SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 3, 2005
TECHTEAM GLOBAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-16284 38-2774613
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
27335 West 11 Mile Road
Southfield, Michigan 48034
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (248) 357-2866
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(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
See discussion in 2.01 and 2.03.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On January 3, 2005, TechTeam Global, Inc. (the "Company"), through
its wholly owned subsidiary Digital Support Corporation ("DSC"),
completed the acquisition of all of the outstanding stock of Sytel,
Inc. ("Sytel") from Sytel's shareholders, Jeannette Lee White, Yong
S. Lee, Evergreen Limited Partnership, Chase Investments, LLC, The
Bullis School, Inc., and holders of stock and stock options to
acquire stock issued under the Sytel, Inc. Omnibus Stock Plan
("Selling Shareholders"). As set forth in the Press Release, dated
January 3, 2005 and attached hereto as Exhibit 99.1, Sytel is a
diversified information technology services and solutions company
headquartered in Bethesda, Maryland, providing managed network
services and advanced enterprise solutions - including network
design, management, and support; network security services; help
desk support; program design and implementation; and e-government
and e-learning solutions - to several departments of the federal
government.
As set forth in the Stock Purchase Agreement ("SPA"), attached as
Exhibit 99.2, the initial consideration paid by the Company was
$18,500,000. Of the initial consideration, $16,025,000 was paid to
the Selling Shareholders, and the remaining $2,475,000 was placed
into a holdback escrow for a working capital true-up ($825,000), and
a representation and warranties holdback ($1,650,000). The final
purchase price is subject to a working capital adjustment based upon
the change in Sytel's net working capital position from June 30,
2004 through January 3, 2005. The Selling Shareholders were also
paid at closing an estimated working capital adjustment of
approximately $1.6 million dollars in accordance with the terms of
the SPA, subject to a final adjustment and settlement. If Sytel
renews a major contract which expires on March 31, 2005, the Selling
Shareholders will be paid an additional $2,000,000. During calendar
years 2005 and 2006, the Selling Shareholders will be paid an amount
equal to 7% of Sytel's Gross Profit in excess of $12,000,000 in 2005
and $14,000,000 in 2006.
Jeannette Lee White, the founder, President and Chief Executive,
Officer of Sytel entered into a one year employment contract with
Sytel as set forth in Exhibit 99.3. The Company paid $500,000 to Ms.
White in consideration of a covenant not to compete as set forth in
her employment contract.
The Company anticipates that this acquisition will be accretive to
its 2005 earnings, generating after-tax income of between of $.12
and $.15 per fully-diluted share for the fiscal year ending December
31, 2005. The acquisition is also expected to significantly increase
the Company's revenues for 2005 by approximately $30-$35 million.
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For the twelve months ended December 31, 2003, Sytel reported
earnings from continuing operations before interest, taxes,
depreciation, and amortization expense, or "EBITDA", of $1.91
million. For the twelve months ended September 30, 2004, Sytel
reported EBITDA of $2.70 million. The table attached hereto as
Exhibit 99.4 reconciles this non-GAAP measure to net income.
Sytel's enterprise value at closing was approximately $20 million.
Therefore, the Company paid approximately 7.4 times the trailing
twelve-months' EBITDA for Sytel. Sytel's estimated EBITDA for the
year ending December 31, 2004 is $2.90 million, or 10.1% of expected
revenue, which would indicate an enterprise value-to-EBITDA ratio
of 6.90.
Sytel's estimated revenues for 2004 are $29.0 million. For 2004,
Sytel's gross margin is estimated at 31.3%; its sg&a expense is
estimated at $6.1 million, or 21.2% of revenue; and its net income
is estimated at $1.8 million, or 6.2% of revenue. These results are
unaudited.
The funds used to consummate the acquisition were from the Company's
cash reserves and $15,000,000 from the Loan Agreement as set forth
in Item 2.03.
The statements contained in this Current Report on Form 8-K that are
not purely historical, including statements regarding the Company's
expectations, hopes, beliefs, intentions, or strategies regarding
the future, are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include statements regarding, among other
things, the potential impact of this acquisition on the Company's
revenue and earnings performance going forward. Forward-looking
statements may be identified by words including, but not limited to,
"anticipates," "believes," "intends," "estimates," "promises,"
"expects," "should," "conditioned upon," and similar expressions.
