition, consolidation or similar
business combination involving the sale of TechTeam subsequent
to a sale of the Government Solutions Business to Party G-A.
On January 6, 2010, Party G-A was provided with an update
on the Government Solutions Business and, thereafter, held a
conference call to discuss such update with a senior management
representative of the Government Solutions Business. Following
the conference call, the representative from Party G-A expressed
concern with the financial outlook for the Government Solutions
Business and indicated that it would need time to digest the
information provided.
On January 8, 2010, Party G-A submitted a revised
indication of interest for the acquisition of the Government
Solutions Business for $55 million. Party G-As
revised indication of interest contained many of the same terms
as were contained in its prior indication of interest other than
(i) that the revised proposed purchase price would be
$55 million, and (ii) the amount of the escrow deposit
would be $5 million (as opposed to $6 million in its
final indication of interest) to secure the indemnification
obligations of TechTeam to Party G-A. In addition, as with its
earlier indications of interest, Party G-A indicated that, upon
the signing of a definitive stock purchase agreement, its
obligation to consummate the acquisition of the Government
Solutions Business would not be subject to financing. In its
revised indication of interest, Party G-A indicated that its
proposal would expire at the close of business on
January 11, 2010.
60
On January 10, 2010, our Board convened a meeting to
discuss various matters relating to the process to explore the
sale of the Government Solutions Business. TechTeams
senior management and a representative of Blank Rome were also
present for this meeting. Messrs. Frumberg and Siegel, on
behalf of the Strategy Committee, updated our Board on the
status of the process to explore the sale of the Government
Solutions Business. Mr. Siegel discussed with our Board the
terms of Party G-As most recently revised indication of
interest which contemplated a purchase price of $55 million
for the Government Solutions Business (reflecting a reduction
from the $60 million proposed purchase price contained in
Party G-As previous indication of interest dated
December 17, 2009). Mr. Siegel also noted that Party
G-A was seeking an exclusivity period of 30 days (ending on
February 10, 2010) to negotiate with TechTeam the
terms of its acquisition of the Government Solutions Business
and perform any necessary due diligence. Mr. Siegel
indicated that, notwithstanding the reduced purchase price,
Party G-As most recent indication of interest represented
the most attractive bid then received to date and not withdrawn
for the Government Solutions Business, taking into account:
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the proposed purchase price;
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the proposed transaction terms such as escrow amount,
indemnification, and the limitations on the ability of Party G-A
to make indemnification claims post-closing against the escrowed
amount and beyond the escrowed amount;
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certainty of closing;
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timing of closing; and
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the effect that a transaction with Party G-A would have on the
ability of our Board to explore various strategic alternatives
with respect to the Commercial Business.
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Mr. Siegel also informed our Board that the Strategy
Committee had requested that Houlihan Lokey confirm with Jacobs
Engineering that it was no longer interested in pursuing the
acquisition of the Government Solutions Business and that such
confirmation would be obtained from Jacobs Engineering prior to
executing an exclusivity agreement with Party G-A.
Messrs. Frumberg and Siegel, on behalf of the Strategy
Committee, recommended that our Board authorize TechTeam to
enter into the exclusivity agreement as negotiated with Party
G-A. Our Board discussed the meaning and consequences of
granting exclusivity to Party G-A upon and subject to the terms
of the proposed exclusivity agreement. In considering the
proposed exclusivity agreement, our Board considered various
factors, including, but not limited to:
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our Boards understanding that Jacobs Engineering was no
longer interested in pursuing the acquisition of the Government
Solutions Business (which would be confirmed prior to executing
the exclusivity agreement with Party G-A);
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that Party G-A had indicated that it would not continue
discussions and negotiations without an executed exclusivity
agreement; and
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the view of our Board that (assuming Jacobs Engineering was no
longer interested in pursuing the acquisition of the Government
Solutions Business), and taking into account the competitive
process used to explore the sale of the Government Solutions
Business, the terms proposed by Party G-A in its most recent
indication of interest represented the best transaction
attainable with respect to the sale of Government Solutions
Business.
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Following such discussion, and subject to obtaining the
confirmation from Jacobs Engineering that it was no longer
interested in pursuing the acquisition of the Government
Solutions Business, our Board approved, and authorized
TechTeams management to execute, an exclusivity agreement
with Party G-A as recommended by Messrs. Frumberg and
Siegel.
On January 11, 2010, at the request of the Strategy
Committee, a representative of Houlihan Lokey held a telephone
call with Jeff Goldfarb, Vice-President & Controller
for M&A and Public Sector at
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Jacobs Engineering. During the course of such call,
Mr. Goldfarb confirmed that Jacobs Engineering was no
longer interested in pursuing the acquisition of the Government
Solutions Business.
Also, on January 11, 2010, at the request of the Strategy
Committee, a representative of Houlihan Lokey held a telephone
call with a representative of Party W-B to inquire whether Party
W-B was still interested in acquiring the entirety of the
Company on the terms contained in the indication of interest
that it had submitted on July 23, 2009. During the course
of that telephone conversation, Party W-B was updated as to the
financial condition and outlook of TechTeam since the prior
summer. Following such discussion, the representative of Party
W-B indicated that, while it may still be interested in
exploring the acquisition of the entirety of the Company, given
the significant deterioration in TechTeams financial
condition and outlook, Party W-B would not be willing to
reaffirm the proposed purchase price contemplated by its
July 23, 2009 indication of interest.
On January 12, 2010, TechTeam and Party G-A executed an
exclusivity agreement that granted Party G-A exclusivity through
February 10, 2010 to negotiate with TechTeam the terms of
its acquisition of the Government Solutions Business and perform
any necessary due diligence.
Also, on January 12, 2010, TechTeam and Party G-A executed
an amendment to the confidentiality agreement that the parties
had executed on May 27, 2009. The purpose of the amendment,
among other things, was to permit Party G-A to share with one of
its affiliates certain of the information and materials relating
to the Government Solutions Business. TechTeam also executed on
this same date a similar amendment to the confidentiality
agreement that it had executed with an affiliate of Party G-A on
June 2, 2009.
On the afternoon of January 18, 2010, a representative of
Party G-As legal counsel circulated to a representative of
Blank Rome a detailed issues list relating to the draft stock
purchase agreement that had been provided to Party G-A in
October 2009 for review and comment in connection with the
solicitation of Party G-As final indication of interest.
In the detailed issues list, Party G-As legal counsel
indicated that Party G-A was not willing to provide an
unconditional representation in the stock purchase agreement
that it had or would have sufficient funds for the closing, but
would only represent that it would have sufficient funds if its
third-party financing was consummated in accordance with the
terms of a financing commitment letter, a copy of which would be
provided to TechTeam prior to the execution of a stock purchase
agreement. In addition, Party G-As legal counsel indicated
in the detailed issues list that if TechTeam terminated the
stock purchase agreement because of a material breach by Party
G-A, TechTeam would not be able to bring an action against Party
G-A for specific performance and the only recourse of TechTeam
would be to collect a reverse termination fee in an amount to be
determined, as liquidated damages, from an affiliate of Party
G-A. The issues list also provided that Party G-A would not be a
party to the stock purchase agreement and, except for the
obligation to pay a reverse
break-up
fee, the only affiliate of Party G-A that would be a party
to the stock purchase agreement would be a newly-formed
acquisition subsidiary. In addition to the foregoing, Party
G-As detailed issues list raised other issues that were of
concern to TechTeam, including, but not limited to, the
following:
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that the proposed fiduciary out would only apply to
a competing transaction proposal that involves a change of
control of TechTeam or the entire business of TechTeam but would
not apply to offers or proposals to acquire just the Government
Solutions Business;
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that Party G-A was seeking to have TechTeam agree to a worldwide
non-compete covenant (the term of which was to be agreed upon)
to prevent TechTeam from competing with the Government Solutions
Business after it is sold to Party G-A; and
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that Party G-A had rejected many of the
seller-friendly carveouts included in
TechTeams proposed definition of material adverse
effect and wanted to include, as part of that definition,
any adverse changes affecting the prospects of the
Government Solutions Business.
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On January 22, 2010, representatives of Blank Rome met with
representatives of Party G-As legal counsel at the offices
of Party G-As legal counsel to review and negotiate
various issues related to the stock purchase agreement pursuant
to which Party G-A would acquire the Government Solutions
Business from TechTeam, including, but not limited to, the
issues included on the detailed issues list that had been
circulated by Party G-As legal counsel on January 18,
2010.
On February 1, 2010, a representative of Party G-As
legal counsel circulated to a representative of Blank Rome a
revised draft of the stock purchase agreement. Also, on
February 1, 2010, a representative of Party G-As
legal counsel circulated to a representative of Blank Rome a
letter from Party G-A, contemplated by the exclusivity agreement
between TechTeam and Party G-A, confirming to TechTeam that, as
of February 1, 2010, Party G-A had not identified any
material issues which would alter Party G-As intention to
continue to move toward executing a definitive acquisition
agreement with respect to the sale of the Government Solutions
Business at a purchase price of $55 million and the other
material terms that were outlined in its most recent indication
of interest.
On the afternoon of February 3, 2010, TechTeam held a
conference call with representatives of Party C-A, together with
the parties respective legal and financial advisors, to
discuss various matters with respect to a possible sale of the
Commercial Business to Party C-A subsequent to the sale of the
Government Solutions Business, including, but not limited to:
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the transaction structure by which the Commercial Business would
be sold,
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whether TechTeams indemnification obligations pursuant to
a stock purchase agreement with the buyer of the Government
Solutions Business would be limited to the amount held in an
escrow account, and
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the extent to which the buyer of the Commercial Business would
be liable for contingent liabilities of the Government Solutions
Business in excess of the amount held in an escrow account.
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On February 5, 2010, a representative of Party G-A
circulated a draft amendment to the exclusivity agreement that
had been executed by TechTeam and Party G-A which amendment
proposed an extension of exclusivity until February 28,
2010.
On February 10, 2010, a representative of Blank Rome
circulated to a representative of Party G-As legal counsel
a revised draft of the stock purchase agreement. Also, on
February 10, 2010, the exclusivity agreement that had been
executed by TechTeam and Party G-A expired without extension.
On the afternoon of February 10, 2010, TechTeam held a
telephone conference with Party W-A, together with the
parties respective advisors, to discuss various matters
with respect to a possible sale of the Commercial Business to
Party W-A subsequent to the sale of the Government Solutions
Business, including, but not limited to:
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the transaction structure by which the Commercial Business would
be sold;
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whether TechTeams indemnification obligations pursuant to
a stock purchase agreement with the buyer of the Government
Solutions Business would be limited to the amount held in an
escrow account; and
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the extent to which the buyer of the Commercial Business would
be liable for contingent liabilities of the Government Solutions
Business in excess of the amount held in an escrow account.
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On the evening of February 10, 2010, a representative of
Blank Rome held a telephone conference with a representative of
Party C-As outside legal counsel to further discuss
various issues with respect to a possible sale of the Commercial
Business to Party C-A subsequent to the sale of the Government
Solutions Business, including, but not limited to, the extent to
which the buyer of the Commercial Business
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would be liable for contingent liabilities of the Government
Solutions Business in excess of the amount held in an escrow
account.
On February 11, 2010, Mr. Hamot circulated a letter to
Mr. Kunberger. In his letter, Mr. Hamot informed
Mr. Kunberger that TechTeams exclusivity agreement
with another party had expired the day before and that such
party was seeking an extension of exclusivity. Mr. Hamot
indicated to Mr. Kunberger that, before TechTeam would
agree to such an extension, TechTeam wanted to assess whether
Jacobs Engineering would have any interest in resuming
negotiations with TechTeam with respect to the possible
acquisition of the Government Solutions Business.
On February 12, 2010, Mr. Kunberger circulated an
e-mail to
Mr. Siegel confirming receipt of Mr. Hamots
letter. Mr. Kunberger indicated that while Jacobs
Engineering would seek to respond later that day to
Mr. Hamots letter, given that Mr. McLachlan and
Rogers Starr, the Jacobs Engineering executive in charge of its
government business, were then traveling out of the country, the
response may be delayed due to logistical challenges.
On February 15, 2010, Mr. Kunberger circulated an
e-mail to
Mr. Siegel informing him that Jacobs Engineering was still
having logistical challenges in gathering the appropriate
individuals at Jacobs Engineering to discuss an appropriate
response to Mr. Hamots letter.
On the afternoon of February 16, 2010, the respective
representatives of TechTeam and Party G-A met to discuss the
open issues relating to the acquisition of the Government
Solutions Business by Party G-A. Messrs. Frumberg and
Siegel attended on behalf of TechTeam as did representatives of
our legal and financial advisors. Party G-A was represented at
this meeting by, among others, one of its senior executives and
two representatives of its outside legal counsel. At this
meeting, TechTeam and Party G-A discussed various issues
relating to the contemplated acquisition of the Government
Solutions Business by Party G-A, including, but not limited to:
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whether, in the event of a breach of the stock purchase
agreement by Party G-A, TechTeam would be permitted to bring an
action against Party G-A for specific performance or whether its
only recourse would be to collect a reverse
break-up
fee from Party G-A;
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the amount of the reverse
break-up
fee that Party G-A would be willing to pay to TechTeam
under certain circumstances if it was not able to consummate the
acquisition of the Government Solutions Business;
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whether Party G-A would agree to a fiduciary-out that would
allow TechTeam to consider competing transaction proposals for
the Government Solutions Business in addition to proposals that
contemplate the acquisition of the entirety of the Company;
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the extent to which Party G-A would reimburse TechTeam for the
costs of an election made by TechTeam to have the sale of the
Government Solutions Business treated as an asset sale under
Section 338(h)(10) of the Code;
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whether Party G-A would be willing to commit to the acquisition
of the Government Solutions Business regardless of its ability
to obtain financing and the status of Party G-As
discussions with its financing sources;
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other issues affecting certainty of closing of a transaction
with Party G-A;
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the contemplated timeline for the signing of a stock purchase
agreement with Party G-A; and
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the contemplated timeline for the closing of sale of the
Government Solutions Business to Party G-A.
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In addition to the foregoing, the parties discussed whether
TechTeam intended to submit the sale of the Government Solutions
Business to a vote of its stockholders and, in the absence of
such a vote, whether
64
the parties could consider a simultaneous signing of a stock
purchase agreement and consummation of the transaction.
Also, on February 16, 2010, Mr. Kunberger circulated
to Messrs. Frumberg and Siegel a request for a conference
call to be held the following day with him and
Mr. McLachlan to discuss the potential interest by Jacobs
Engineering in re-initiating negotiations with TechTeam with
respect to a potential acquisition of the Government Solutions
Business, which request was agreed to later that day by
Messrs. Frumberg and Siegel.
On February 17, 2010, Messrs. Frumberg and Siegel
participated in a conference call with Messrs. Kunberger
and McLachlan to discuss the potential interest by Jacobs
Engineering in re-initiating negotiations with TechTeam with
respect to a potential acquisition of the Government Solutions
Business. Following such conference call, Mr. Frumberg
provided Mr. McLachlan with an update on the Government
Solutions Business and informed him of the recent departure from
the Government Solutions Business of the executive who
previously had led its health services industry group.
Also on February 17, 2010, a representative of Blank Rome
sent to a representative of Paul Hastings a draft of an
exclusivity agreement, which contemplated exclusive negotiations
with Jacobs Engineering regarding the sale of the Government
Solutions Business until the close of business, Eastern time, on
March 12, 2010.
On February 19, 2010, a representative of Party G-A
circulated drafts of two commitment letters with financial
institutions that it contemplated would participate in the
financing of Party G-As acquisition of the Government
Solutions Business. The draft commitment letters raised a number
of issues that were of particular concern to TechTeam including,
but not limited to, the following:
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each commitment letter was only for a partially underwritten
financing and each arranger had a syndication out;
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each commitment letter contained a material adverse effect
out that was tied not only to the Government
Solutions Business, but also to the acquiring business;
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the definition of material adverse effect included
in the commitment letters was not tied to the definition of
material adverse effect included in the draft stock
purchase agreement;
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one of the commitment letters contained a market out
(e.g., disruption in the loan syndication market, etc.);
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each commitment letter required the lenders to be satisfied with
the stock purchase agreement; and
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each commitment letter contained a due diligence out.
