Pivot Board Provides Further Clarification on Proposed Transaction

SAN DIEGO, CA, Feb. 4, 2016 /CNW/ - The Board of Directors of Pivot Technology Solutions, Inc. ("Pivot" or the "Company") (TSX-V: PTG) today is providing additional information and some clarifications relating to the proposed transaction (the "Transaction") contemplated by the Plan of Arrangement announced on January 26, 2016 and to address certain statements that have been publicly communicated by third parties with respect to the  Transaction.  We think it may be helpful to the shareholders to set forth the process the Board took to arrive at its decision as announced last week.

Background to the Transaction and the formation of the Special Committee

In early 2015, the Founder Group, none of whom are members of Pivot's management team, proposed the Transaction to the Board as they felt it would allow shareholders the opportunity to consider a transaction which would provide an attractive alternative to the current capital structure.  The Board formed a Special Committee consisting of four independent directors of the Board to consider the proposed Transaction or any alternatives to the proposed Transaction.

Consideration of strategic alternatives and openness to alternative proposals

The Company has, in the ordinary course of business in evaluating industry opportunities, held discussions with three investment dealer firms that specialize in merger and acquisition activities within the technology industry in North America.  With the hindsight of those discussions, the Special Committee elected not to engage in a formal process to seek potential alternative transactions, as it was considered unlikely that a superior proposal would materialize.  It was also determined that the expected significant time period between the announcement of the Transaction and the required shareholders' meeting (the "Special Meeting") would provide sufficient time for any competing proposals to be made.  Accordingly, the Special Committee and PTS Holdings Corporation, the company formed by the Founder Group to own all of the Pivot common shares after the closing of the Transaction, agreed that if any superior proposal were to materialize prior to the date of the Special Meeting, the Company would be permitted to engage in discussions with, and enter into an agreement with, any potential acquirer with respect to an alternative transaction that the Special Committee and the Board deem to be superior to the Transaction.  In addition, it was agreed that there would be no break fee payable by Pivot.  Pivot's Board and the Special Committee will promptly evaluate all legitimate proposals with respect to any potential superior transaction. 

Issuance of a fairness opinion

The Special Committee retained Deloitte LLP ("Deloitte") to provide an independent fairness opinion with respect to the Transaction.  It should be noted that the Transaction is exempt from the formal valuation requirements of Multilateral Instrument 61-101 of the Canadian Securities Administrators.  Pursuant to rendering a fairness opinion to the Special Committee, Deloitte performed their analysis in accordance with the professional standards of the Canadian Institute of Chartered Business Valuators.  In concluding that the Transaction is fair to non-Founder Group common shareholders, Deloitte determined that the value of the preferred securities to be issued to non-Founder common shareholders of Pivot (the "Preferred Securities") was at least greater than or equal to the value of Pivot's common shares.  Given the nature of the work completed by Deloitte, as well as the consideration of other factors, the Special Committee was comfortable accepting the fairness opinion and recommending the Transaction.  

Premium over market price and increased distributions to non-Founder Group shareholders

The rationale behind the Transaction was and continues to be to enable non-Founder Group Pivot common shareholders to participate in a transaction which provides an attractive alternative to the current capital structure.  Following the initiation of a C$0.03 per annum dividend policy in early 2015, the trading price of Pivot common shares increased materially from the levels at which they had traded leading up to the announcement of the dividend.  Based on the market reaction, as well as feedback from a number of shareholders who indicated that they would support a decision by the Board to maximize distributions to investors, the Founder Group indicated it would consider initiating the Transaction if the Company wanted to consider it.  The Transaction structure allows for interest distributions that are three times the current dividend of C$0.03 per annum payable in respect of Pivot's common shares.  Also, the proposed Preferred Securities are perpetual, but are callable at the greater of face value and their trading price.  In other words, the minimum call price would be C$0.70 per current common share, plus any accrued and unpaid distributions at the call date.  This minimum price represents a 32% premium over the closing price of the Company's common shares on January 25, 2016, the trading day immediately preceding the announcement of the Transaction.

Protections for Preferred Securities holders

The terms of the Preferred Securities provide protections to Preferred Securities holders.  The Transaction agreements will prohibit distributions to the Founder Group unless all payments to the Preferred Securities holders are current.  Furthermore, PTS Income Corp., the entity issuing the Preferred Securities to current Pivot common shareholders, will appoint one-third of the directors to the board of directors of PTS Holdings Corporation, the successor entity to Pivot.  In the event that distributions in respect of the Preferred Securities are reduced or suspended, PTS Income Corp. will appoint one-half of the directors to PTS Holding Corporation's board, and in the event of a default under the Indenture, two-thirds.  These provisions are designed to ensure that the interests of the holders of the Preferred Securities are represented at all times at PTS Holdings Corporation, and the Founder Group will not be able to receive funds unless the distributions on the Preferred Securities are current, reflecting the fact that the Founder Group shares would be subordinate to the Preferred Securities. 

