Departure of Thomas W.
Brown
Thomas W. Brown, the Chairman
of the Board and directors of GlobalSCAPE, Inc. (the “Company”), will not be standing for re-election at the end of
his term at the Company’s upcoming annual meeting of stockholders.
Memorandum of Understanding
and Ongoing Litigation
On August 9, 2018, the Company
entered into a binding Memorandum of Understanding (the “MOU”) with lead plaintiff Irfran Rahman (“Lead Plaintiff”),
regarding the settlement of a securities class action lawsuit (the “Class Action”) filed in 2017 and pending in the
United States District Court for the Western District of Texas against the Company and certain current and former officers and
directors (Mathew C. Goulet, James W. Albrecht, Jr., Thomas W. Brown, David L. Mann, Frank M. Morgan and Thomas E. Hicks, (the
“Individual Defendants”)), styled Giovagnoli v. GlobalSCAPE, Inc., et. al., Case No. 5:17-cv-00753. As previously
disclosed, the Class Action was purportedly brought on behalf of stockholders who purchased shares of the Company’s common
stock between January 26, 2017 through August 7, 2017 (the “Class”).
Under the terms of the MOU,
which outlines certain elements of the settlement, the Company has agreed with counsel for Lead Plaintiff to cause the Company’s
and the Individual Defendants’ insurance carrier to provide the Class with a cash payment of $1,400,000, which includes the
cash amount of any attorney’s fees or litigation expenses that the Court may award Lead Plaintiff’s counsel and costs
Lead Plaintiff may incur in administering and providing notice of the settlement. In consideration of this settlements payment,
Lead Plaintiff has agreed that the settlement will include a dismissal of the Class Action with prejudice and a release of all
claims against the Company and the Individual Defendants by the Class. The settlement is subject to the execution of a definitive
settlement agreement, notice to the Class, and final approval of the Court.
The MOU contains no admission
of wrongdoing. The Company and the Individual Defendants have always maintained and continue to believe that they did not
engage in any wrongdoing or otherwise commit any violation of federal or state securities laws or other laws. But given the
potential costs and burden of continued litigation, the Company believes the settlement is in the best interest of the Company
and its stockholders.
As previously disclosed,
the Securities and Exchange Commission (the “SEC”) has opened a formal investigation of issues relating to the Company’s
restatement of certain of its previously issued financial statements and the United States Attorney’s Office for the Western
District of Texas is investigating the potential improper recognition of software license revenue. The Company is cooperating fully
with the SEC and the U.S. Attorney in their respective ongoing investigations.
Update regarding Strategic
Cost Realignment
As previously disclosed,
the Company has been implementing a set of cost-reduction actions designed to streamline its organization and better concentrate
resources on key strategic opportunities. These actions, which are expected to be substantially completed in the fourth quarter
of 2018, resulted in a reduction in force impacting 40 employees, representing approximately 30% of the Company’s total pre-restructuring
work force. As a result of the reduction in force, the Company expects to incur total restructuring charges of approximately $400,000
(on a pre-tax basis) during the third quarter of 2018. The Company expects for the realignment to result in a significant annual
reduction in total expenses. Furthermore, to the extent that it can be successfully implemented without negatively impacting revenues
or growth opportunities, the realignment offers an opportunity for the Company to realize significant increases in operating earnings
in future periods, although there can be no assurance that any such increase will occur.
U.S. Army Contract
In July 2018, the United
States Army (the “U.S. Army”) awarded the Company a multi-year contract. It is likely that the revenue from such U.S.
Army contract will be less than the revenue resulting from the Company’s prior contracts with the U.S. Army.
The U.S. Army Program Executive
Office, Enterprise Information Systems (“PEO EIS”) Technology Applications Office will deploy the Company’s Enhanced
File Transfer
TM
(“EFT”) SMB for secure file transfer and communication of proprietary data throughout multiple
theaters of operation. The Company’s EFT facilitates compliance with Federal Government and U.S. Army InfoSec security regulations
and requirements. The PEO EIS enables information dominance for joint and Army Warfighters by developing, acquiring, integrating,
deploying and sustaining IT and business management systems, communications and infrastructure solutions through leveraged commercial
and enterprise capabilities.
Registration of Shares
The Company intends to file
a registration statement with the SEC following the expiration of the Company’s previously announced tender offer (the “Tender
Offer”) for its common stock (the “Shares”) to register for resale certain Shares owned and not tendered in the
Tender Offer by 210/GSB Acquisition Partners, LLC (“210/GSB”), Thomas W. Brown and David L. Mann. Although Messrs.
Brown and Mann and certain members of 210/GSB have advised the Company that they intend to participate in the Tender Offer, no
final decision has been made as to the amount of Shares to be tendered. There can be no assurance as to the timing of any such
registration statement and the forgoing does not constitute an offer for the sale of securities. Absent an available exemption
from registration requirements, no resale of these shares will be made until a registration statement is declared effective by
the SEC. As of August 20, 2018, 210/GSB, Thomas W. Brown and David L. Mann own an aggregate of 7,936,264 shares of common stock.
Any sale of shares by such parties will also be required to be in compliance with all applicable Company policies and procedures.
Additional Information
Regarding the Tender Offer
The Tender Offer described
in this report has not yet commenced. This report is not a recommendation to buy or sell shares of common stock or any other securities,
and it is neither an offer to purchase nor a solicitation of an offer to sell Shares or any other securities. On the commencement
date of the Tender Offer, a Tender Offer statement on Schedule TO, including an offer to purchase, a letter of transmittal and
related materials, will be filed with the United States Securities and Exchange Commission (the “SEC”) by the Company.
The Tender Offer will only be made pursuant to the offer to purchase, the letter of transmittal and related materials filed as
a part of the Schedule TO. Stockholders should read carefully the offer to purchase, letter of transmittal and related materials
because they contain important information, including the various terms of, and conditions to, the Tender Offer. Once the Tender
Offer is commenced, stockholders will be able to obtain a free copy of the Tender Offer statement on Schedule TO, the offer to
purchase, letter of transmittal and other documents that the Company will be filing with the SEC at the SEC’s website at
www.sec.gov or by calling or emailing D.F. King & Co., Inc., the information agent for the Tender Offer, at (877) 297-1744
or email globalscape@dfking.com. Stockholders are urged to read these materials, when available, carefully prior to making any
decision with respect to the Tender Offer.