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On February 22, 2010, Mr. McLachlan circulated to
Mr. Frumberg a revised indication of interest proposing the
acquisition of the Government Solutions Business for a purchase
price ranging from $65 to $70 million. In his letter,
Mr. McLachlan indicated that Jacobs Engineering, in
revising its purchase price downward from the purchase price of
$81 million that was proposed in its indication of interest
dated November 18, 2009, was particularly concerned with
various recent developments at the Government Solutions
Business, including the deterioration in its financial outlook
and the departure of a key executive. Subject to being granted
exclusivity, Mr. McLachlan indicated that Jacobs
Engineering was prepared to recommence negotiations with respect
to the draft stock purchase agreement, continue its due
diligence review of the Government Solutions Business and take
the necessary steps to satisfy itself that the purchase price
range proposed by Jacobs Engineering was justified.
Between February 22 and 24, 2010, representatives of Blank Rome
and Paul Hastings continued negotiating the terms and conditions
of the exclusivity agreement, including, without limitation, the
duration of exclusivity and the circumstances in which TechTeam
could terminate the exclusivity agreement
65
(including, without limitation, in the event of a proposal by
Jacobs Engineering to reduce the proposed purchase price).
On February 23, 2010, Party G-A was informed that TechTeam
was in discussions with another party (Jacobs Engineering) with
respect to the sale of the Government Solutions Business and
that Party G-A needed to increase its purchase price if it
wanted to continue discussions with TechTeam with respect to the
sale of the Government Solutions Business. Party G-A declined to
increase its proposed purchase price for the Government
Solutions Business and, since then, has neither proposed an
increased purchase price nor reaffirmed its last proposed
purchase price of $55 million. By the close of business on
that day, TechTeam terminated Party G-As access to the
electronic data room that contained materials and documents
relating to the Government Solutions Business.
On the morning of February 24, 2010, our Board convened a
meeting to discuss various matters relating to the process to
explore the sale of the Government Solutions Business.
TechTeams senior management and a representative of Blank
Rome were also present for this meeting. Messrs. Frumberg
and Siegel, on behalf of the Strategy Committee, updated our
Board on the recent discussions that had been held with Jacobs
Engineering with respect to its interest in acquiring the
Government Solutions Business. Mr. Siegel noted that Jacobs
Engineering was seeking an exclusivity period through
March 26, 2010 to negotiate with TechTeam the terms of its
acquisition of the Government Solutions Business and perform any
necessary due diligence. Messrs. Frumberg and Siegel, on
behalf of the Strategy Committee, recommended that our Board
authorize TechTeam to enter into the exclusivity agreement as
negotiated with Jacobs Engineering. Our Board discussed the
meaning and consequences of granting exclusivity to Jacobs
Engineering upon and subject to the terms of the proposed
exclusivity agreement. Following a discussion, our Board
approved, and authorized TechTeams senior management to
execute, the exclusivity agreement with Jacobs Engineering as
recommended by Messrs. Frumberg and Siegel.
On February 24, 2010, TechTeam and Jacobs Engineering
executed an exclusivity agreement that granted Jacobs
Engineering exclusivity through the close of business, Eastern
time, on March 26, 2010 to negotiate with TechTeam the
terms of its acquisition of the Government Solutions Business
and perform any necessary due diligence. Like the exclusivity
agreement that TechTeam executed with Party G-A in January 2010,
this exclusivity agreement did not restrict the ability of
TechTeam to encourage, solicit, initiate or engage in
discussions or negotiations with any person, or encourage or
solicit proposals from any person, with respect to either
(a) any purchase, sale or other disposition of the
Commercial Business, or (b) any merger, acquisition,
consolidation or similar business combination involving the sale
of TechTeam subsequent to a sale of the Government Solutions
Business to Jacobs Engineering. Following the execution of this
exclusivity agreement by TechTeam and Jacobs Engineering, Jacobs
Engineering and its representatives were granted full access to
the electronic data room that contained materials and documents
relating to the Government Solutions Business.
Also, on February 24, 2010, Mr. McLachlan circulated
to Mr. Siegel a list of the principal topics that Jacobs
Engineering would be seeking to address in conducting its due
diligence review of the Government Solutions Business.
Subsequently, also on this date, Mr. Hamot held a telephone
call with Mr. Starr to discuss an agenda for an in-person
kick-off meeting the following week between
representatives of the Government Solutions Business and Jacobs
Engineering.
On the afternoon of February 25, 2010, representatives of
TechTeam, Blank Rome, Jacobs Engineering and Paul Hastings had a
conference call to discuss various preliminary matters in
connection with the negotiation of a draft stock purchase
agreement.
Also, on February 25, 2010, a representative of TechTeam
sent to a representative of Party G-A and an affiliate thereof,
a letter requesting that, in accordance with the terms of the
confidentiality agreement between each of them and TechTeam,
they return or destroy all materials that they were provided by
TechTeam or its representatives in connection with their
evaluation of the Government Solutions Business, and confirm to
TechTeam in writing, subject to the terms of such
confidentiality agreement, the destruction of such materials.
66
On the evening of March 1, 2010, a representative of Blank
Rome circulated to representatives of Paul Hastings a revised
draft of the stock purchase agreement.
On the evening of March 3, 2010, a representative of Blank
Rome circulated to representatives of Paul Hastings an initial
draft of the voting agreement.
On March 4 and 5, 2010, representatives of Jacobs Engineering
met with representatives of TechTeam and the Government
Solutions Business and the representatives of Jacobs Engineering
were provided with management presentations by various senior
executives from the Government Solutions Business.
On the evening of March 5, 2010, a representative of Blank
Rome circulated to representatives of Paul Hastings an initial
draft of the escrow agreement.
On the evening of March 8, 2010, a representative of Paul
Hastings circulated to representatives of Blank Rome a revised
draft of the stock purchase agreement.
On March 9, 2010, Marcus A. Williams, Assistant General
Counsel of TechTeam, together with a representative of Blank
Rome, met with Mr. Udovic and representatives of Paul
Hastings to review and negotiate various provisions of the stock
purchase agreement for the acquisition by Jacobs Engineering of
the Government Solutions Business.
Also, on March 9, 2010, a representative of Party
G-As legal counsel sent to a representative of Blank Rome
certifications confirming that Party G-A and an affiliate
thereof had returned or destroyed all materials that they were
provided by TechTeam or its representatives in connection with
their evaluation of the Government Solutions Business in
accordance with the terms of the confidentiality agreement
between them and TechTeam.
On March 11, 2010, our Board convened a meeting to discuss
various matters relating to the process to explore the sale of
the Government Solutions Business. TechTeams senior
management and a representative of Blank Rome were also present
for this meeting. Messrs. Frumberg and Siegel, on behalf of
the Strategy Committee, updated our Board on the status of the
negotiations to sell the Government Solutions Business to Jacobs
Engineering and reported that representatives of TechTeam and
Jacobs Engineering and their respective outside counsel recently
had met in-person to negotiate the terms of the stock purchase
agreement. Our Board was also informed that Jacobs Engineering
had indicated that its board of directors was not likely to
consider formally approving the acquisition of the Government
Solutions Business until the following month.
Also, on March 11, 2010, Messrs. Siegel and McLachlan
had a telephone call to discuss various issues relating to
Jacobs Engineerings potential interest in acquiring the
Government Solutions Business, including, but not limited to,
when Jacobs Engineering would be prepared to discuss the
purchase price and timing of Jacobs Engineerings internal
approval processes.
On the evening of March 15, 2010, a representative of Blank
Rome circulated to representatives of Paul Hastings a revised
draft of the stock purchase agreement.
On March 19, 2010, Mr. McLachlan circulated an
e-mail to
Mr. Siegel informing him that Jacobs Engineering had
finished reviewing the current status of its open issues with
respect to the acquisition of the Government Solutions Business
and intended to provide TechTeam the following week with its
final acquisition proposal for the Government
Solutions Business, including a final revised draft
of the stock purchase agreement. In his
e-mail,
Mr. McLachlan indicated that Jacobs Engineering was
becoming increasingly concerned about the length of time it was
taking to acquire the Government Solutions Business and the
effect that the sales process was having on the Government
Solutions Business.
On March 24, 2010, Mr. McLachlan circulated an
e-mail to
Mr. Siegel proposing an in-person meeting with
Mr. Siegel on March 29, 2010, and informing him that
Jacobs Engineering had almost completed its revised draft of the
stock purchase agreement and revised acquisition offer for the
67
Government Solutions Business. Later that day, Mr. Siegel
responded to Mr. McLachlan and indicated that he and
Mr. Frumberg would be able to meet with Mr. McLachlan
on the morning of March 29, 2010.
Also, on March 24, 2010, Mr. Siegel circulated a
letter to Mr. McLachlan, in accordance with the
requirements of the exclusivity agreement, notifying Jacobs
Engineering that earlier that day TechTeam had received an
unsolicited communication from another party inquiring about the
status of the process with respect to the review of strategic
alternatives for the Government Solutions Business. As noted in
the letter to Mr. McLachlan, the communication that
TechTeam received from such party did not contain a specific
proposal for the acquisition of the Government Solutions
Business.
On the morning of March 26, 2010, Mr. McLachlan
circulated to Mr. Siegel a revised indication of interest
as well as a revised draft of the stock purchase agreement. In
the revised indication of interest, Jacobs Engineering indicated
that, based on the current state of its due diligence review and
its view as to the weakening of the Government Solutions
Business and its prospects since December 2009, it was revising
its net purchase price for the Government Solutions Business
downward to $58 million. In its revised indication of
interest, Jacobs Engineering also requested that the exclusivity
period (which would expire at the close of business on
March 26, 2010) be extended through April 20,
2010 to provide time for Jacobs Engineering to finish its due
diligence, finalize the terms of the stock purchase agreement,
review and finalize TechTeams disclosure schedules
relating to the stock purchase agreement and seek approval from
the board of directors of Jacobs Engineering.
On March 29, 2010, Messrs. Siegel and Frumberg,
accompanied by a representative from Houlihan Lokey, met with
Mr. McLachlan to negotiate various aspects of the sale of
the Government Solutions Business. During the course of those
negotiations, Mr. McLachlan informed Messrs. Siegel
and Frumberg that Jacobs Engineering would be willing to agree
to the following; (i) revising its net purchase price
upward to $59 million, (ii) TechTeam would not be
required to make an election pursuant to Section 338(h)(10)
of the Code, (iii) the non-compete agreement that would be
entered into between TechTeam and Jacobs Engineering would
provide that it would terminate upon a
change-in-control
of TechTeam that occurs subsequent to the sale of the Government
Solutions Business, and (iv) the principal stockholders
executing voting agreements would not be required to vote for
the sale of the Government Solutions Business if our Board
withdrew its recommendation for the transaction in a manner
adverse to Jacobs Engineering.
Also, on March 29, 2010, following the close of the NASDAQ
Stock Market, TechTeam publicly released the 2009 year-end
financial results for the Government Solutions Business. These
results included a drop in revenue of approximately 14% for the
year ended December 31, 2009 compared to the same period in
the prior year and a drop in revenue of approximately 29% for
the three-months ended December 31, 2009 compared to the
same period in the prior year.
On March 31, 2010, Mr. McLachlan circulated a letter
to Messrs. Frumberg and Siegel to confirm various matters
discussed at their meeting on March 29, 2010, and
reiterating the strong interest of Jacobs Engineering in the
Government Solutions Business and its goal to complete the
transaction as soon as practicable. In addition to confirming
such matters, Mr. McLachlan indicated to
Messrs. Frumberg and Siegel that it was the expectation of
Jacobs Engineering that the contents of the revised indication
of interest and accompanying revised draft of the stock purchase
agreement were acceptable to TechTeam with the following
exceptions: (i) the net purchase price would be
$59 million, and (ii) TechTeam would not be required
to make an election pursuant to Section 338(h)(10) of the
Code. In his letter, Mr. McLachlan also reiterated Jacobs
Engineerings request that it be extended additional
exclusivity.
On the morning of April 1, 2010, a senior management
representative of the Government Solutions Business and a
representative of Party G-A held a conference call to provide
Party G-A with an update on the Government Solutions Business.
On April 2, 2010, Messrs. Siegel and Frumberg held a
telephone call with Mr. McLachlan to discuss various issues
relating to the proposed sale of the Government Solutions
Business, including, but not limited to, arranging a time for
their respective legal advisors to discuss various open issues
relating to
68
the stock purchase agreement. Mr. McLachlan reiterated that
Jacobs Engineering needed additional exclusivity through
April 20, 2010.
On April 5, 2010, TechTeams Board convened a meeting
to discuss various matters relating to the possible sale of the
Government Solutions Business, including, but not limited to,
the request by Jacobs Engineering that it be extended additional
exclusivity through the close of business, Eastern time, on
April 20, 2010 to perform any necessary additional due
diligence on the Government Solutions Business and to continue
to negotiate with TechTeam the terms of its proposed acquisition
of the Government Solutions Business. TechTeams senior
management and a representative of Blank Rome were also present
for this meeting. Messrs. Frumberg and Siegel, on behalf of
the Strategy Committee, updated our Board on the status of
recent events related to the possible sale of the Government
Solutions Business, including, but not limited to, the status of
negotiations with Jacobs Engineering. Our Board was also updated
at this meeting on various discussions that were held with Party
G-A during the week of March 29, 2010 subsequent to the
expiration of the exclusivity agreement with Jacobs Engineering,
and was informed that Party G-A had indicated that it was not,
at that time, interested in resuming discussions with TechTeam
with respect to the acquisition of the Government Solutions
Business. Messrs. Frumberg and Siegel recommended that our
Board authorize TechTeam to enter into an amended and restated
exclusivity agreement in a form substantially similar to that
previously executed by the parties but with the exclusivity
period expiring at the close of business, Eastern time, on
April 16, 2010. Our Board discussed the matter with its
senior management and considered various factors, including, but
not limited to, the history of the discussions with Party G-A
and the absence of any renewed indication of interest from Party
G-A or any other indication that it was interested in resuming
discussions or negotiations with respect to its acquisition of
the Government Solutions Business, and that Jacobs Engineering
had indicated that it would not continue discussions and
negotiations without an executed amended and restated
exclusivity agreement. Following such discussion, our Board
approved, and authorized TechTeams senior management to
execute, the amended and restated exclusivity agreement as
recommended by Messrs. Frumberg and Siegel.
Also, on April 5, 2010, a representative of Blank Rome
notified a representative of Paul Hastings that our Board had
authorized the execution of an amended and restated exclusivity
agreement granting Jacobs Engineering exclusivity through the
close of business, Eastern time, on April 16, 2010.
On the morning of April 6, 2010, a representative of Blank
Rome circulated to a representative of Paul Hastings a draft
amended and restated exclusivity agreement granting Jacobs
Engineering exclusivity through the close of business, Eastern
time, on April 16, 2010.
On April 7 and 8, 2010, Mr. Hamot held a number of
telephone calls with Mr. Kunberger to discuss various
issues relating to the sale of the Government Solutions
Business, including, but not limited to, how Jacobs Engineering
contemplated addressing in the stock purchase agreement
intercompany balances, the definition of material adverse
effect, the term of the indemnification escrow, and
carveouts to the cap on TechTeams liability for
indemnification claims. During the course of these
conversations, Mr. Kunberger indicated to Mr. Hamot
that Jacobs Engineering was currently planning on holding a
Board meeting on April 15, 2010 to approve its proposed
acquisition of the Government Solutions Business and reiterated
Jacobs Engineerings request for additional exclusivity and
indicated that exclusivity through April 16, 2010 would not
be sufficient given the time needed to negotiate the stock
purchase agreement and related ancillary agreements.
On April 8, 2010, Mr. Williams circulated an
e-mail to
Mr. Udovic discussing various issues relating to the sale
of the Government Solutions Business, including, but not limited
to, clarifying that TechTeam was not prepared to accept, with
only a few revisions, the draft of the stock purchase agreement
that Jacobs Engineering had circulated on March 26, 2010
and, accordingly, the respective in-house and outside legal
advisors for TechTeam and Jacobs Engineering should begin
coordinating a series of telephone calls so that the parties
could negotiate as soon as practicable a mutually acceptable
stock purchase agreement and related ancillary agreements.
69
On April 9, 2010, Mr. Williams circulated to
Mr. Udovic a list of various open issues relating to the
stock purchase agreement, including, but not limited to, issues
relating to representations and warranties sought by Jacobs
Engineering, matters for which TechTeam would be required to
indemnify Jacobs Engineering, closing conditions, grounds for
termination, and the circumstances under which TechTeam would be
required to pay Jacobs Engineering a termination fee and its
expenses incurred in connection with its proposed acquisition of
the Government Solutions Business if TechTeam terminated the
stock purchase agreement in connection with pursuing another
transaction.
