UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): June 24, 2005
GLOBALOPTIONS GROUP, INC.
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(Exact Name of Registrant as Specified in Charter)
Nevada 333-117495 73-1703260
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
75 Rockefeller Plaza, 27th Floor
New York, New York 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 445-6262
Creative Solutions with Art, Inc.
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(Former name or former address, if changed since last report)
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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 DFR
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))
CURRENT REPORT ON FORM 8-K
GLOBALOPTIONS GROUP, INC.
JUNE 30, 2005
TABLE OF CONTENTS
PAGE
----
Items 1.01, 5.01 and 5.02. Entry into a Material Definitive Agreement,
Changes in Control of the Registrant and Departure of
Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers................................1
The Merger.......................................................1
Concurrent Private Placement.....................................3
Security Ownership of Certain Beneficial Owners and Management...6
Item 2.01. Completion of Acquisition or Disposition of Assets...............8
The Merger.......................................................8
Description of Our Company and its Predecessor...................9
Company Overview.................................................9
Corporate Information...........................................10
Business Services...............................................10
Growth Strategy.................................................11
Acquisition Criteria............................................13
Risk Mitigation Industry and Trends.............................13
Market Opportunity..............................................14
Emerging Markets................................................16
Sales and Marketing.............................................16
Procurement of Government Contracts.............................17
Sub-Contractors and Joint Ventures..............................17
Competition.....................................................17
Government Regulation...........................................18
Employees.......................................................18
Facilities......................................................18
Litigation......................................................19
Cautionary Statements...........................................19
Cautionary Language Regarding Forward-Looking Statements and
Industry Data................................................24
Directors, Executive Officers and Key Employees After the
Merger.......................................................26
Key Employees...................................................28
Advisory Boards.................................................28
Meetings of Our Board of Directors..............................30
Board Committees................................................30
Director Compensation...........................................30
Indebtedness of Directors and Executive Officers................31
Family Relationships............................................31
Legal Proceedings...............................................31
Executive Compensation..........................................31
Options/SAR Grants and Fiscal Year End Option
Exercises and Values.........................................32
Employment and Consulting Agreements............................33
2004 Non-Statutory Stock Option Plan............................34
2005 Stock Option Plan..........................................35
Certain Relationships and Related Transactions..................36
i
Item 3.02. Unregistered Sales of Equity Securities.........................36
The Private Placement...........................................36
Series A Convertible Preferred Stock............................38
Common Stock....................................................38
Warrants........................................................39
Trading Information.............................................40
Item 4.01. Changes in Registrant's Certifying Accountant...................40
Item 9.01. Financial Statements and Exhibits...............................41
ii
ITEMS 1.01, 5.01 AND 5.02. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT, CHANGES
IN CONTROL OF THE REGISTRANT AND DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS;
ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS
On June 24, 2005, we completed a so-called "reverse merger"
transaction, in which we caused GlobalOptions Acquisition Corp., a Delaware
corporation and our newly-created, wholly-owned subsidiary ("GlobalOptions
Acquisition"), to be merged with and into GlobalOptions, Inc., a Delaware
corporation ("GlobalOptions"). GlobalOptions is a provider of high-end risk
mitigation services to Fortune 500 corporations, governmental organizations and
high-profile individuals throughout the world. At the time of the merger, our
corporate name was Creative Solutions with Art, Inc. Following the merger we
changed our name to GlobalOptions Group, Inc. ("GlobalOptions Group") and our
trading symbol to "GLOI.OB." As a result of the merger, GlobalOptions became our
wholly-owned subsidiary, with GlobalOptions' former security holders acquiring a
majority of the outstanding shares of our common stock, par value $.001 per
share. The reverse merger was consummated under Delaware law and pursuant to an
Agreement and Plan of Merger, dated June 24, 2005 (the "Merger Agreement"), as
discussed below. A copy of the Merger Agreement was included as an exhibit to
our Current Report on Form 8-K, dated June 27, 2005, which was filed with the
U.S. Securities and Exchange Commission on June 27, 2005. Concurrently with the
closing of the merger, we also completed a private offering to accredited
investors of units consisting of one share of our series A convertible preferred
stock and a detachable, transferable warrant to purchase 125 shares of our
common stock, and received gross proceeds of $7,500,000 at the closing of the
private placement.
THE MERGER
Pursuant to the Merger Agreement, at closing, stockholders of
GlobalOptions received one share of our common stock for each 1.7 issued and
outstanding shares of GlobalOptions common stock and preferred stock in the
merger. As a result, at closing GlobalOptions Group issued 9,890,266 shares of
its common stock to the former stockholders of GlobalOptions, representing 41.5%
of our outstanding common stock on a fully-diluted basis following the merger,
in exchange for 100% of the outstanding capital stock of GlobalOptions. The
consideration issued in the merger was determined as a result of arm's-length
negotiations between the parties.
GlobalOptions Group intends to assume all of GlobalOptions'
obligations under its outstanding stock options and intends to reserve 6,500,000
shares of GlobalOptions Group common stock for stock options issuable under a
proposed 2005 Stock Option Plan. At the time of the merger, GlobalOptions had
outstanding stock options to purchase 4,450,721 shares of common stock, which
outstanding options will become stock options to purchase 2,618,071 shares of
common stock of GlobalOptions Group, after giving effect to the merger exchange
ratio. Neither GlobalOptions nor GlobalOptions Group had any warrants to
purchase shares of capital stock outstanding immediately prior to the closing of
the merger.
The shares of our common stock issued to former holders of
GlobalOptions common and preferred stock in connection with the merger, and the
shares of our series A preferred stock and warrants issued in the private
placement, were not registered under the Securities Act of 1933 in reliance upon
the exemption from registration provided by Section 4(2) of that Act and
Regulation D promulgated under that section, which exempts transactions by an
issuer not involving any public offering. These securities may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements. Certificates representing these shares contain a
legend stating the same.