TSX Venture Exchange and commitment to continuing disclosure

The Transaction is conditional upon the approval of a listing application for the Preferred Securities by either the TSX Venture Exchange or the Toronto Stock Exchange.  There is no assurance that either the TSX Venture Exchange or the Toronto Stock Exchange will grant conditional or any other acceptance to the listing of the Preferred Securities.  The Transaction will not proceed if listing is not approved.  The Company believes that the TSX Venture Exchange provides ample liquidity in respect of the trading of Pivot common shares and has no reason to believe the same will not be true with respect to the proposed Preferred Securities.  PTS Holdings Corporation is committed to report its financial statements on a quarterly basis and to post these statements on SEDAR, consistent with Pivot's current practice.  In addition, Pivot will provide public guidance on its fourth quarter 2015 results and will include such guidance in the information circular that will be mailed to shareholders of record ahead of the Special Meeting.

Clarification around the Inflexionpoint consulting agreement and John Sculley

With respect to the proposed consulting agreement between Pivot and Inflexionpoint Asia Pte. Ltd. ("Inflexionpoint"), a company controlled by certain members of the Founder Group, the proposed consulting agreement provides for an annual income stream to Pivot of US$1.5 million per annum, plus any expenses incurred by Pivot.  The advantage of this consulting agreement to Pivot is that it further strengthens Pivot's financial position which provides additional cushion with respect to the proposed distributions on the Preferred Securities.  The Special Committee insisted that this consulting agreement span a minimum ten year period.  While he was previously an officer and director of Inflexionpoint, John Sculley is not currently an officer or a director of Inflexionpoint.  With respect to any potential future business arrangements between Pivot and Inflexionpoint, or any other party dealing not at arm's length with Pivot, the Transaction agreements will require the approval of any such transaction by the PTS Income Corp. nominee on the PTS Holdings Corporation's board of directors.

Moving forward

The Company acknowledges that the trading price of Pivot common shares has been under pressure in the days following the announcement of the Transaction.  The Company believes that this is due, in part, to concerns among shareholders and prospective shareholders with respect to the completion of the Transaction.  The Company believes that should the certainty of closing the Transaction become more evident to the market, the trading price of Pivot common shares may react accordingly. 

The Board of Directors and the Special Committee take their responsibilities to shareholders and the Company very seriously.  The recommendation to proceed with the Transaction was made after extensive review and deliberation over many months, and included careful consideration of the work performed by Deloitte.  We stand by our prior recommendations, and reiterate that we are open to other proposals that would provide additional value to Pivot's shareholders.  In addition, we continue to make ourselves available to shareholders for discussing any concerns or questions there may be.

About Pivot Technology Solutions, Inc.

Together with its portfolio companies and partners, Pivot delivers solutions that enable organizations to design, build, implement and maintain computing and communication infrastructure that addresses their unique business needs. Pivot's approach supports improvement of business performance, helps organizations reduce capital and operating expenses, and accelerates the delivery of new products and services to end-customers. With over 2,000 clients, many of whom are Fortune 1,000 companies, Pivot extends its value added solutions to help organizations of all sizes improve operating efficiency, reduce complexity and enhance service delivery through virtualization and cloud computing. Pivot enables businesses to extend their enterprise through mobility solutions to better connect business partners and customers. Pivot has offices throughout North America and can be found online at www.pivotts.com.

Forward-Looking Statements

This news release contains statements that, to the extent they are not recitations of historical fact, may constitute "forward-looking statements" within the meaning of applicable Canadian securities laws.  Forward-looking statements include statements regarding stock exchange approval to the listing of the Preferred Securities, receipt of superior proposals, increased trading price of Pivot's common shares, the receipt by shareholders of regular distributions on the Preferred Securities and the assumptions underlying any of the foregoing.  Pivot uses words such as "may", "would", "could", "will", "likely", "expect", "believe", "intend" and similar expressions to identify forward-looking statements.  Any such forward-looking statements are based on assumptions and analyses made by Pivot in light of its experience and its perception of historical trends, current conditions and expected future developments.  However, whether actual results and developments will conform to Pivot's expectations and predictions is subject to any number of risks, assumptions and uncertainties.  Many factors could cause Pivot's actual results, to differ materially from those expressed or implied by the forward-looking statements contained in this news release.  These factors include, without limitation: the possibility that the business and cash flow generation of Pivot may not be as expected; the ability of Pivot to complete the Transaction, including receipt of shareholder approval and stock exchange approval for the listing of the Preferred Securities required for the Transaction may not obtained on the terms expected or on the anticipated schedule, and Pivot's ability to meet expectations regarding the timing, completion and accounting and tax treatments of the Transaction.  Pivot cautions that the foregoing list of important factors that may affect the Transaction and future results is not exhaustive.  Additional information about these factors and about the material assumptions underlying such forwardlooking statements may be found in Pivot's management's discussion and analysis which is available on SEDAR at www.sedar.com.  The "forward-looking statements" contained herein speak only as of the date of this press release and, unless required by applicable law, Pivot undertakes no obligation to publicly update or revise such information, whether as a result of new information, future events or otherwise.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Pivot Technology Solutions, Inc.

Marc Lakmaaker, NATIONAL Equicom, [email protected], Tel: [phone]; Kerri Brass, CFO, Pivot Technology Solutions, Inc., [email protected]; Andrew Bentley, Pivot Technology Solutions, Inc., [email protected]