Also on April 9, 2010, Mr. Udovic circulated to
Mr. Williams a revised draft of the amended and restated
exclusivity agreement with respect to the extension of
exclusivity that Jacobs Engineering had requested since the last
exclusivity agreement between the parties expired at the close
of business, Eastern time, on March 26, 2010.
From April 12 to April 15, 2010, representatives of
TechTeam and Jacobs Engineering continued negotiating various
terms and conditions of the stock purchase agreement and related
documents.
On April 15, 2010, TechTeam and Jacobs Engineering reached
an agreement in principle with respect to a number of issues
relating to the sale of the Government Solutions Business,
including, but not limited to, the following terms:
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the net purchase price for the Government Solutions Business
would be $59 million;
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the post-closing net tangible book value adjustment would be
based upon the March 31, 2010 balance sheet of the
Government Solutions Business and would be secured by a separate
escrow amount that would need to be negotiated;
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any notes and accounts payable to TechTeam from the Government
Solutions Business would be paid from the proceeds received by
TechTeam at the closing of the sale of the Government Solutions
Business;
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the representation and warranty indemnification escrow would be
equal to $14.75 million (or 25% of $59 million), would
have a term of 36 months, and would be stepped-down by
one-third after 24 months;
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only individual claims over $25,000 could be made against the
indemnification escrow, which would be subject to a
tipping basket or threshold of $250,000;
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TechTeams liability for indemnification claims under the
stock purchase agreement would be capped at the amount of the
indemnification escrow except for claims for fraud and taxes
which would be outside the cap;
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TechTeam would guarantee the accounts receivable of the
Government Solutions Business at the closing of the sale of the
Government Solutions Business, but TechTeam could continue
collections and cash sweeps through the closing;
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TechTeam would be required to contribute towards the cost of
purchasing an insurance tail and extended reporting period but
the amount of such contributions would need to be negotiated;
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Jacobs Engineering would not ask TechTeam to make an election
under Section 338(h)(10) of the Code;
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TechTeam would agree to reimburse Jacobs Engineering its
expenses incurred in connection with its proposed acquisition of
the Government Solutions Business if and when a termination fee
was also payable but the cap on such expenses would need to be
negotiated;
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the representations and warranties in the stock purchase
agreement would remain
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substantially as reflected in the draft of the stock purchase
agreement circulated by Jacobs Engineering on March 26,
2010, but Jacobs Engineering would consider proposed revisions
of a technical
and/or
mechanical nature or as necessary to cause the representation
and warranty to be truthful and accurate as of the date of the
signing of the stock purchase agreement; and
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the voting agreements would be revised to reflect that the
signatories thereto would not be obligated to vote for the
approval and adoption of the stock purchase agreement if our
Board revised its recommendation in a manner adverse to Jacobs
Engineering.
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TechTeam and Jacobs Engineering also agreed in principle that,
subject to the approval of our Board, Jacobs Engineering would
be extended exclusivity pursuant to an amended and restated
exclusivity agreement until the close of business, Eastern time,
on May 7, 2010. This amended and restated exclusivity
agreement would replace the exclusivity agreement with Jacobs
Engineering that expired at the close of business, Eastern time,
on March 26, 2010.
On the afternoon of April 15, 2010, the board of directors
of Jacobs Engineering approved its proposed acquisition of the
Government Solutions Business.
On April 16, 2010, our Board convened a meeting to discuss
various matters relating to the possible sale of the Government
Solutions Business, including, but not limited to, the request
by Jacobs Engineering that it be extended additional exclusivity
through the close of business, Eastern time, on May 7, 2010
to perform any necessary additional due diligence on the
Government Solutions Business and to continue to negotiate with
TechTeam the terms of its acquisition of the Government
Solutions Business. Representatives of TechTeams senior
management and Blank Rome were also present for this meeting.
Messrs. Frumberg and Siegel, on behalf of the Strategy
Committee, updated our Board on the status of recent events
related to the possible sale of the Government Solutions
Business, including, but not limited to, the status of
negotiations with Jacobs Engineering and the various issues that
had been agreed to in principle the day before.
Messrs. Frumberg and Siegel recommended that our Board
authorize TechTeam to enter into the amended and restated
exclusivity agreement as proposed by Jacobs Engineering which
would be in a form substantially similar to the previous
exclusivity agreement entered into by the parties. Our Board
discussed the matter with its senior management and considered
various factors, including, but not limited to:
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the history of the discussions with Party G-A and the continuing
absence of any renewed indication of interest from Party G-A or
any other indication that it was interested in resuming
discussions or negotiations with respect to its acquisition of
the Government Solutions Business,
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that Jacobs Engineering had indicated that it would not continue
discussions and negotiations without an executed amended and
restated exclusivity agreement,
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that Jacobs Engineerings board of directors had
conditionally approved its proposed acquisition of the
Government Solutions Business;
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the need to bring the review of strategic alternatives for the
Government Solutions Business to conclusion in light of the
deterioration of its financial performance; and
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the view of our Board that the current terms proposed by Jacobs
Engineering for the acquisition of the Government Solutions
Business represented the best transaction attainable with
respect to the sale of Government Solutions Business.
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Following such discussion, our Board approved, and authorized
our senior management to execute, the amended and restated
exclusivity agreement as recommended by Messrs. Frumberg
and Siegel.
Also, on April 16, 2010, a representative of Jacobs
Engineering circulated an
e-mail to a
representative of TechTeam to confirm that the board of
directors of Jacobs Engineering had on the prior
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day conditionally approved Jacobs Engineerings proposed
acquisition of the Government Solutions Business.
Later that day, on April 16, 2010, TechTeam and Jacobs
Engineering executed an amended and restated exclusivity
agreement that granted Jacobs Engineering additional exclusivity
through the close of business, Eastern time, on May 7, 2010
to negotiate with TechTeam the terms of its proposed acquisition
of the Government Solutions Business and perform any necessary
due diligence.
From April 21 to April 27, 2010, representatives of
TechTeam and Jacobs Engineering circulated drafts of, and
comments to, the stock purchase agreement, the disclosure
schedules to the stock purchase agreement and the ancillary
agreements, including the transition services agreement, the
non-compete agreement, the escrow agreement and the voting
agreement, and held numerous telephone conference calls to
negotiate the various terms and conditions of the stock purchase
agreement and related agreements and documents.
On April 28, 2010, our Board convened a meeting to discuss
various matters relating to the possible sale of the Government
Solutions Business. Representatives of TechTeams senior
management and our legal and financial advisors were also
present for this meeting. Messrs. Frumberg and Siegel, on
behalf of the Strategy Committee, updated our Board on the
status of the negotiations with Jacobs Engineering and discussed
with our Board and management the significant issues that
remained for the parties to negotiate and resolve. Among such
issues was the net tangible book value target that would be used
to determine the amount of any post-closing purchase price
adjustment. At this meeting, a representative from Blank Rome
provided our Board with (i) an overview of the various
terms and conditions contained in the current form of the
proposed stock purchase agreement under negotiation with Jacobs
Engineering, and (ii) an overview of their fiduciary duties
as Board members. Houlihan Lokey also reviewed with our Board
certain financial aspects of the proposed transaction.
Also, on April 28, 2010, a representative of TechTeam sent
to representatives of each of Party G-A and an affiliate
thereof, a letter requesting that, given the additional
materials provided to them subsequent to March 26, 2010
(and prior to April 16, 2010) in connection with their
evaluation of the Government Solutions Business, they return or
destroy such materials in accordance with the terms of the
confidentiality agreement between them and TechTeam, and confirm
to TechTeam in writing, subject to the terms of such
confidentiality agreement, the destruction of such materials.
On April 30, 2010, a representative of Party G-As
legal counsel sent to a representative of Blank Rome
certifications confirming that Party G-A and an affiliate
thereof had returned or destroyed all materials provided by
TechTeam or its representatives in connection with their
evaluation of the Government Solutions Business in accordance
with the terms of the confidentiality agreement between them and
TechTeam.
Between May 5 and May 10, 2010, representatives of
Paul Hastings and Blank Rome circulated revised drafts of, and
comments to, certain ancillary agreements and disclosure
schedules.
On May 5, 2010, Mr. Hamot provided to
Mr. Kunberger an update on the Government Solutions
Business.
On May 7, 2010, the amended and restated exclusivity
agreement that TechTeam and Jacobs Engineering executed on
April 16, 2010 expired.
On the afternoon of May 10, 2010, Mr. Hamot held a
telephone call with Mr. Kunberger to discuss various issues
in connection with the possible sale of the Government Solutions
Business to Jacobs Engineering. During the course of the
telephone call, Mr. Kunberger confirmed to Mr. Hamot
that Jacobs Engineering was not contemplating a change in the
purchase price for the Government Solutions Business due to the
update on the Government Solutions Business that had been
provided to Jacobs Engineering the week before.
Mr. Kunberger indicated to Mr. Hamot that, as Jacobs
Engineering was not seeking to reduce the purchase price, it
hoped to be accommodated with respect to a number of the issues
that
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remained open between the parties. Mr. Kunberger further
indicated that Mr. Udovic would provide a list of those
issues to TechTeam later that afternoon.
Later in the day, on May 10, 2010, Mr. Udovic
circulated to Messrs. Hamot and Williams a list of various
open issues with respect to the stock purchase agreement,
including, but not limited to, the following:
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which party would have the right to claim the tax benefits of
the retention payments being made by Jacobs Engineering to
certain employees of the Government Solutions Business;
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how liability for post-closing taxes related to the Government
Solutions Business would be allocated between the parties;
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how liability for indemnification claims would be offset for tax
benefits received by the party seeking indemnification;
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the terms and limits of the tail and extended reporting
insurance coverage to be procured with respect to the Government
Solutions Business and the amount that TechTeam would contribute
towards the cost thereof;
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the amount of the purchase price that would be placed in escrow
to secure the post-closing purchase price adjustment that would
be determined based on the net tangible book value of the
Government Solutions Business at closing; and
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the treatment of inter-company transactions between TechTeam and
the Government Solutions Business and how such transactions
would be cancelled.
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On the morning of May 11, 2010, representatives of TechTeam
and Jacobs Engineering, together with their respective counsel
from Blank Rome and Paul Hastings, held a conference call to
discuss various issues in connection with the stock purchase
agreement and related documents, including, but not limited to,
the issues that were included in the list circulated by
Mr. Udovic to Messrs. Hamot and Williams the previous
day.
Between May 12 and May 18, 2010, representatives of
Blank Rome and Paul Hastings circulated revised drafts of, and
comments to, the proposed stock purchase agreement and related
documents, including the disclosure schedules, the escrow
agreement, the voting agreement and the non-compete agreement.
On May 13, 2010, representatives of TechTeam, including
Messrs. Hamot and Williams and members of senior management
of the Government Solutions Business, held a telephone
conference call with representatives of Jacobs Engineering,
including Messrs. Kunberger, Goldfarb and Udovic, together
with their respective legal advisors, to discuss various
financial and operational issues in connection with the
contemplated acquisition of the Government Solutions Business,
including, but not limited to, the financial outlook for the
Government Solutions Business.
On the afternoon of May 19, 2010, representatives of
TechTeam, including Mr. Williams, held a telephone
conference call with representatives of Jacobs Engineering,
including Mr. Udovic, together with their respective legal
advisors, to discuss various issues related to the stock
purchase agreement, including, but not limited to, the method by
which the target net tangible book value of the Government
Solutions Business would be set for purposes of calculating the
post-closing purchase price adjustment. At the conclusion of
this conference call, the parties had not yet agreed upon the
target net tangible book value amount.
On the evening of May 19, 2010, in order to assist the
parties in their discussions with respect to the appropriate
target net tangible value amount to be used in the stock
purchase agreement for purposes of calculating the post-closing
purchase price adjustment, Mr. Williams circulated to
Mr. Udovic and another representative of Jacobs Engineering
various financial information with respect to the Government
Solutions Business.
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On the afternoon of May 20, 2010, representatives of
TechTeam, including Messrs. Hamot and Williams, held a
telephone conference call with representatives of Jacobs
Engineering, including Messrs. Kunberger and
Mr. Udovic, to discuss various issues related to the stock
purchase agreement, including, but not limited to, the target
net tangible book value amount that the Government Solutions
Business would be expected to have at closing and the method by
which such a target net tangible book value would be set. During
the course of this conference call, the respective
representatives of the parties confirmed that the target net
tangible book value amount, to be used for purposes of the
post-closing purchase price adjustment, would be set at
approximately $12.2 million, which was the amount that was
proposed in the last draft of the stock purchase agreement
circulated by Blank Rome to Jacobs Engineering and Paul Hastings.
Between May 20 and May 24, 2010, representatives of
Blank Rome and Paul Hastings circulated revised drafts of, and
comments to, the proposed stock purchase agreement and certain
other documents, including the disclosure schedules, the escrow
agreement, the non-compete agreement and the transition services
agreement. During this period, a representative of Paul Hastings
indicated that there were no remaining open issues with respect
to the voting agreement.
On the evening of May 20, 2010, Mr. Udovic provided to
Mr. Williams forms of employment agreements that Jacobs
Engineering would expect eleven current employees of the
Government Solutions Business to execute concurrently with the
execution of the stock purchase agreement, which agreements
would become effective upon the closing of the Stock Sale.
Mr. Udovic also provided to Mr. Williams a spreadsheet
summarizing the compensation packages that would be offered to
each of these employees, including, but not limited to, the
retention bonus payments that would be offered to such employees.
On the afternoon of May 24, 2010, Mr. Williams
circulated to Mr. Udovic an
e-mail
inquiring as to whether TechTeam could consider as fully
resolved the amount of the target net tangible book value
(approximately $12.2 million) and the amount of the
purchase price to be placed in escrow (approximately
$2.8 million) to secure any post-closing adjustment to the
purchase price in favor of Jacobs Engineering with respect to
the amount of net tangible book value that the Government
Solutions Business has on its closing balance sheet.
Mr. Williams similarly sought confirmation that the amount
of TechTeams contribution for tail and extended reporting
insurance that would be purchased for the benefit of Jacobs
Engineering would be $235,000. On the evening of May 24,
2010, Mr. Udovic circulated an
e-mail to
Mr. Williams confirming that TechTeam could consider the
net tangible book value and insurance issues as fully resolved.
On the afternoon of May 25, 2010, our Board convened a
meeting to discuss various matters relating to the possible sale
of the Government Solutions Business. TechTeams senior
management and Blank Rome were also present for this meeting.
Mr. Siegel, on behalf of the Strategy Committee, updated
our Board on the status of the negotiations with Jacobs
Engineering and discussed with our Board and management the
significant issues that remained for the parties to negotiate
and resolve. At this meeting, a representative from Blank Rome
provided our Board with an update of certain revisions reflected
in the current form of the proposed stock purchase agreement
under negotiation with Jacobs Engineering, including, but not
limited to, the resolution of the net tangible book value
adjustment target and related escrow amount, as well as some of
the issues that still needed to be resolved.
On the afternoon of May 26, 2010, Mr. Hamot circulated
an e-mail to
Mr. Kunberger discussing various issues relating to the
contemplated sale of the Government Solutions Business to Jacobs
Engineering, including, but not limited to (i) the status
of the discussions regarding the stock purchase agreement and
the related documents and agreements; and (ii) a proposed
schedule for reaching final resolution of all open issues,
executing the stock purchase agreement, and announcing the
proposed transaction.
On May 26 and 27, 2010, representatives of Paul Hastings and
Blank Rome circulated revised drafts of and comments to the
proposed stock purchase agreement and certain other documents,
including an initial draft of the intercompany balances
termination letter and revised drafts of the transition services
agreement and the schedules to the proposed stock purchase
agreement.
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On the afternoon of May 27, 2010, the Strategy Committee
convened a meeting to discuss various matters in connection with
our Boards consideration of various strategic alternatives
to enhance stockholder value. A representative of our management
was also present for this meeting as was a representative of
Blank Rome. At this meeting, the Strategy Committee discussed
the prohibitions that TechTeam would be subject to, with respect
to the solicitation of competing transaction proposals,
following the execution of the proposed stock purchase agreement
with Jacobs, which prohibitions did not then apply given the
earlier expiration of the exclusivity agreement with Jacobs
Engineering. Given the various indications of interest that
TechTeam had received for the entirety of the Company and the
Commercial Business over the past year and given the uncertainty
as to how competing transaction proposals would be defined
(including the extent of the carve-outs thereto) in the final
stock purchase agreement, the Strategy Committee determined that
it would be appropriate to assess the potential interest of
financial and strategic buyers in acquiring either the
Commercial Business or the entirety of the Company.
