STG GROUP, INC. (OTCMKTS:STGG) Files An 8-K Entry into a Material Definitive Agreement

Item 1.01.

On February 21, 2017, STG Group, Inc. (the Company) announced
that it entered into an Agreement and Plan of Merger (the Merger
Agreement), dated as of February 18, 2017, by and among the
Company, Ripcord Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, PSS Holdings, Inc., a
Delaware corporation (PSS), PSS PE I, L.P., a Delaware limited
partnership (PSS PE), PSS Co-Investors, L.P., a Delaware limited
partnership (PSS Co-Investors), WWC Capital Fund II, L.P., a
Delaware limited partnership (WWC), Spring Capital Partners II,
L.P., a Maryland limited partnership (Spring Capital), and Scott
Goss (together with PSS PE, PSS Co-Investors, WWC and Spring
Capital, the Seller Parties), and Peter M. Schulte, a resident of
the State of New York, but solely in his capacity as the
Stockholders Representative. PSS is a privately-held government
services business that provides products and services in
information technology, engineering, and program management. Upon
consummation of the merger contemplated by the Merger Agreement
(the Merger), PSS will become a wholly-owned subsidiary of the
Company. The Merger is expected to close in the first quarter of
2017.

Merger Agreement

Under the terms of the Merger Agreement, the aggregate purchase
price to be paid for PSS at closing is $119,500,000 in cash,
subject to certain adjustments based upon closing working capital
and the timing of closing, plus a portion of the value of certain
tax benefits as they are realized after the closing
(collectively, the Merger Consideration). The Company intends to
fund the Merger Consideration through a combination of equity and
debt financing (the Financing).

The Merger Consideration is subject to adjustment (increased or
decreased) on a dollar-for-dollar basis to the extent the working
capital of PSS as of the closing differs from a specified target.
The Merger Agreement includes a mechanism for determining the
working capital position of PSS as of the closing, promptly
following the closing, and requires the parties to deposit
$1,000,000 of the Merger Consideration in escrow to secure
payment of any post-closing working capital adjustments in favor
of the Company. In addition, the Merger Agreement includes
customary indemnification obligations and requires the parties to
deposit $2,000,000 of the Merger Consideration in escrow to
secure the indemnification obligations of the stockholders of PSS
thereunder. The parties are also purchasing a buy-side
representation and warranty insurance policy for the benefit of
the Company and other named insureds.

The consummation of the Merger is subject to the satisfaction of
certain conditions, including receipt of certain required third
party consents, approval of the stockholders of PSS (which has
since been obtained), written confirmation by the Committee on
Foreign Investment in the United States that it has completed its
review and determined that there are no unresolved national
security concerns with respect to the Merger and expiration or
termination of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any
other regulatory approvals.

In addition, the Seller Parties agreed not to solicit or
encourage the initiation of certain discussions with third
parties regarding other proposals to acquire all or a substantial
portion of any capital stock or other securities of PSS, or all
or a substantial portion of PSS business or assets, after the
signing of the Merger Agreement until consummation of the Merger
or termination of the Merger Agreement, and agreed to certain
restrictions on their ability to respond to such proposals.

The Merger Agreement includes customary termination provisions.
The Company and the Stockholders Representative may jointly agree
to terminate the Merger Agreement at any time prior to the
closing, and either the Company or the Stockholders
Representative may terminate the Merger Agreement if the closing
has not occurred by March 15, 2017, subject to certain conditions
and the Companys right, in its sole discretion, to extend such
date to April 15, 2017. In addition, either the Company or the
Stockholders Representative may terminate the Merger Agreement if
the conditions to closing have all been satisfied or waived and
PSS delivers written notice to the Company that it is ready,
willing and able to effect the closing but the closing has not
occurred within five business days of such notice as a result of
any lenders failure to fund the Financing, in which case such
termination shall trigger payment by the Company to PSS of
$625,000. The Merger Agreement may also be terminated by the
Stockholders Representative if an event occurs during the interim
period between signing and closing, based solely on the
operations of PSS, that causes a breach of PSS representations
and warranties, and the Company fails to waive its
indemnification rights with respect to such breach within 15 days
following PSS request for such waiver, in which case such
termination shall trigger payment by PSS to the Company of
$625,000.

On February 21, 2017, the Company issued a press release
announcing the signing of the Merger Agreement. A copy of the
press release is attached as Exhibit 99.1 and incorporated herein
by reference.

About STG GROUP, INC. (OTCMKTS:STGG)

STG Group, Inc., formerly Global Defense & National Security Systems, Inc., provides specialist cyber, software and intelligence solutions. The Company’s solutions are integral to national security-related programs run by approximately 50 the United States Government agencies, including the Department of Defense, the Intelligence Community, the Department of Homeland Security, the Department of State and other government departments with national security responsibilities. Its area of operation include security information and event management; network intrusion detection and prevention; application vulnerability assessment; agile software development; command and control system development; complex application development; advanced collection and analysis; multi-intelligence exploitation and dissemination, and multi-lingual intelligence analysis. It specializes in cyber security and secure information systems; software development, systems and services, and intelligence and analytics.

STG GROUP, INC. (OTCMKTS:STGG) Recent Trading Information

STG GROUP, INC. (OTCMKTS:STGG) closed its last trading session 00.00 at 3.40 with shares trading hands.