Prospective investors are cautioned that any such forward- looking
statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as
a result of various factors. There are significant risks associated
with the Company's ability to successfully integrate this
acquisition on a timely basis. Further, there can be no assurance
that the acquisition will have the impact on the Company's financial
condition and results of operations contemplated in this filing. The
factors that could affect the anticipated impact include but are not
limited to the inability to retain government business or key
employees of the acquired company. The forward-looking statements
included in this filing are based on information available to the
Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statement. Prospective investors
should also consult the risks described from time to time in the
Company's Reports on Forms 8-K, 10-Q, and 10-K filed with the United
States Securities and Exchange Commission.
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ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
On January 3, 2005, the Company completed a loan transaction with
Standard Federal Bank N.A. The Amended and Restated Business Loan
Agreement ("Loan Agreement"), dated January 3, 2005, amended the
Business Loan Agreement dated September 7, 2004, and it provides
that Standard Federal Bank agrees to provide a term loan to the
Company for Fifteen Million Dollars ($15,000,000) in addition to the
revolving line of credit of Five Million Dollars ($5,000,000) as set
forth in the Business Loan Agreement dated September 7, 2004. A copy
of the Loan Agreement is filed as Exhibit 99.5 to this report.
Advances under the Loan Agreement are 100% secured by cash placed in
a non-interest bearing collateral account at Standard Federal Bank
N.A. The loan term may be accelerated upon default of the Loan
Agreement, including failure to pay, breach of representations or
covenants, bankruptcy and other customary defaults.
The Loan Agreement is subject to the terms and conditions of a
Promissory Note (Term Loan) ("Promissory Note"), a copy of which is
attached as Exhibit 99.6 to this report. Under the Promissory Note,
the Company will pay interest on advances at a rate per annum equal
to one half of one percent (1/2%). The principal balance and all
accrued interest are due on January 3, 2010.
The foregoing discussions of the Loan Agreement and Promissory Note
are entirely qualified by reference to the Loan Agreement and
Promissory Note, which are incorporated by reference.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED TO BE FILED ON OR
BEFORE MARCH 19, 2005.
(B) PRO FORMA FINANCIAL INFORMATION TO BE FILED ON OR BEFORE MARCH
19, 2005.
(C) THE FOLLOWING EXHIBITS ARE INCLUDED WITH THE REPORT
EXHIBIT Press Release of TechTeam Global, Inc. dated January 3, 2005.
99.1
EXHIBIT Stock Purchase Agreement, dated January 3, 2005 by and among
99.2 TechTeam Global, Inc. and Digital Support Corporation and Sytel,
Inc., The Stockholders of Sytel, Inc. and Certain of the
Optionholders of Sytel, Inc.
EXHIBIT Employment Agreement Between Jeannette Lee White and Sytel, Inc.
99.3 dated January 3, 2005
EXHIBIT Table Reconciling EBITDA to Net Income for Sytel, Inc.
99.4
EXHIBIT Amended and Restated Business Loan Agreement ("Loan Agreement"),
99.5 dated January 3, 2005
EXHIBIT Promissory Note (Term Loan) dated January 3, 2005
99.6
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHTEAM GLOBAL, INC.
By:/s/ Michael A. Sosin
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Michael A. Sosin
Vice President, General Counsel and
Secretary
Date: January 5, 2005
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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99.1 Press Release of TechTeam Global, Inc., dated January 3, 2005
99.2 Stock Purchase Agreement, dated January 3, 2005 by and among TechTeam Global, Inc. and Digital
Support Corporation and Sytel, Inc., The Stockholders of Sytel, Inc. and Certain of the Optionholders
of Sytel, Inc.
99.3 Employment Agreement Between Jeannette Lee White and Sytel, Inc. dated January 3, 2005
99.4 Table Reconciling EBITDA to Net Income for Sytel, Inc.
99.5 Amended and Restated Business Loan Agreement ("Loan Agreement"), dated January 3, 2005
99.6 Promissory Note (Term Loan) dated January 3, 2005
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