Accordingly, the Strategy Committee requested that our financial
advisor take the following actions, on behalf of TechTeam, prior
to the execution of the stock purchase agreement with Jacobs:
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solicit initial written indications of interest from potential
financial and strategic buyers of the entirety of the Company
whereby the buyer of the entirety of the Company would acquire
both the Government Solutions Business and the Commercial
Business via a public company type transaction;
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solicit initial written indications of interest from potential
financial and strategic buyers of the Commercial Business not
conditioned on the prior closing of the sale of the Government
Solutions Business whereby the buyer of the Commercial Business
would acquire the entirety of the Company via a public company
type transaction and would assume the obligation to sell the
Government Solutions Business to Jacobs and, accordingly, would
assume contingent liabilities with respect to the Government
Solutions Business in accordance with the terms of the stock
purchase agreement; and
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solicit initial written indications of interest from potential
financial and strategic buyers of the Commercial Business
conditioned on the prior closing of the sale of the Government
Solutions Business whereby the buyer of the Commercial Business
would acquire the entirety of the Company via a public company
type transaction after the sale of the Government Solutions
Business to Jacobs was consummated and, accordingly, would
assume contingent liabilities with respect to the Government
Solutions Business in accordance with the terms of the stock
purchase agreement.
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On the afternoon of June 1, 2010, Messrs. Hamot and
Williams held a telephone conference with Messrs. Kunberger
and Udovic to discuss various issues relating to the
contemplated sale of the Government Solutions Business to Jacobs
Engineering, including, but not limited to: (i) the status
of the discussions regarding the stock purchase agreement and
the related agreements; and (ii) a proposed schedule for
reaching final resolution of all open issues, executing the
stock purchase agreement, and announcing the proposed
transaction.
Between June 1 and June 3, 2010, representatives of
Blank Rome and Paul Hastings circulated revised drafts, and
continued to negotiate the remaining open points, of the stock
purchase agreement and certain related documents including the
transition services agreement, the schedules to the stock
purchase agreement, and the intercompany balances termination
letter.
Also on June 1, 2010, Mr. Williams and Mr. Udovic
held a telephone conference to discuss various matters relating
to the contemplated sale of the Government Solutions Business to
Jacobs, including, but not limited to, certain unresolved points
relating to the stock purchase agreement.
On the evening of June 2, 2010, Mr. Williams
circulated to Mr. Udovic a proposal from TechTeam to revise
the definition of Competing Transaction Proposal
that would be contained in the stock purchase agreement. As
proposed by TechTeam, the carve-out to the
definition of Competing Transaction
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Proposal would be expanded to accommodate a possible sale
of the Commercial Business by TechTeam subsequent to the
execution of the stock purchase agreement with Jacobs but prior
to the closing of the sale of the Government Solutions Business
to Jacobs.
Also, on June 2, 2010, Party W-B submitted an indication of
interest regarding the potential acquisition of the entirety of
the Company. In its indication of interest, Party W-B indicated
that, based on its previous diligence and continued review of
publicly available documents, it was prepared to discuss an
acquisition of the entirety of the Company for a purchase price
in a range of $6.75 to $8.00 per outstanding share or for an
aggregate consideration in the range of approximately
$75.8 million to $89.8 million (based on
11,228,296 shares of Common Stock outstanding on a fully
diluted basis as of May 1, 2010). Party W-B also indicated
that its valuation was subject to completing confirmatory due
diligence. In addition, Party W-B indicated that its offer to
acquire the entirety of the Company would not be subject to a
financing contingency. While Party W-Bs indication of
interest only provided valuation information with respect to an
acquisition of the entirety of the Company, it also indicated
that it would be willing to consider acquiring solely the
Commercial Business.
On the afternoon of June 3, 2010, our Board convened a
telephonic meeting to discuss the current proposed terms of the
sale of the Government Solutions Business to Jacobs and the
proposed definitive stock purchase agreement and related
documents. Our senior management and representatives of our
legal and financial advisors were also present at this meeting.
Prior to discussing the proposed sale of the Government
Solutions Business to Jacobs, our Board, with the assistance of
our management and legal and financial advisors, reviewed the
indication of interest received from Party W-B which had been
circulated to all members of our Board prior to the meeting. In
deciding not to delay or defer the signing of the stock purchase
agreement with Jacobs which, pending approval by our Board, was
expected to occur later that day, our Board considered a number
of factors, including, but not limited to, the following:
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that, pending the approval by our Board, the signing of the
definitive stock purchase agreement with Jacobs Engineering was
imminent;
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that were TechTeam to delay the execution of the stock purchase
agreement with Jacobs by several weeks to pursue negotiations
with Party W-B and provide Party W-B with the opportunity to
perform due diligence, the sale of the Government Solutions
Business to Jacobs could be placed at significant risk;
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that the terms of the stock purchase agreement with Jacobs would
not be likely to preclude Party W-B from submitting a Competing
Transaction Proposal;
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that Party W-Bs indication of interest was not
sufficiently compelling to forestall the execution of a
definitive agreement with Jacobs;
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that our Board believed that the purchase price range
contemplated by Party W-Bs indication of interest
significantly undervalued the intrinsic value of TechTeams
underlying assets, particularly the Commercial Business; and
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that, even after the Stock Purchase Agreement was executed,
Party W-B would still have the opportunity to (i) submit an
indication of interest for the entirety of the Company, which
would contemplate that the Government Solutions Business would
be sold to Jacobs Technology pursuant to the terms of the Stock
Purchase Agreement; or (ii) submit an indication of
interest to acquire the Commercial Business.
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Although our Board ultimately determined that the valuation and
other terms contained in Party
W-Bs
indication of interest to acquire the entirety of the Company
were not compelling to forestall the execution of a definitive
agreement with Jacobs, and taking into account the restrictions
that would apply to TechTeam following the execution of the
stock purchase agreement, it authorized the Strategy Committee
to further pursue with Party W-B any interest it might have in
either:
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submitting an indication of interest for the entirety of the
Company which would contemplate that the Government Solutions
Business be sold to Jacobs pursuant to the terms of the stock
purchase agreement; or
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submitting an indication of interest to acquire the Commercial
Business.
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After concluding its discussion of Party W-Bs indication
of interest, our Board began its discussion of the proposed sale
of the Government Solutions Business to Jacobs. A representative
of Blank Rome updated our Board with respect to the resolution
of the remaining open issues relating to the stock purchase
agreement and the related documents, including the status of the
ongoing discussions among the parties as to revisions sought by
TechTeam to the definition of a Competing Transaction
Proposal so as to accommodate a possible sale of the
Commercial Business subsequent to the execution of a stock
purchase agreement with Jacobs but prior to the closing of the
Stock Sale. Houlihan Lokey reviewed with our Board its analysis
of the $59,000,000 cash consideration to be received by TechTeam
as a result of the sale of the Government Solutions Business
pursuant to the Stock Sale and rendered to our Board its
opinion, which was confirmed by delivery of a written opinion
dated June 3, 2010, to the effect that, as of such date and
based upon and subject to the assumptions and limitations set
forth in the written opinion, the $59,000,000 cash consideration
to be received by TechTeam in connection with the Stock Sale was
fair, from a financial point of view, to TechTeam. Following
discussion and after receiving the unanimous recommendation of
all members of the Strategy Committee that our Board approve the
Stock Sale, our Board unanimously determined that the Stock Sale
was expedient and in the best interests of TechTeam and its
stockholders, unanimously approved the definitive Stock Purchase
Agreement and the Stock Sale and unanimously recommended that
TechTeams stockholders approve and adopt the Stock
Purchase Agreement and the Stock Sale.
Later, on the evening of June 3, 2010, TechTeam and Jacobs
Engineering continued to discuss TechTeams request that
the carve-out to the definition of Competing
Transaction Proposal be expanded so as accommodate a
possible sale of the Commercial Business by TechTeam subsequent
to the execution of the stock purchase agreement with Jacobs and
prior to the closing of the sale of the Government Solutions
Business to Jacobs. After several discussions, the parties
agreed that the definition of Competing Transaction
Proposal would not include:
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any purchase, sale or other disposition of the Commercial
Business, whether before or subsequent to the closing of the
Stock Sale; or
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any merger, acquisition, consolidation or similar business
combination involving the sale of TechTeam, whether before or
subsequent to the closing of the Stock Sale, that either:
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did not include the Government Solutions Business; or
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contemplated that the Government Solutions Business be sold to
Jacobs pursuant to the terms of the stock purchase agreement;
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provided that, in the case of any transaction referred to
above, neither the execution, delivery
and/or
performance of any definitive agreement with respect to such
transaction, nor the consummation of such transaction, would be
reasonably expected to prevent or render impractical, or
otherwise frustrate or impede in any material respect, the Stock
Sale.
On the evening of June 3, 2010, the Stock Purchase
Agreement was executed by TechTeam and Jacobs. Concurrently with
the execution of the Stock Purchase Agreement, each of Costa
Brava Partnership III L.P. and Emancipation Capital, LLC,
which beneficially own in the aggregate approximately 18.3% of
the Common Stock, entered into separate voting agreements with
Jacobs pursuant to which each agreed, among other things, to
vote the TechTeam Common Stock held by them:
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in favor of the Stock Sale, including the approval and adoption
of the Stock Purchase Agreement;
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against approval or adoption of any competing transaction
proposal or any proposal made in opposition to or in competition
with the Stock Sale; and
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against any actions to the extent that such actions are
intended, or could reasonably be expected to, in any material
respect, impede, interfere with, delay, postpone, discourage or
adversely affect the Stock Sale.
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In addition, various employees of the Government Solutions
Business entered into employment agreements with TTGSI (which
upon the consummation of the Stock Sale would become a wholly
owned subsidiary of Jacobs Technology), which agreements are
conditioned upon the closing of the Stock Sale.
On the morning of June 4, 2010, prior to commencement of
trading on NASDAQ, TechTeam and Jacobs Engineering each issued a
press release announcing that it had entered into the Stock
Purchase Agreement.
On June 7, 2010, TechTeam circulated a letter to Party W-B
responding to the indication of interest that was received on
June 2, 2010. In its response letter, TechTeam noted that
while it regarded the sale of the Government Solutions Business
to Jacobs Engineering as an important step toward unlocking the
intrinsic value of TechTeams underlying assets, it also
believed that there continues to exist various strategic
alternatives that may have the potential to further enhance
value for TechTeams stockholders in conjunction with the
sale of the Government Solutions Business to Jacobs Engineering.
Accordingly, TechTeam indicated that, to the extent that Party
W-B submitted a proposal in this regard with respect to the
Commercial Business, our Board would carefully review and
consider any such proposal.
On June 9, 2010, Party W-B responded to the letter sent by
TechTeam on June 7, 2010. In its letter, Party W-B
indicated that, taking into account the recent announcement of
TechTeams execution of the Stock Purchase Agreement with
Jacobs Engineering, it was prepared to increase its offer range
for the capital stock of TechTeam to $8.00 to $8.50 per
outstanding share of Common Stock or for an aggregate
consideration in the range of approximately $89.8 million
to $95.4 million (based on 11,228,296 shares of Common
Stock outstanding on a fully diluted basis as of May 1,
2010 and assuming 100% recovery of the escrowed amounts
pursuant to the Stock Purchase Agreement with Jacobs
Engineering). Later that day, at the request of TechTeam, Party
W-B confirmed that such offer was intended to ultimately result
in Party W-B only owning the Commercial Business and assumed
that by acquiring the outstanding capital stock of TechTeam and
as the new owner of TechTeam, all obligations of both TechTeam
and Jacobs Engineering under the terms of the Stock Purchase
Agreement would remain unchanged such that Jacobs Engineering
would continue to acquire the Government Solutions Business in
accordance with the current terms of the Stock Purchase
Agreement. In addition, Party W-B indicated that it would not
expect its offer to be subject to financing although no further
details of how Party W-B expected to finance a transaction were
provided.
On June 10, 2010, Party W-A submitted an indication of
interest letter expressing its interest in exploring the
acquisition of the Commercial Business and in meeting with
TechTeams senior management to obtain a current assessment
of the Commercial Business. Party W-A did not provide any
valuation data in its indication of interest but indicated that
it would be prepared to submit an updated valuation range for
the Commercial Business subsequent to meeting with
TechTeams senior management.
On June 14, 2010, our Board convened a telephonic meeting
to discuss the recent indications of interest that had been
received for the Commercial Business and to develop an
appropriate process for reviewing such indications of interest
and those that might be received in the future. Our senior
management and representatives of our legal and financial
advisors were also present at these meetings. At this meeting,
our Board discussed various structures by which the Commercial
Business could be sold that would comply with the terms of the
Stock Purchase Agreement with Jacobs Engineering and complement
the sale of the Government Solutions Business to Jacobs
Technology. Following discussion, our Board directed the
Strategy Committee to move forward, with the assistance of
TechTeams management and legal and financial advisors, to
explore the sale of the Commercial Business and to develop
transaction structures that would comply with the terms of the
Stock Purchase Agreement and complement the sale of the
Government Solutions Business to Jacobs Technology pursuant
thereto.
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However, stockholders are reminded that, other than the sale
of the Government Solutions Business to Jacobs Technology
pursuant to the Stock Sale, they are not being asked to consider
or approve any strategic proposals, alternatives or transactions
at this time. In addition, stockholders are cautioned that there
can be no assurance as to whether and when any specific
transaction relating to the Commercial Business will be
authorized or consummated and that no timetable has been set for
the completion of any such transaction.
Recommendation of
Our Board of Directors
After careful consideration, our Board has unanimously
determined that the Stock Sale is expedient and in the best
interests of TechTeam and our stockholders and has unanimously
approved the Stock Purchase Agreement and the Stock Sale. As a
result, our Board has unanimously recommended to our
stockholders that they vote FOR the
approval of the Stock Sale Proposal at the Special Meeting.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL OF THE STOCK SALE
PROPOSAL.
Reasons for
Recommending that Stockholders Approve the Stock Sale
Proposal
In evaluating the Stock Sale, our Board consulted with our
senior management, our outside legal counsel and TechTeams
financial advisor. Our Board also consulted with outside legal
counsel regarding its fiduciary duties, legal due diligence
matters and the terms of the Stock Purchase Agreement and
related agreements. After carefully considering these
consultations and the other factors discussed below, our Board
unanimously determined that the Stock Sale was expedient and in
the best interests of TechTeam and our stockholders and
unanimously recommended that our stockholders approve the Stock
Sale Proposal.
The following discussion includes the material reasons and
factors (which are not listed in any order of importance)
considered by our Board in making its recommendation, but is
not, and is not intended to be, exhaustive.
Purchase
Price; Cash Consideration; Certainty of Value
Our Board considered the value and the consideration to be
received by us pursuant to the terms of the Stock Purchase
Agreement, including the fact that we would receive a base
purchase price of $59,000,000 in cash at closing, less escrowed
amounts and a post-closing adjustment based on the final net
tangible book value of the Government Solutions Business at
closing, as determined, in each case, pursuant to the terms of
the Stock Purchase Agreement. Our Board also considered the form
of consideration paid to us in the Stock Sale and the relative
certainty of the value of such cash consideration compared to
stock or other forms of consideration.
The Short- and
Long-Term Prospects of TTGSI, the Government Solutions Business
and the Commercial Business
Our Board considered, among other things, the historical,
current and projected information concerning TTGSI and the
Government Solutions Business, as well as the Commercial
Business (which we are not selling in the Stock Sale),
including, without limitation:
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information relating to the financial results, financial
condition and operations of each of TTGSI, the Government
Solutions Business and our Commercial Business;
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the cash, sales backlog, geographic reach and operations and
customer expansion capabilities of the Government Solutions
Business and the Commercial Business;
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the ongoing capital, investment and resource allocation needs of
TTGSI, the Government Solutions Business and the Commercial
Business, and how we would need to adjust our operations to meet
the needs of both business segments;
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current industry, economic and market trends and conditions
relating to TTGSI, the Government Solutions Business and the
Commercial Business;
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the continued viability of our current strategies for operating
the Government Solutions Business;
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the possibility that the short- and long-term prospects of TTGSI
and the Government Solutions Business would continue to decline
under our ownership;
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that the unexpected termination or non-renewal of one or more of
TTGSIs significant contracts could result in significant
revenue shortfalls;
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the effect on the Government Solutions Business of the decision
by the U.S. Air National Guard to in-source certain
services provided to it by TTGSI and, accordingly, to wind-down
its contract with TTGSI;
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TTGSIs financial plan and prospects if it were to remain
under our ownership, including TTGSIs current financial
plan, and the risks associated with achieving and executing upon
TTGSIs business plans;
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the presentations and views expressed by our management as to
the short- and long-term prospects of the Government Solutions
Business and the Commercial Business;
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our historical focus on our Commercial Business, and thereby, on
the Information Technology Outsourcing (ITO) and
Business Process Outsourcing (BPO) marketplaces;
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the strong reputation of the Commercial Business in the ITO
marketplace, as evidenced by evaluations by key industry
analysts;
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the consolidation that has been occurring in the ITO marketplace
served by the Commercial Business, facilitating a trend toward
the bundling of ITO services and how such consolidation could
affect the Commercial Business; and
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our deep and extensive relationships with our Commercial
Business customers, including but not limited to Ford Motor
Company, Alcoa and Deere & Company, which provide us
with a strong foundation to grow and expand the Commercial
Business globally.
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Unfavorable
Trends in the U.S. Government Information Technology Services
Market
Our Board considered, among other things, a number of
unfavorable trends in the U.S. government information
technology services market, including, without limitation:
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an increasing trend of the U.S. federal government to award
business either to small disadvantaged businesses or to large
contractors that can support performance of indefinite delivery,
indefinite quantity contracts;
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an increasing trend of the U.S. federal government to
in-source services rather than outsource them, such as services
previously performed under the ANG Contract that expired on
September 30, 2009;
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uncertain and changing customer priorities due to budgetary
constraints, shifting budget priorities to support the ongoing
war effort, and the change in U.S. administrations;
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longer collection times for accounts receivable and increased
administrative burden for billing and collection activities for
some of our U.S. federal government contracts;
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slower
ramp-up
times and revenue growth relating to existing contracts; and
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increased pressure for cost savings on new contracts and the
renewal of existing contracts.
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The Potential
Adverse Effect on Our Commercial Business that Could Result from
the Continued Ownership of Our Government Solutions
Business
Our Board considered the possibility that the continued
ownership and management of the Government Solutions Business
could impair or otherwise limit TechTeams ability to
capitalize on the short- and long-term prospects of the
Commercial Business. In this regard, our Board noted the
following:
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that the requirements and approaches to the Commercial Business
and the Government Solutions Business and their markets and
customers are fundamentally different, as the Commercial
Business requires a well-focused, repeatable product-oriented
approach, while the Government Solutions Business requires a
much broader, highly customized customer-oriented approach;
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that both the Commercial Business and the Government Solutions
Business are currently at sizes that are less than optimal and
that significant investments would be required in order to grow
each to a point where they together can achieve an appropriate
level of scale and sustained profitability and growth;
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that retaining both the Commercial Business and the Government
Solutions Business would entail an allocation of resources that
either
sub-optimizes
one business in favor of the other or
sub-optimizes
both businesses;
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that the Commercial Business on its own is a simpler business to
operate and manage, is more focused and requires less overhead
to support;
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that, faced with the decision of which business to retain, if
any, our Boards belief that the Commercial Business offers
better short- and long-term prospects than the Government
Solutions Business and has greater opportunity for growth,
profitability and increasing stockholder value; and
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that the Stock Sale would permit us to focus on our service desk
and infrastructure support expertise, which provides us with a
competitive advantage for global businesses that seek an
alternative to the mega-suppliers, and for mega-suppliers who
want to integrate our services with theirs to serve a broader
customer base.
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The Potential
for Increased Financial Flexibility After the Stock
Sale
Our Board considered, among other things, the following with
respect to the possibility that the consummation of the Stock
Sale may provide us with increased financial flexibility:
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that following the Stock Sale and the use of a portion of the
net cash proceeds therefrom to repay our outstanding bank debt,
we would have increased financial flexibility to focus on and
invest in the Commercial Business; and
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that the Stock Sale would enable us to invest a portion of the
net cash proceeds received from the Stock Sale in expanding the
capabilities, geographic footprint and scale of the Commercial
Business, and to pursue strategic acquisitions as such
opportunities may arise from time to time.
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Results of Our
Boards Review of Strategic Alternatives
Our Board considered the results of the review of strategic
alternatives undertaken by us, with the assistance of our
management, legal advisor and financial advisor, which included,
but was not limited to, alternatives that contemplated the
separation of the Government Solutions Business from the
Commercial Business. Our Board further considered the
solicitation and bid process which ultimately resulted in
Jacobs offer to acquire TTGSI. Ninety-seven potential
buyers were contacted to solicit their potential interest in
acquiring TTGSI, including 56 strategic and 41 financial buyers.
Moreover, our Board considered the need
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to bring its review of strategic alternatives as it pertains to
TTGSI to a reasonably prompt conclusion, taking into account:
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the significant deterioration of the financial performance of
the Government Solutions Business since the solicitation and bid
process commenced;
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the departures of a number of senior-level employees from the
Government Solutions Business;
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the effect on the Government Solutions Business of the decision
by the U.S. federal government to in-source certain
services that TTGSI had previously provided to the U.S. Air
National Guard pursuant to the ANG Contract that expired on
September 30, 2009, and to wind down this contract with
TTGSI; and
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the significant uncertainty regarding the future prospects of
the Government Solutions Business and the possibility that the
short- and long-term prospects of the Government Solutions
Business would continue to decline under our ownership.
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In reaching its recommendation that our stockholders approve the
Stock Sale Proposal, our Board noted the history and progress of
TechTeams discussions with Party G-A and other potential
acquirers of TTGSI, including, without limitation:
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that the last proposal made by Party G-A contemplated the
acquisition of TTGSI for $55 million in cash;
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that, following the expiration of the initial exclusivity period
with Jacobs on March 26, 2010, Party G-A did not elect to
increase or reaffirm its last offer for the acquisition of TTGSI;
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Party G-As unwillingness to commit to the acquisition of
TTGSI regardless of its ability to obtain financing;
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Party G-As unwillingness to agree to a fiduciary out that
would allow our Board to consider acquisition proposals for the
Government Solutions Business, as well as for the entirety of
the Company, including TTGSI, and to terminate the acquisition
agreement to accept such a proposal under certain circumstances;
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the unwillingness of Party G-A to have a party, other than a
newly-formed acquisition subsidiary, bound by all of the
obligations of the acquisition agreement; and
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the insistence of Party G-A that, in the event of a breach of
the acquisition agreement by Party G-A, we would not be allowed
to bring an action against Party G-A for specific performance
and that our only recourse would be to collect a reverse
break-up
fee that, as proposed, would have equaled 2% of the purchase
price.
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Finally, our Board considered the history and progress of our
negotiations with Jacobs with respect to the Stock Sale.
Potential
Ability to Unlock Value in the Commercial Business
Our Board considered that the Stock Sale could have the
potential ability to unlock stockholder value in the Commercial
Business, taking into account the following:
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our Boards belief that the intrinsic value of TechTeam has
been hidden by the juxtaposition of two substantially unrelated,
relatively independent and
sub-scale
businesses which do not have any significant synergies between
them; and
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our Boards belief that the sale of the Government
Solutions Business may enhance interest by potential acquirers
of the Commercial Business, as the Commercial Business could
potentially be acquired by a company that would no longer be
required to address the security concerns of the
U.S. federal government associated with foreign ownership
of suppliers with top-secret cleared services and facilities.
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Our Board also considered the possibility that while the Stock
Sale may enhance interest by potential acquirers of the
Commercial Business, certain terms of the Stock Purchase
Agreement, including, but not limited to, the escrow and
indemnification provisions thereof, could adversely affect our
ability to explore various strategic alternatives with respect
to our Commercial Business by making it difficult for potential
acquirers of the Commercial Business to appropriately value the
Commercial Business. As noted above, under the Stock Purchase
Agreement, TechTeam has agreed to indemnify Jacobs for various
matters, including any breach or violation of any
representation, warranty, covenant or undertaking made by us in
the Stock Purchase Agreement, subject to certain limitations and
exceptions. There is significant uncertainty as to the amount,
if any, that we will ultimately have to pay to Jacobs to resolve
indemnification claims and, accordingly, there is significant
uncertainty as to the amount of the indemnification escrow fund
that will ultimately be returned to us. These uncertainties may
make it difficult for a potential acquirer of the Commercial
Business to appropriately value the Commercial Business,
including, but not limited to, its contingent liabilities and
our interest in the indemnification escrow fund.
Stockholders are reminded that, other than the sale of the
Government Solutions Business to Jacobs Technology pursuant to
the Stock Sale, they are not being asked to consider or approve
any strategic proposals, alternatives or transactions at this
time. In addition, stockholders are cautioned that there can be
no assurance as to whether and when any specific transaction
relating to the Commercial Business will be authorized or
consummated and that no timetable has been set for the
completion of any such transaction.
Opinion of
TechTeams Financial Advisor
Our Board considered the opinion and financial presentation of
Houlihan Lokey, dated June 3, 2010, to our Board as to the
fairness, from a financial point of view and as of the date of
the opinion, to TechTeam of the $59,000,000 cash consideration
to be received by TechTeam in the Stock Sale, which opinion was
based on and subject to the procedures followed, assumptions
made, qualifications and limitations on the review undertaken
and other matters considered by Houlihan Lokey in preparing its
opinion attached hereto as Exhibit E and as more
fully described in Proposal 1 Opinion of
TechTeams Financial Advisor.
Business
Reputation of Jacobs
Our Board considered the business reputation of Jacobs and its
management and financial resources, which it believed supported
our Boards conclusion that a transaction with Jacobs could
be completed relatively quickly and in an orderly manner.
Use of
Proceeds
Our Board considered the fact that the net cash proceeds to be
received by us from the Stock Sale would enable us to repay all
of our indebtedness currently outstanding under our existing
credit facility. The net cash proceeds that we receive from the
Stock Sale would also enable our Board to consider, from time to
time, repurchasing Common Stock for cash as market and business
conditions warrant. Further, the proceeds would enable us to
invest in the growth of the Commercial Business, including
without limitation, additional capabilities, increased
geographic footprint and growth through strategic acquisitions.
While we may use some of the net cash proceeds received by us
from the Stock Sale to pursue strategic business acquisitions
related to the growth of our Commercial Business, no specific
acquisition targets have been identified at this time.
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Terms of the
Stock Purchase Agreement
Our Board considered the specific provisions of the Stock
Purchase Agreement, including the respective representations,
warranties and covenants and termination rights of the parties
and the termination fee payable by us. These provisions included:
Ability to Respond to Certain Unsolicited Acquisition
Proposals. Our Board considered the fact that the Stock
Purchase Agreement provides our Board with the flexibility to
consider, evaluate and accept a Superior Proposal (as defined in
the Stock Purchase Agreement) in the period after signing and
prior to the closing of the Stock Sale, subject to compliance
with the Stock Purchase Agreement, as follows:
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Subject to compliance with the Stock Purchase Agreement, we may,
in response to an unsolicited bona fide written Competing
Transaction Proposal (as defined in the Stock Purchase
Agreement) from a third party, furnish information to such third
party pursuant to a confidentiality agreement and participate in
any discussions or negotiations with such third party, if our
Board determines in good faith that:
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after consulting with our outside legal counsel and
TechTeams financial advisor, such Competing Transaction
Proposal is, or is reasonably likely to lead to, a Superior
Proposal; or
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after consulting with our outside legal counsel, the failure of
our Board to take various actions in response to the Competing
Transaction Proposal would be reasonably likely to result in a
violation of our Boards fiduciary duties or other
violation of applicable law.
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At any time prior to the approval by our stockholders of the
Stock Sale, our Board may withdraw, or modify in a manner
adverse to Jacobs, its recommendation to stockholders to vote
FOR the Stock Sale Proposal if:
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a Competing Transaction Proposal is made to us and is not
withdrawn;
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we provide Jacobs with at least five business days prior
written notice of any meeting of our Board at which our Board
will consider and determine whether the Competing Transaction
Proposal is a Superior Proposal;
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our Board determines in good faith after consultation with our
financial advisor and outside legal counsel that such Competing
Transaction Proposal constitutes or is reasonably likely to
constitute a Superior Proposal;
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our Board determines in good faith after having consulted with
our outside legal counsel that, in light of the Competing
Transaction Proposal, the withdrawal or modification of our
Boards recommendation of the Stock Sale Proposal is
required in order for our Board to comply with its fiduciary
obligations to our stockholders under applicable law; and
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neither we, TTGSI, nor our or TTGSIs representatives have
violated any of the no negotiation provisions of the
Stock Purchase Agreement.
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We would be permitted to terminate the Stock Purchase Agreement
immediately prior to entering into a definitive agreement with
respect to a Superior Proposal, provided that:
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we have actually received a Superior Proposal;
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we are not in breach of the terms of the Stock Purchase
Agreement with respect to restrictions on our ability to solicit
and enter into negotiations with respect to Competing
Transaction Proposals;
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our Board has authorized us to enter into such definitive
agreement for such Superior Proposal;
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we pay Jacobs a termination fee of $2,360,000, and reimburse
Jacobs for up to $750,000 of Jacobs reasonable and
documented
out-of-pocket
fees and expenses incurred in connection with the Stock
Sale; and
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immediately following such termination, we enter into such
definitive agreement to effect such Superior Proposal.
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Consents and Approvals. Our Board analyzed the
consents and approvals required to consummate the Stock Sale and
believed that it was likely that such consents and approvals
would be obtained.
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Termination Fee. Our Board was of the view that the
termination fee payable by us to Jacobs, if payment of such
termination fee was required upon the termination of the Stock
Purchase Agreement for any of the reasons provided therein, was
generally comparable to termination fees in transactions of a
similar size, was reasonable, would not likely deter the receipt
of Competing Transaction Proposals and would not likely be
required to be paid unless we entered into or intended to enter
into a more favorable Competing Transaction Proposal. See
The Stock Purchase Agreement Termination Fee
and Reimbursement of Expenses.
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Conditions to the Consummation of the Stock Sale; Likelihood
of Closing. Our Board considered the reasonable
likelihood that the Stock Sale would be consummated in light of
the conditions to Jacobs obligations to consummate the
Stock Sale, including, without limitation, that:
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Jacobs obligation to consummate the Stock Sale was not
contingent on the ability of Jacobs to secure any third-party
financing commitments;
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the representations of Jacobs in the Stock Purchase Agreement
that Jacobs has or will have sufficient funds available to
consummate the Stock Sale; and
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the financial strength of Jacobs.
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Material Adverse Effect. The Stock Purchase
Agreement defines under what circumstances a Material
Adverse Effect may be deemed to have occurred, which would
give Jacobs the right to terminate the Stock Purchase Agreement.
Our Board also considered the likelihood of the occurrence of a
Material Adverse Effect between the date of the execution of the
Stock Purchase Agreement and the closing of the Stock Sale and
the likelihood that Jacobs would assert the existence of a
Material Adverse Effect in order to be excused from the
consummation of the Stock Sale.
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Parent Guarantee. Our Board considered the
willingness of Jacobs Engineering, the parent of Jacobs
Technology, to guarantee the performance by Jacobs Technology of
all of its obligations under the Stock Purchase Agreement and
the other agreements, documents, certificates and instruments
required to be executed and delivered by Jacobs Technology
pursuant to the Stock Purchase Agreement. See The Stock
Purchase Agreement Parent Guarantee.
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Support of the
Stock Sale by Two of Our Largest Stockholders
Our Board considered the willingness of two of our largest
stockholders, Costa Brava Partnership III L.P. and
Emancipation Capital, LLC, and their respective affiliates, who
together beneficially own approximately 18% of the outstanding
Common Stock, to execute voting agreements with Jacobs
obligating such stockholders, subject to the terms of the voting
agreements, to vote their shares of Common Stock in favor of the
approval of the Stock Sale Proposal and against approval of any
Competing Transaction Proposal or any proposal made in
opposition to or in competition with the Stock Sale Proposal,
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unless the recommendation of our Board with respect thereto has
been withdrawn or modified in a manner adverse to Jacobs.
Risks of the
Stock Sale
Our Board considered a variety of risks and other potentially
negative factors concerning the Stock Purchase Agreement and the
Stock Sale, including the following:
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the restrictions on the conduct of the Government Solutions
Business prior to completion of the Stock Sale, which require us
to conduct the Government Solutions Business only in the
ordinary course, subject to specific exceptions or obtaining
Jacobs prior consent, which may delay or prevent us from
undertaking business opportunities that may arise pending
completion of the Stock Sale;
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the restrictions on our Boards ability to solicit or
engage in discussions or negotiations with, or to provide
information to, a third party regarding alternative transactions
involving the Government Solutions Business;
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the limitation on our ability to terminate the Stock Purchase
Agreement and our obligation to pay to Jacobs a $2,360,000
termination fee and to reimburse Jacobs for up to $750,000 of
its reasonable, documented
out-of-pocket
expenses in the event the Stock Purchase Agreement is terminated
under certain circumstances;
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the fact that the terms of the Stock Purchase Agreement and the
representations and warranties and indemnification provisions
contained therein, may expose us to potentially significant
contingent liabilities;
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the payment of a portion of the purchase price for TTGSI into
escrow to secure potential indemnification claims that may be
made by Jacobs and the net tangible book value purchase price
adjustment, and the possibility that some or all of such
escrowed portion of the purchase price may not be eventually
released to us;
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that certain indemnification claims may not be limited in time
or limited to the amounts placed in escrow and that the
aggregate limitation on our potential indemnification liability
under the Stock Purchase Agreement could equal the full purchase
price;
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that the non-compete agreement would, if executed, prevent us,
in the absence of experiencing a change of control subsequent to
the closing of the Stock Sale, from competing with the
Government Solutions Business for a five-year period;
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that certain terms of the Stock Purchase Agreement, including,
but not limited to, the escrow and indemnification provisions
thereof, could adversely affect our ability to explore various
strategic alternatives with respect to our Commercial Business
by making it difficult for potential acquirers of the Commercial
Business to appropriately value the Commercial Business,
including, but not limited to, its contingent liabilities and
our interest in the indemnification escrow fund;
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the possibility that stockholder approval of the Stock Sale
Proposal might not be obtained, causing the recognition of
significant transaction costs incurred in connection with the
Stock Sale and the related solicitation and bid process without
the commensurate benefit thereof;
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the ability of Jacobs to terminate the Stock Purchase Agreement
at any time after October 1, 2010 if the conditions to
Jacobs obligation to consummate the Stock Sale are not
satisfied prior to such date, and the possibility that such
conditions may not be satisfied as of such date;
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that the Stock Sale will leave us as a significantly smaller
public company, with fewer revenue-producing assets and a less
diversified business;
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the risk that we will not be able to satisfy some or all of the
conditions to Jacobs obligation to consummate the Stock
Sale;
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the possibility that the Stock Sale might not be consummated, or
might not be consummated in a timely manner, and in such case:
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our directors, executive officers and other employees will have
expended extensive time and effort and will have experienced
significant distractions from their work during the pendency of
the Stock Sale;
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we will have incurred significant transaction costs; and
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the perception of our continuing business could potentially
result in a loss of customers, business partners and employees;
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the effect of the public announcement of the execution of the
Stock Purchase Agreement and the pendency of the Stock Sale,
including the effects on our business, revenues, financial
condition, customer and reseller relationships, operating
results, stock price, and our ability to attract and retain key
management and sales and marketing personnel;
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the possibility that new or existing customers may prefer to
enter into agreements with TTGSIs competitors who have not
expressed an intention to sell their business because such
customers may perceive that such other relationships are likely
to be more stable;
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the possibility that employees of the Government Solutions
Business may become concerned about the future of the Government
Solutions Business and may seek other employment;
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uncertainties about whether it is currently the optimal time to
sell the Government Solutions Business;
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that our stockholders will not participate in any future
earnings or growth of the Government Solutions Business if it is
sold to Jacobs;
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that, after the completion of the Stock Sale, we will retain
most of our public company costs and that it may no longer be
optimal for us to continue to be a public reporting company;
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that we may not find appropriate new client targets to pursue to
enable us to grow the Commercial Business sufficiently to absorb
the infrastructure costs previously allocated to the Government
Solutions Business;
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uncertainties related to our proposed disposition strategy,
including our inability to successfully operate the Commercial
Business after the Stock Sale on a stand-alone basis;
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uncertainties as to the amount, if any, of our cash that our
stockholders may receive in the future;
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uncertainties as to the implementation of our strategic
repositioning and market acceptance of our refocused strategy,
including our ability to embark on significant cost-cutting
initiatives to reduce our infrastructure, which initiatives may
not occur as rapidly as anticipated;
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quarterly fluctuations in our financial results;
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our ability to exploit fully the value of our help desk services;
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delays in the implementation of our business strategy or the
development of new service offerings;
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changes in our customers business or requirements thereof;
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difficulties in providing service solutions for our customers;
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the global economic recession and financial crisis;
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the performance of our contracts by suppliers, customers and
partners;
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the difficulty of aligning expense levels with revenue changes;
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complexities of global, national, regional and local political
and economic developments; and
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other risks that are described herein, including but not limited
to the items discussed in Cautionary Statements Concerning
ForwardLooking
Information, Material Considerations Relating to the
Stock Sale Proposal and Item 1A Risk
Factors of the 2009
Form 10-K,
a copy of which is reproduced as Exhibit F to this
Proxy Statement.
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The foregoing discussion summarizes the material factors
considered by our Board in its consideration of the Stock Sale.
After carefully considering these factors, our Board concluded
that the positive factors relating to the Stock Sale outweighed
the potential negative factors. In view of the wide variety of
factors considered by our Board, and the complexity of these
matters, our Board did not find it practicable to quantify or
otherwise assign relative weights to the foregoing factors. In
addition, individual members of our Board may have assigned
different weights to various factors. Our Board unanimously
approved the Stock Sale and unanimously recommended that
stockholders vote FOR the approval of
the Stock Sale Proposal based upon the totality of the
information presented to and considered by it.
Opinion of
TechTeams Financial Advisor
TechTeam engaged Houlihan Lokey as its financial advisor in
connection with various potential transactions involving
TechTeam, including the proposed Stock Sale. In connection with
this engagement, our Board requested that Houlihan Lokey
evaluate the fairness, from a financial point of view and as of
the date of the opinion, to TechTeam of the $59,000,000 cash
consideration to be received in the Stock Sale by TechTeam. On
June 3, 2010, at a meeting of our Board held to evaluate
the Stock Sale, Houlihan Lokey rendered to our Board an oral
opinion, which was confirmed by delivery of a written opinion
dated June 3, 2010, to the effect that, as of that date and
based on and subject to the procedures followed, assumptions
made, qualifications and limitations in the review undertaken
and other matters considered by Houlihan Lokey in the
preparation of its opinion, the $59,000,000 cash consideration
to be received in the Stock Sale by TechTeam was fair, from a
financial point of view, to TechTeam.
Houlihan Lokeys opinion was furnished for the use and
benefit of our Board (in its capacity as such) in connection
with its evaluation of the $59,000,000 cash consideration, only
addressed the fairness, from a financial point of view, to
TechTeam of such consideration and does not address any other
aspect or implication of the Stock Sale. The summary of Houlihan
Lokeys opinion in the Proxy Statement is qualified in its
entirety by reference to the full text of its written opinion,
which is attached hereto as Exhibit E. Houlihan
Lokeys opinion should not be construed as creating any
fiduciary duty on Houlihan Lokeys part to any party.
Houlihan Lokeys opinion was not intended to be, and does
not constitute, a recommendation to our Board, any
securityholder or any other person as to how to act or vote with
respect to any matter relating to the Stock Sale.
In connection with its opinion, Houlihan Lokey made such
reviews, analyses and inquiries as it deemed necessary and
appropriate under the circumstances. Among other things,
Houlihan Lokey:
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reviewed a draft, dated June 1, 2010, of the Stock Purchase
Agreement;
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reviewed certain publicly available business and financial
information relating to TTGSI that Houlihan Lokey deemed to be
relevant;
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reviewed certain information relating to the historical, current
and future operations, financial condition and prospects of
TTGSI made available to Houlihan Lokey by TechTeam, including
financial projections (and adjustments thereto) prepared by or
discussed with the managements
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of TechTeam and TTGSI for the fiscal years ending
December 31, 2010 through December 31, 2016;
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spoke with certain members of the managements of TechTeam and
TTGSI and certain of their representatives and advisors
regarding the operations, financial condition, past performance
relative to projected performance and trends in the financial
results and prospects of TTGSI and regarding the Stock Sale and
related matters;
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compared the financial and operating performance of TTGSI with
that of public companies that Houlihan Lokey deemed to be
relevant;
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considered the publicly available financial terms of certain
transactions that Houlihan Lokey deemed to be relevant;
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considered the results of the third-party solicitation process
conducted by TechTeam, with Houlihan Lokeys assistance,
with respect to a possible sale of TTGSI; and
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conducted such other financial studies, analyses and inquiries
and considered such other information and factors as Houlihan
Lokey deemed appropriate.
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Houlihan Lokey relied upon and assumed, without independent
verification, the accuracy and completeness of all data,
material and other information furnished, or otherwise made
available, to Houlihan Lokey, discussed with or reviewed by
Houlihan Lokey, or publicly available, and did not assume any
responsibility with respect to such data, material and other
information. In addition, the managements of TechTeam and TTGSI
advised Houlihan Lokey, and Houlihan Lokey assumed, that the
financial projections (and adjustments thereto) reviewed by
Houlihan Lokey were reasonably prepared in good faith on bases
reflecting the best currently available estimates and judgments
of such managements as to the future financial results and
condition of TTGSI, and Houlihan Lokey expressed no opinion with
respect to such projections or the assumptions on which they
were based. Houlihan Lokey relied upon and assumed, without
independent verification, that there had been no change to TTGSI
or its assets, liabilities, financial condition, results of
operations, cash flows or prospects since the date of the most
recent financial statements provided to Houlihan Lokey that
would be material to Houlihan Lokeys analyses or opinion,
that the financial projections relating to TTGSI reviewed by
Houlihan Lokey reflected all assets and liabilities to be sold
and assumed in the Stock Sale and that there was no information
or any facts that would make any of the information reviewed by
Houlihan Lokey incomplete or misleading. Houlihan Lokey also
assumed, at TechTeams direction, that any adjustments to
the $59,000,000 cash consideration pursuant to the Stock
Purchase Agreement, and payments, if any, made to Jacobs or its
indemnitees from the portion of the consideration to be held in
escrow in accordance with the terms of the Stock Purchase
Agreement, would not in any respect be material to Houlihan
Lokeys analyses or opinion.
Houlihan Lokey relied upon and assumed, without independent
verification, that:
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the representations and warranties of all parties to the Stock
Purchase Agreement and all other related documents and
instruments referred to in such documents will be true and
correct;
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each party to the Stock Purchase Agreement and such other
related documents and instruments would fully and timely perform
all of the covenants and agreements required to be performed by
such party;
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all conditions to the consummation of the Stock Sale would be
satisfied without waiver; and
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the Stock Sale would be consummated in a timely manner in
accordance with the terms described in the Stock Purchase
Agreement and such other related documents and instruments,
without any amendments or modifications.
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Houlihan Lokey also relied upon and assumed, without independent
verification, that:
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the Stock Sale would be consummated in a manner that complies in
all respects with all applicable federal and state statutes,
rules and regulations;
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all governmental, regulatory, and other consents and approvals
necessary for the consummation of the Stock Sale would be
obtained and that no delay, limitations, restrictions or
conditions would be imposed or amendments, modifications or
waivers made that would have an effect on TTGSI, TechTeam or the
Stock Sale that would be material to Houlihan Lokeys
analyses or opinion; and
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the final form of the Stock Purchase Agreement would not differ
in any respect from the draft of the Stock Purchase Agreement
identified above.
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Furthermore, in connection with its opinion, Houlihan Lokey was
not requested to make, and did not make, any physical inspection
or independent appraisal or evaluation of any of the assets,
properties or liabilities (fixed, contingent, derivative,
off-balance sheet or otherwise) of TechTeam (including, without
limitation, TTGSI) or any other party, nor was Houlihan Lokey
provided with any such appraisal or evaluation. Houlihan Lokey
did not estimate, and expressed no opinion regarding, the
liquidation value of TTGSI or any entity. Houlihan Lokey did not
undertake an independent analysis of any potential or actual
litigation, regulatory action, possible unasserted claims or
other contingent liabilities, to which TechTeam (including,
without limitation, those relating to TTGSI) is or may be a
party or is or may be subject, or of any governmental
investigation of any possible unasserted claims or other
contingent liabilities to which TechTeam (including, without
limitation, those relating to TTGSI) is or may be a party or is
or may be subject.
Houlihan Lokeys opinion was necessarily based on
financial, economic, market and other conditions as in effect
on, and the information made available to Houlihan Lokey as of,
June 3, 2010. Houlihan Lokey did not undertake, and is
under no obligation, to update, revise, reaffirm or withdraw its
opinion, or otherwise comment on or consider events occurring or
coming to Houlihan Lokeys attention after June 3,
2010.
Houlihan Lokey was not requested to opine as to, and its opinion
did not express an opinion as to or otherwise address, among
other things:
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the underlying business decision of TechTeam, its
securityholders or any other party to proceed with or effect the
Stock Sale;
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the terms of any arrangements, understandings, agreements or
documents related to, or the form, structure or any other
portion or aspect of, the Stock Sale or otherwise (other than
the $59,000,000 cash consideration to the extent expressly
specified in Houlihan Lokeys opinion), including, without
limitation, any terms or aspects of any stockholder voting
agreement, retention agreement (or related payments) or escrow,
indemnity, guarantee or licensing arrangements entered into in
connection with, or any tax implications of, the Stock Sale;
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the fairness of any portion or aspect of the Stock Sale to the
holders of any class of securities, creditors or other
constituencies of TechTeam, or to any other party, except if and
only to the extent expressly set forth in Houlihan Lokeys
opinion;
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the relative merits of the Stock Sale as compared to any
alternative business strategies relating to, or that might exist
for, TTGSI, TechTeam or any other party or the effect of any
other transaction involving TTGSI or in which TechTeam or any
other party might engage;
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the fairness of any portion or aspect of the Stock Sale to any
one class or group of TechTeams or any other partys
securityholders or other constituents vis-à-vis any other
class or group of TechTeams or such other partys
securityholders or other constituents (including, without
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limitation, the allocation of any consideration among or within
such classes or groups of securityholders or other constituents);
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whether or not TechTeam, its securityholders or any other party
is receiving or paying reasonably equivalent value in the Stock
Sale;
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the solvency, creditworthiness or fair value of TechTeam
(including, without limitation, TTGSI) or any other participant
in the Stock Sale, or any of their respective assets, under any
applicable laws relating to bankruptcy, insolvency, fraudulent
conveyance or similar matters; or
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the fairness, financial or otherwise, of the amount, nature or
any other aspect of any compensation to or consideration payable
to or received by any officers, directors or employees of any
party to the Stock Sale, any class of such persons or any other
party, relative to the cash consideration or otherwise.
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Furthermore, no opinion, counsel or interpretation was intended
in matters that require legal, regulatory, accounting,
insurance, tax or other similar professional advice. Houlihan
Lokey assumed that such opinions, counsel or interpretations
were or would be obtained from appropriate professional sources.
Furthermore, Houlihan Lokey relied, with TechTeams
consent, on the assessments by TechTeam and its advisors as to
all legal, regulatory, accounting, insurance and tax matters
with respect to TTGSI, TechTeam and the Stock Sale. The issuance
of Houlihan Lokeys opinion was approved by a Houlihan
Lokey committee authorized to approve opinions of this nature.
Except as described above, TechTeam imposed no other
instructions or limitations on Houlihan Lokey with respect to
the investigations made or the procedures followed by it in
rendering its opinion.
In preparing its opinion to our Board, Houlihan Lokey performed
a variety of analyses, including those described below. This
summary is not a complete description of Houlihan Lokeys
opinion or the financial analyses performed and factors
considered by Houlihan Lokey in connection with its opinion. The
preparation of a financial opinion is a complex analytical
process involving various quantitative and qualitative judgments
and determinations as to the most appropriate and relevant
financial, comparative and other analytical methods employed and
the adaptation and application of those methods to the
particular facts and circumstances presented. Therefore, a
financial opinion and its underlying analyses are not readily
susceptible to summary description. Houlihan Lokey arrived at
its ultimate opinion based on the results of all analyses
undertaken by it and assessed as a whole and did not draw, in
isolation, conclusions from or with regard to any one factor or
method of analysis for purposes of its opinion. Accordingly,
Houlihan Lokey believes that its analyses and the following
summary must be considered as a whole and that selecting
portions of its analyses, methodologies, and factors or focusing
on information presented in tabular format, without considering
all analyses, methodologies, and factors or the narrative
description of the analyses, could create a misleading or
incomplete view of the processes underlying Houlihan
Lokeys analyses and opinion. Each analytical technique has
inherent strengths and weaknesses, and the nature of the
available information may further affect the value of particular
techniques.
In performing its analyses, Houlihan Lokey considered industry
performance, general business, economic, market and financial
conditions and other matters as they existed on, and could be
evaluated as of, June 3, 2010, many of which are beyond
TechTeams control. Accordingly, the information may not
reflect current or future market conditions. No company,
business or transaction used in the analyses for comparative
purposes is identical to TTGSI or the Stock Sale, and an
evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex
considerations, judgments, and assumptions concerning financial
and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the
companies, business segments or transactions analyzed. Houlihan
Lokey believes that mathematical derivations (such as
determining an average or median) of financial data are not by
themselves meaningful and should be considered together with
judgments and informed assumptions. The assumptions and
estimates contained in Houlihan Lokeys analyses and the
reference ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than those
91
suggested by its analyses. In addition, analyses relating to the
value of assets, businesses or securities do not purport to be
appraisals or to reflect the prices at which assets, businesses
or securities actually may be sold. Accordingly, the assumptions
and estimates used in, and the results derived from, Houlihan
Lokeys analyses are inherently subject to substantial
uncertainty.
Houlihan Lokeys opinion and financial analysis provided to
our Board in connection with its evaluation of the cash
consideration, from a financial point of view, to TechTeam were
only one of many factors considered by our Board in its
evaluation of the Stock Sale and should not be viewed as
determinative of the views of our Board or management with
respect to the Stock Sale or the consideration payable in the
Stock Sale. Houlihan Lokey was not requested to, and it did not,
recommend the specific consideration payable in the Stock Sale.
The type and amount of consideration payable in the Stock Sale
was determined through negotiation between TechTeam and Jacobs,
and the decision to enter into the Stock Sale was solely that of
our Board.
The following is a summary of the material financial analyses
reviewed by Houlihan Lokey with our Board in connection with
Houlihan Lokeys opinion dated June 3, 2010. The order
of analyses does not represent relative importance or weight
given to those analyses by Houlihan Lokey. The financial
analyses summarized below include information presented in
tabular format. In order to fully understand Houlihan
Lokeys financial analyses, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Considering the data in the tables below without considering the
full narrative description of the financial analyses, including
the methodologies and assumptions underlying and the
qualifications and evaluations affecting the analyses, could
create a misleading or incomplete view of Houlihan Lokeys
financial analyses.
TTGSI Selected
Companies Analysis
Houlihan Lokey reviewed financial information of TTGSI and
financial and stock market information for the following eight
selected publicly held companies with operations in the
government information technology and professional services
industry, which is the industry in which TTGSI operates:
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CACI International Inc.
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Dynamics Research Corporation
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ICF International, Inc.
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ManTech International Corporation
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NCI, Inc.
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SAIC, Inc.
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SRA International, Inc.
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VSE Corporation
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Houlihan Lokey reviewed, among other things, enterprise values
of the selected companies, calculated as equity market value
based on reported fully-diluted common shares outstanding and
closing stock prices on June 2, 2010, plus debt outstanding
and preferred stock, less cash and cash equivalents, as a
multiple of one fiscal year forward and two fiscal years forward
estimated earnings before interest, taxes, depreciation and
amortization, referred to as EBITDA, as adjusted for
non-recurring items, referred to as adjusted EBITDA. Houlihan
Lokey then applied a range of selected multiples of one fiscal
year forward and two fiscal years forward estimated adjusted
EBITDA derived from the selected companies to TTGSIs
fiscal year 2010 and 2011 estimated adjusted EBITDA. Financial
data for TTGSI were based on internal estimates of
TechTeams and TTGSIs managements. Financial data for
the selected companies were based on publicly available research
analysts estimates, public filings and other publicly
available information. This analysis indicated the following
implied enterprise value reference ranges for TTGSI, as compared
to the cash consideration to be received by TechTeam:
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Implied Total Enterprise Value
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Reference Ranges based on:
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2010E Adjusted EBITDA
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2011E Adjusted EBITDA
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Cash Consideration
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$50.3 million - $58.1 million
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$50.4 million - $59.6 million
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$59.0 million
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TTGSI Selected
Transactions Analysis
Houlihan Lokey reviewed transaction values of the following 24
acquisition transactions of controlling interests announced
between January 1, 2008 and June 2, 2010 involving
companies with operations in the government information
technology and professional services industry, which is the
industry in which TTGSI operates:
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Acquirer
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Target
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CGI Group Inc.
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Stanley, Inc.
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Cerberus Capital Management, L.P.
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DynCorp International Inc.
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ManTech International Corporation
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Sensor Technologies, Inc.
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ICF International, Inc.
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Jacob & Sundstrom Inc.
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Harris Corporation
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Patriot Technologies, LLC
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General Atlantic LLC, Kohlberg, Kravis
Roberts & Co.
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TASC, Inc.
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Ernst & Young LLP
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Capital City Technologies
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Snow Phipps Group, LLC
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ITSolutions, LLC
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MCR, LLC
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Aerodyne Incorporated
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Court Square Capital Partners
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Wyle Laboratories Inc.
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ICF International, Inc.
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Macro International Inc.
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US Investigations Services, Inc.
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Labat-Anderson Incorporated
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Preferred Systems Solutions, Inc.
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Integrated Network Services Incorporated
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Deloitte Consulting LLP
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BearingPoint, Inc. (Public Services
Business)
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Kforce Inc.
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dNovus RDI
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New Mountain Capital, LLC
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Camber Corporation
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Kratos Defense & Security
Solutions, Inc.
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Digital Fusion Solutions, Inc.
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The Veritas Capital Fund III LP
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CherryRoad GT Inc.
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Serco Inc.
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SI International, Inc.
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Dynamics Research Corporation
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Kadix Systems, LLC
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AEA Technology plc
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Project Performance Corporation
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Netstar-1, Incorporated
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Aviel Systems, Inc.
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VSE Corporation
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G&B Solutions, Inc.
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Excellere Partners
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Acquisitions Solutions, Inc.
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Houlihan Lokey reviewed, among other things, transaction values
in the selected transactions, calculated as the purchase price
paid for the target companys equity, plus debt outstanding
and preferred stock, less cash and cash equivalents, as a
multiple, to the extent publicly available, of such target
companies latest 12 months EBITDA. Houlihan Lokey
then applied a range of selected multiples of latest
12 months EBITDA derived from the selected transactions to
TTGSIs latest 12 months (as of March 31,
2010) adjusted EBITDA. Financial data for TTGSI were based
on internal estimates of the managements of TechTeam and TTGSI.
Financial data for the selected transactions were based on
publicly available information at the time of announcement of
the relevant transaction. This analysis indicated the following
implied enterprise value reference range for TTGSI, as compared
to the cash consideration to be received by TechTeam:
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Implied Total Enterprise Value
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Reference Range
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Cash Consideration
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$50.4 million - $57.6 million
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$59.0 million
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TTGSI Discounted
Cash Flow Analysis
Houlihan Lokey performed a discounted cash flow analysis of
TTGSI by calculating the estimated net present value of the
unlevered, after-tax free cash flows that TTGSI was forecasted
to generate through fiscal year 2014 based on internal estimates
of TechTeams and TTGSIs managements. Houlihan Lokey
calculated terminal values for TTGSI by applying a range of
terminal value EBITDA multiples of 6.5x to 7.5x to TTGSIs
fiscal year 2014 estimated EBITDA. The present values of the
cash flows and terminal values were then calculated using
discount rates ranging from 10.0% to 14.0%. This analysis
indicated the following implied enterprise value reference range
for TTGSI, as compared to the cash consideration to be received
by TechTeam:
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Implied Total Enterprise Value
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Reference Range
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Cash Consideration
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$60.8 million - $76.8 million
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$59.0 million
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Miscellaneous
TechTeam has agreed to pay Houlihan Lokey for its financial
advisory services an aggregate fee currently estimated to be
approximately $1.4 million, a portion of which was payable
for rendering its opinion, which was not contingent upon the
successful completion of the Stock Sale or the conclusion
contained in its opinion, and a substantial portion of which is
contingent upon the consummation of the Stock Sale. TechTeam
also has agreed to reimburse certain of Houlihan Lokeys
expenses, including the fees and expenses of Houlihan
Lokeys legal counsel, and to indemnify Houlihan Lokey and
certain related parties for certain potential liabilities,
including liabilities under the federal securities laws,
relating to, or arising out of, Houlihan Lokeys engagement.
TechTeam selected Houlihan Lokey to act as its financial advisor
in connection with various potential transactions involving
TechTeam, including the proposed Stock Sale, based on Houlihan
Lokeys reputation and experience. Houlihan Lokey is
regularly engaged to provide advisory services in connection
with mergers and acquisitions, financings and financial
restructurings.
In the ordinary course of business, certain of Houlihan
Lokeys affiliates, as well as investment funds in which
such affiliates may have financial interests, may acquire, hold
or sell, long or short positions, or trade or otherwise effect
transactions, in debt, equity, and other securities and
financial instruments (including loans and other obligations)
of, or investments in, TechTeam, Jacobs or any other party that
may be involved in the Stock Sale and their respective
affiliates or any currency or commodity that may be involved in
the Stock Sale.
Houlihan Lokey and certain of its affiliates in the past
provided investment banking, financial advisory and other
financial services to Jacobs
and/or
certain of its affiliates, for which Houlihan Lokey and such
affiliates received compensation. Houlihan Lokey and certain of
its affiliates may provide investment banking, financial
advisory and other financial services to TechTeam, Jacobs, other
participants in the Stock Sale or certain of their respective
affiliates in the future, for which Houlihan Lokey and such
affiliates may receive compensation. In addition, Houlihan Lokey
and certain of its affiliates and certain of Houlihan
Lokeys and such affiliates respective employees may
have committed to invest in private equity or other investment
funds managed or advised by certain affiliates or
securityholders of TechTeam or other participants in the Stock
Sale, and in portfolio companies of such funds, and may have
co-invested with certain affiliates or securityholders of
TechTeam or other participants in the Stock Sale, and may do so
in the future. Furthermore, in connection with bankruptcies,
restructurings, and similar matters, Houlihan Lokey and certain
of its affiliates may have in the past acted, may currently be
acting and may in the future act as financial advisor to
debtors, creditors, equity holders, trustees and other
interested parties (including, without limitation, formal and
informal committees or groups of creditors) that may have
included or represented and may include or represent, directly
or indirectly, or may have been adverse to, certain affiliates
or securityholders of TechTeam or other participants in the
Stock Sale, for which advice and services Houlihan Lokey and
such affiliates received and may receive compensation.
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Vote Required to
Approve the Stock Sale Proposal
Our Board has not made any determination as to whether
stockholder approval of the Stock Sale Proposal is required by
applicable Delaware law, and such approval is not required by
our Certificate of Incorporation, as amended, our Amended and
Restated Bylaws or other governing documents. However, the
parties to the Stock Purchase Agreement have agreed that, as a
condition to the consummation of the Stock Sale, our
stockholders must approve the Stock Sale Proposal to the same
extent as if stockholder approval of the Stock Sale Proposal was
required by applicable Delaware law.
Under the terms of the Stock Purchase Agreement, the approval of
the Stock Sale Proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock
entitled to vote thereon at the Special Meeting. In determining
whether the Stock Sale Proposal has received the requisite
number of affirmative votes under applicable Delaware law,
abstentions and broker non-votes (if any) will be considered
present at the Special Meeting and will have the same effect as
a vote AGAINST the proposal.
Projected
Financial Information
In connection with Jacobs due diligence review, we
provided to Jacobs certain projected financial information
concerning TTGSI that were prepared solely by us and TTGSI. We
also provided the same information to TechTeams financial
advisor. These internal financial projections are not being
included in this Proxy Statement to influence any
stockholders voting decision on the Stock Sale Proposal,
but only because we made these internal financial projections
available to Jacobs. These projections should be evaluated, if
at all, in conjunction with our historical and pro forma
consolidated financial statements and the unaudited consolidated
financial statements of TTGSI contained elsewhere in this Proxy
Statement. In light of the factors described herein and the
uncertainties inherent in these projections, and given that
these internal financial projections are being included in this
Proxy Statement only because we made these internal financial
projections available to Jacobs, stockholders are cautioned not
to rely on the projections included in this Proxy Statement as
being a prediction of future operating results.
These internal financial projections were prepared solely by us
and TTGSI for internal use and were not prepared with a view
toward public disclosure, nor were they prepared with a view
toward compliance with published guidelines of the SEC, the
guidelines established by the American Institute of Certified
Public Accountants for preparation and presentation of financial
forecasts, or generally accepted accounting principles. Neither
Ernst & Young LLP, our independent registered public
accounting firm, nor any other independent accountants, have
compiled, examined or performed any procedures with respect to
the financial projections included below, nor have they
expressed any opinion or any other form of assurance on such
information or its achievability, and they assume no
responsibility for, and disclaim any association with, the
financial projections. Ernst & Young LLPs
report, included in the 2009
Form 10-K,
a copy of which is reproduced as Exhibit F to this
Proxy Statement, relates to the Companys historical
consolidated financial statements. It does not extend to any
projected financial information regarding TTGSI and should not
be read to do so.
These financial projections reflect numerous estimates and
assumptions made by us and TTGSI with respect to industry
performance, general business, economic, regulatory, market and
financial conditions and other future events, as well as matters
specific to TTGSIs business, all of which are uncertain
and difficult to predict, and many of which are beyond our
control. The projected financial information was also based upon
expectations of our and TTGSIs management at the time the
projected financial information was prepared. As a result, such
information may prove not to be reflective of actual results.
These financial projections are subjective in many respects and
thus are susceptible to multiple interpretations and periodic
revisions based on actual experience and business developments.
As such, these financial projections constitute forward-looking
information and are subject to risks and uncertainties that
could cause actual results to differ materially from the results
forecasted in such projections, including, but not limited to,
TTGSIs performance, industry performance, general business
and economic conditions, customer requirements, competition,
adverse changes in applicable laws, regulations or rules, and
the various risks and uncertainties set forth in this Proxy
Statement and our other reports filed with the SEC.
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There can be no assurance that the projected results will be
realized or that actual results will not be significantly higher
or lower than projected. The financial projections cover
multiple years and such information by its nature becomes less
predictive with each successive year.
In addition, the projected financial information will be
affected by our and TTGSIs ability to achieve strategic
goals, objectives and targets over the applicable periods. The
assumptions upon which the projections were based necessarily
involve judgments with respect to, among other things, future
economic, competitive and regulatory conditions and financial
market conditions, all of which are difficult or impossible to
predict accurately and many of which are beyond our and
TTGSIs control. The projections also reflect assumptions
as to certain business decisions that are subject to change.
Such projections cannot, therefore, be considered a guarantee of
future operating results, and this information should not be
relied on as such. The inclusion of this information should not
be regarded as an indication that we, TTGSI, Jacobs, or anyone
who received this information then considered, or now considers
it to be a guarantee of future operating results, and this
information should not be relied upon as such. We and our
affiliates disclaim any obligation to update or revise such
projections in the future.
The financial projections do not take into account any
circumstances or events occurring after the date they were
prepared, including the announcement and pendency of the
proposed Stock Sale. There can be no assurance that the
announcement of the Stock Sale will not cause TTGSIs
customers to delay or cancel purchases of its services pending
the consummation of the Stock Sale or the clarification of
Jacobs intentions with respect to the conduct of TTGSI
thereafter. Any such delay or cancellation of customer sales is
likely to adversely affect TTGSIs ability to achieve the
results reflected in such financial projections. The projected
financial information does not take into account any changes in
TTGSIs operations, business, financial condition or
results of operations which may result from the Stock Sale,
including without limitation any cost savings or other benefits.
Further, the financial projections do not take into account the
effect of any failure to complete the Stock Sale. The inclusion
of the financial projections herein should not be deemed an
admission or representation by us or TTGSI that they are viewed
by us or TTGSI as material information with respect to us or
TTGSI, and in fact we and TTGSI do not view the financial
projections as material because of the inherent risks and
uncertainties associated with such projections.
These projections assume flat revenue in 2010 compared to 2009,
which takes into consideration the loss of several large
contracts and continued contract erosion which occurred during
the last half of 2009. Our 2010 projections also include
slightly lower margins, which reflect the loss of some higher
margin business during 2009 and a more competitive business
environment as the global economy recovers. Our 2011 projections
assume a 19% increase in revenue and a 0.8% increase in margins,
which reflect revenues from contracts that have been delayed
over the course of 2009 and 2010, new business and contract
expansions and a better overall business environment as the
global economy recovers. Beyond 2011, we assumed a growth rate
of approximately 5%, which we believe reflects the projected
growth rate of the markets in which TTGSI is active.
Important factors that may affect actual results and result in
the forecasted results contained therein not being achieved
include, but are not limited to:
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the inherently unpredictable nature of projections and the fact
that they do not reflect a final approved strategic plan of our
Board;
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our failure to maintain our relationships with significant
customers and to develop new customer relationships;
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factors affecting the pricing of our services;
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fluctuations in demand for our services;
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|
|
|
the failure to retain key management and technical personnel;
|
|
|
|
|
|
adverse reactions to the proposed Stock Sale by our clients,
suppliers and strategic partners; and
|
96
|
|
|
|
|
the other risks and uncertainties described in the 2009
Form 10-K,
in this Proxy Statement and our other filings with the SEC.
|
TTGSI Projected
Financial Information Remainder of 2010 Fiscal
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd Quarter 2010
|
|
|
3rd Quarter 2010
|
|
|
4th Quarter 2010
|
|
|
Total 2010
|
|
(in thousands)
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Total revenue
|
|
$
|
17,040
|
|
|
$
|
21,424
|
|
|
$
|
22,049
|
|
|
$
|
75,669
|
|
Cost of sales
|
|
|
12,625
|
|
|
|
15,729
|
|
|
|
16,190
|
|
|
|
56,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,415
|
|
|
|
5,695
|
|
|
|
5,859
|
|
|
|
19,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
3,930
|
|
|
|
3,776
|
|
|
|
3,863
|
|
|
|
15,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
485
|
|
|
|
1,919
|
|
|
|
1,996
|
|
|
|
3,216
|
|
Restructuring expense
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
139
|
|
Other expense
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
485
|
|
|
|
1,919
|
|
|
|
1,996
|
|
|
|
2,899
|
|
Income tax provision
|
|
|
189
|
|
|
|
748
|
|
|
|
778
|
|
|
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
296
|
|
|
$
|
1,171
|
|
|
$
|
1,218
|
|
|
$
|
1,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (1)
|
|
$
|
1,093
|
|
|
$
|
2,519
|
|
|
$
|
2,596
|
|
|
$
|
5,497
|
|
Adjusted EBITDA (2)
|
|
$
|
1,575
|
|
|
$
|
2,953
|
|
|
$
|
3,088
|
|
|
$
|
7,903
|
|
|
|
|
(1) |
|
As used in the table above, EBITDA is defined as our
consolidated net income, plus interest expense, provision for
income taxes, depreciation and amortization. The following table
presents a reconciliation of net income, which is our most
directly comparable operating performance measure under U.S.
generally accepted accounting principles, or GAAP, to EBITDA for
each of the periods presented above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd Quarter 2010
|
|
|
3rd Quarter 2010
|
|
|
4th Quarter 2010
|
|
|
Total 2010
|
|
(in thousands)
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Net income
|
|
$
|
296
|
|
|
$
|
1,171
|
|
|
$
|
1,218
|
|
|
$
|
1,761
|
|
Add income tax provision
|
|
|
189
|
|
|
|
748
|
|
|
|
778
|
|
|
|
1,138
|
|
Add interest expense
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
178
|
|
Add depreciation
|
|
|
88
|
|
|
|
80
|
|
|
|
80
|
|
|
|
341
|
|
Add amortization
|
|
|
520
|
|
|
|
520
|
|
|
|
520
|
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,093
|
|
|
$
|
2,519
|
|
|
$
|
2,596
|
|
|
$
|
5,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
As used in the table above, adjusted EBITDA is equal
to EBITDA, plus corporate overhead allocation, minus stand-alone
overhead costs, plus stock-based compensation expense, plus
International Organization for Standardization, or ISO,
registration costs. The following table presents a
reconciliation of EBITDA to adjusted EBITDA. EBITDA has been
previously reconciled to net income in the table provided above
in footnote (1). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd Quarter 2010
|
|
|
3rd Quarter 2010
|
|
|
4th Quarter 2010
|
|
|
Total 2010
|
|
(in thousands)
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
EBITDA
|
|
$
|
1,093
|
|
|
$
|
2,519
|
|
|
$
|
2,596
|
|
|
$
|
5,497
|
|
Add corporate overhead allocation
|
|
|
572
|
|
|
|
523
|
|
|
|
581
|
|
|
|
2,690
|
|
Subtract stand-alone overhead costs
|
|
|
(168
|
)
|
|
|
(167
|
)
|
|
|
(167
|
)
|
|
|
(670
|
)
|
Add stock-based compensation expense
|
|
|
78
|
|
|
|
78
|
|
|
|
78
|
|
|
|
297
|
|
Add ISO registration costs
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
1,575
|
|
|
$
|
2,953
|
|
|
$
|
3,088
|
|
|
$
|
7,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
TTGSI Projected
Financial Information Fiscal Years 2011 Through
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2011
|
|
|
2012
|
|
|
Year 2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
(in thousands)
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Total revenue
|
|
$
|
86,916
|
|
|
$
|
91,262
|
|
|
$
|
95,825
|
|
|
$
|
100,616
|
|
|
$
|
105,647
|
|
|
$
|
110,929
|
|
Cost of sales (excluding depreciation)
|
|
|
64,407
|
|
|
|
67,536
|
|
|
|
70,817
|
|
|
|
74,258
|
|
|
|
77,865
|
|
|
|
81,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,509
|
|
|
|
23,726
|
|
|
|
25,008
|
|
|
|
26,358
|
|
|
|
27,782
|
|
|
|
29,282
|
|
Selling, general and administrative expenses
|
|
|
13,337
|
|
|
|
13,913
|
|
|
|
14,513
|
|
|
|
15,138
|
|
|
|
15,789
|
|
|
|
16,468
|
|
Depreciation
|
|
|
225
|
|
|
|
236
|
|
|
|
248
|
|
|
|
260
|
|
|
|
273
|
|
|
|
287
|
|
Amortization
|
|
|
2,240
|
|
|
|
1,259
|
|
|
|
337
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,707
|
|
|
|
8,318
|
|
|
|
9,910
|
|
|
|
10,960
|
|
|
|
11,720
|
|
|
|
12,527
|
|
Income tax provision
|
|
|
2,616
|
|
|
|
3,244
|
|
|
|
3,865
|
|
|
|
4,274
|
|
|
|
4,571
|
|
|
|
4,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,091
|
|
|
$
|
5,074
|
|
|
$
|
6,045
|
|
|
$
|
6,686
|
|
|
$
|
7,149
|
|
|
$
|
7,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (1)
|
|
$
|
9,172
|
|
|
$
|
9,813
|
|
|
$
|
10,495
|
|
|
$
|
11,220
|
|
|
$
|
11,993
|
|
|
$
|
12,814
|
|
EBIT (1)
|
|
$
|
6,707
|
|
|
$
|
8,318
|
|
|
$
|
9,910
|
|
|
$
|
10,960
|
|
|
$
|
11,720
|
|
|
$
|
12,527
|
|
|
|
|
(1) |
|
As used in the table above, EBITDA is defined as our
consolidated net income, plus interest expense, provision for
income taxes, depreciation and amortization. EBIT is defined as
our consolidated net income, plus interest expense and provision
for income taxes. The following table presents a reconciliation
of net income, which is our most directly comparable GAAP
operating performance measure, to EBITDA and EBIT for each of
the periods presented above: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
(in thousands)
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Forecast
|
|
|
Net income
|
|
$
|
4,091
|
|
|
$
|
5,074
|
|
|
$
|
6,045
|
|
|
$
|
6,686
|
|
|
$
|
7,149
|
|
|
$
|
7,641
|
|
Add income tax provision
|
|
|
2,616
|
|
|
|
3,244
|
|
|
|
3,865
|
|
|
|
4,274
|
|
|
|
4,571
|
|
|
|
4,886
|
|
Add interest expense
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
6,707
|
|
|
|
8,318
|
|
|
|
9,910
|
|
|
|
10,960
|
|
|
|
11,720
|
|
|
|
12,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add depreciation
|
|
|
225
|
|
|
|
236
|
|
|
|
248
|
|
|
|
260
|
|
|
|
273
|
|
|
|
287
|
|
Add amortization
|
|
|
2,240
|
|
|
|
1,259
|
|
|
|
337
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
9,172
|
|
|
$
|
9,813
|
|
|
$
|
10,495
|
|
|
$
|
11,220
|
|
|
$
|
11,993
|
|
|
$
|
12,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe the non-GAAP financial measures set forth above
provide important supplemental information to management and
investors. These non-GAAP financial measures reflect an
additional way of viewing aspects of our operations that, when
viewed with our GAAP results and the accompanying reconciliation
to the most directly comparable GAAP financial measure, provide
a more complete understanding of factors and trends affecting
our business and results of operations.
These non-GAAP financial measures should not be considered as
alternatives to, or more meaningful than, net income prepared on
a GAAP basis. Management strongly encourages investors to review
our consolidated financial statements in their entirety and to
not rely on any single financial measure. Because non-GAAP
financial measures are not standardized, it may not be possible
to compare this financial measure with other companies
non-GAAP financial measures having same or similar names. In
addition, we expect to continue to incur expenses similar to the
non-GAAP adjustments described above, and the exclusion of these
items from a non-GAAP measure should not be construed as an
inference that these costs are unusual, infrequent or
non-recurring.
Purpose of the
Stock Sale
We currently operate two principal business segments, the
Government Solutions Business and the Commercial Business. The
Government Solutions Business is comprised of our government
technology services business operated by TTGSI and its
wholly-owned subsidiaries. The Commercial Business
98
focuses primarily on providing IT outsourcing services, IT
consulting and systems integration services and technical
staffing and learning services to Fortune 1000 and multinational
companies as well as small to mid-sized companies.
The purpose of the Stock Sale is to separate the Government
Solutions Business from the Commercial Business, realize the
maximum value of the Government Solutions Business and thereby
enable us to focus our resources on the Commercial Business
which we believe has the greater opportunity for growth,
profitability and increasing stockholder value. The Stock Sale,
if approved by our stockholders and consummated, would result in
the Government Solutions Business being sold to Jacobs
Technology.
The Stock Sale is the result of our Boards review over the
past year of various strategic alternatives to enhance
stockholder value and position TechTeam for stability and
growth. In connection with this review by our Board, we
recognized that TechTeam consists of two substantially
unrelated, relatively independent and
sub-scale
businesses, which do not have any significant synergies between
them and that both require significant investment to succeed,
grow and thrive. We also recognized that TechTeam does not have
the financial flexibility or capital resources to appropriately
invest in and grow both the Commercial Business and the
Government Solutions Business and that retaining both business
segments would entail an allocation of resources that either
sub-optimizes
one business in favor of the other or
sub-optimizes
both businesses.
The Government Solutions Business is adversely affected by a
number of unfavorable conditions in the U.S. government
information technology services market, including a trend of the
U.S. government to in-source certain information technology
services and the challenge of competing against small
disadvantaged businesses and large contractors for the award of
new business. In addition, our Board believes it is possible
that the short- and long-term prospects of the Government
Solutions Business could continue to decline under the ownership
of TechTeam and that TechTeams continued ownership and
management of the Government Solutions Business could impair or
otherwise limit TechTeams ability to realize the short-
and long-term prospects of the Commercial Business.
Faced with the decision of which business to retain, if any, we
believe that the Commercial Business offers better short- and
long-term prospects than the Government Solutions Business and
has greater opportunity for growth, profitability and increasing
stockholder value based on, but not limited to, the following
factors, among others:
|
|
|
|
|
that the Commercial Business on its own is a simpler business to
operate and manage, is more focused and requires less overhead
to support;
|
|
|
|
our historical focus on the Commercial Business and, through
such business segment, the ITO and BPO marketplaces;
|
|
|
|
the strong reputation of the Commercial Business in the ITO
marketplace, as evidenced by evaluations by key industry
analysts;
|
|
|
|
the consolidation that has been occurring in the ITO
marketplace, facilitating a trend toward the bundling of ITO
services and how such consolidation would affect the Commercial
Business;
|
|
|
|
that the Stock Sale would permit us to focus on our service desk
and infrastructure support expertise, which provides us with a
competitive advantage for global businesses that seek an
alternative to the mega-suppliers, and for mega-suppliers who
want to integrate our services with theirs to serve a broader
customer base;
|
|
|
|
our deep and extensive relationships with our Commercial
Business customers, including but not limited to Ford Motor
Company, Alcoa and Deere & Company, which provide
TechTeam with a strong foundation to grow and expand the
Commercial Business globally;
|
|
|
|
the increased financial flexibility after the completion of the
Stock Sale to focus on and invest in the Commercial Business;
|
99
|
|
|
|
|
that the Stock Sale would enable TechTeam to invest a portion of
the net cash proceeds received therefrom in expanding the
capabilities, geographic footprint and scale of the Commercial
Business, and to pursue strategic acquisitions as such
opportunities may arise from time to time; and
|
|
|
|
the competitive strengths of the Commercial Business discussed
below.
|
Post-Closing
Strategies
We believe that the intrinsic value of TechTeam has been hidden
by the juxtaposition of two substantially unrelated, relatively
independent and
sub-scale
businesses which do not have any significant synergies between
them. While we believe that the sale of the Government Solutions
Business to Jacobs Technology is an important step toward
unlocking the intrinsic value of the Commercial Business, we
believe that there may exist various strategic alternatives
that, in conjunction with the Stock Sale, may have the potential
to further enhance value for our stockholders. We are committed
to evaluating all such potentially attractive strategic
alternatives that come to our attention consistent with our
ongoing commitment to enhance value for all TechTeam
stockholders. Our Board believes that the Stock Sale may enhance
interest by potential acquirers in the Commercial Business, as
the Commercial Business could potentially be acquired by a
company that would no longer be required to address the security
concerns of the U.S. federal government associated with
foreign ownership of suppliers with top-secret cleared services
and facilities.
Notwithstanding any enhanced interest that potential acquirers
may have in the Commercial Business due to the Stock Sale,
certain terms of the Stock Purchase Agreement, including, but
not limited to, the indemnification and escrow provisions, may
adversely affect our ability to explore various strategic
alternatives with respect to our Commercial Business. Under the
Stock Purchase Agreement, TechTeam has agreed to indemnify
Jacobs for various matters, including any breach or violation of
any representation, warranty, covenant or undertaking made by us
in the Stock Purchase Agreement or any related agreement,
subject to certain limitations and exceptions. There is
significant uncertainty as to the amount, if any, that we will
ultimately have to pay to Jacobs to resolve indemnification
claims and, accordingly, there is significant uncertainty as to
the amount, if any, of the indemnification escrow fund that will
ultimately be returned to us. These uncertainties may make it
difficult for a potential acquirer of the Commercial Business to
appropriately value the Commercial Business, including, but not
limited to, its contingent liabilities and our interest in the
indemnification escrow fund.
Due to the possibility that the Stock Sale could enhance
interest by potential acquirers in the Commercial Business,
TechTeam has prepared for either of two potential alternatives:
the continued operation of the Commercial Business as an
independent, publicly-traded company; or a sale or other
disposition of the Commercial Business. However, stockholders
are reminded that, other than the sale of the Government
Solutions Business to Jacobs Technology pursuant to the Stock
Sale, they are not being asked to consider or approve any
strategic proposals, alternatives or transactions at this time.
In addition, stockholders are cautioned that there can be no
assurance as to whether and when any specific transaction
relating to the Commercial Business will be authorized or
consummated and that no timetable has been set for the
completion of any such transaction.
In the event that TechTeam continues to own and operate the
Commercial Business, our Board believes that TechTeam is poised
to capitalize on the strengths of the Commercial Business for
the following reasons:
Competitive
Strengths
The competitive strengths of our Commercial Business are:
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Focused, High-Value Services. We maintain a primary
focus on our service desk and desktop/distributed infrastructure
outsourcing solutions.
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Global, Multilingual Platform. Our global
infrastructure and multilingual capabilities fit an
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ongoing trend of companies seeking to operate and expand their
operations worldwide and to adopt a standardized process for
their international IT operations. Our Best Shore
global delivery model is designed for us to provide service from
whatever global location best meets the objectives of our
customers, and it enables us to meet the diverse language needs
of our customers while permitting them to leverage lower-cost
service delivery locations.
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Agility and Responsiveness. Our customers value our
flexible |