In connection with the merger, we repurchased a total of 79,702,000
shares of our common stock owned by Carla L. Santia and Mary E. Lawler for
aggregate consideration of $100.00 and then cancelled those shares at the
closing of the merger. Immediately following the closing, and as part of the
consideration for the repurchase of those shares, we sold to Carla L. Santia our
historical art business operations, and she assumed the historical liabilities
of those operations. Giving effect to the cancellation of these stockholders'
shares, there were 4,398,000 shares of our common stock outstanding before
giving effect to the stock issuances in the merger and private placement. The
4,398,000 shares constitute our "public float" prior to the merger.
CHANGES RESULTING FROM THE MERGER. We intend to carry on
GlobalOptions' business as our sole line of business. GlobalOptions Group is
headquartered in New York, New York, and is a provider of high-end risk
mitigation services to Fortune 500 corporations, governmental organizations and
high-profile individuals throughout the world. We have relocated our executive
offices to those of GlobalOptions at 75 Rockefeller Plaza, 27th Floor, New York,
New York 10019. Our telephone number is (212) 445-6262.
Pre-merger stockholders of our company will not be required to
exchange their existing Creative Solutions stock certificates for certificates
of GlobalOptions, since the OTC Bulletin Board will consider the existing stock
certificates as constituting "good delivery" in securities transactions
subsequent to the reverse merger. The American Stock Exchange and Nasdaq
SmallCap Market, where we intend to apply to list our common stock for trading,
will also consider the submission of existing stock certificates as "good
delivery." We cannot be certain that we will receive approval to list our common
stock on that exchange or market.
Under Nevada law, we did not need the approval of our stockholders
to complete the merger, as the constituent corporations in the merger were
GlobalOptions Acquisition and GlobalOptions, each of which is or was a Delaware
corporation. We were not a constituent corporation in the merger. The merger and
its related transactions were approved by the holders of a requisite number of
shares of GlobalOptions common and preferred stock by written consent in lieu of
a meeting on June 24, 2005. Under Delaware corporate law, GlobalOptions
stockholders who did not consent to the merger may demand in writing, pursuant
to the exercise of their appraisal rights, that GlobalOptions pay them the fair
value of their shares. Determination of fair value is based on all relevant
factors, except for any appreciation or depreciation resulting from the
anticipation or accomplishment of the merger.
EXPANSION OF BOARD OF DIRECTORS. In accordance with our by-laws for
filling newly-created board vacancies, Carla L. Santia and Mary E. Lawler,
existing Creative Solutions directors, appointed Harvey W. Schiller, Ph.D.,
Per-Olof Loof, Daniel L. Burstein and Ronald M. Starr, previous directors of
GlobalOptions, to serve as additional directors of our company effective at the
closing of the merger. Ms. Santia and Ms. Lawler also resigned as directors
following the closing, with their resignations effective on June 24, 2005.
Subsequently, on June 27, 2005, John P. Bujouves was appointed to our board of
directors.
In connection with the private placement and merger, in which Verus
International Group, Inc. acted as an advisor to GlobalOptions, GlobalOptions
agreed to allow a designee of Verus to be nominated to the board of directors of
GlobalOptions Group. This agreement continues in effect for a period of two
years. John P. Oswald was designated to be Verus' board nominee to GlobalOptions
Group. However, due to certain other commitments, John P. Bujouves will be
acting as the Verus board nominee while John Oswald will be entitled to board
observation rights. Verus has indicated that they intend to replace Mr.
Boujouves with Mr. Oswald as soon as practicable.
On June 24, 2005, Harvey W. Schiller, Ph.D. was named Chairman and
Chief Executive Officer, Per-Olof Loof was named Vice Chairman of the Board of
Directors, and Jeffrey O. Nyweide was named Chief Financial Officer, Executive
Vice President-Corporate Development and Secretary. At the same time, Ms. Santia
and Ms. Lawler resigned as our officers.
2
All directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Officers
are elected annually by the board of directors and serve at the discretion of
the board.
ACCOUNTING TREATMENT; CHANGE OF CONTROL. The merger is being
accounted for as a "reverse merger," since the stockholders of GlobalOptions own
a majority of the outstanding shares of our common stock immediately following
the merger. GlobalOptions is deemed to be the acquiror in the reverse merger
and, consequently, the assets and liabilities and the historical operations that
will be reflected in the financial statements will be those of GlobalOptions and
will be recorded at the historical cost basis of GlobalOptions. Except as
described in the previous paragraphs and in "Certain Relationships and Related
Transactions," no arrangements or understandings exist among present or former
controlling stockholders with respect to the election of members of our board of
directors and, to our knowledge, no other arrangements exist that might result
in a change of control of our company. Further, as a result of the issuance of
the 9,890,266 shares of our common stock, a change in control of our company
occurred on the date of the consummation of the merger. We will continue to be a
"small business issuer," as defined under the Securities Exchange Act of 1934,
following the merger.
CONCURRENT PRIVATE PLACEMENT
In connection with the merger, we completed the closing of a private
placement of a total of 7,500 units, each unit consisting of one share of our
series A convertible preferred stock, par value $0.001 per share, and a
detachable, transferable warrant to purchase shares of common stock, at a
purchase price of $1,000 per unit, to purchasers that qualified as accredited
investors, as defined in Regulation D, pursuant to the terms of a Confidential
Private Placement Memorandum, dated April 18, 2005, as supplemented. Each share
of series A preferred stock is initially convertible into 500 shares of common
stock at any time. Each warrant entitles the holder to purchase 125 shares of
common stock at an exercise price of $2.50 per share through June 24, 2009,
subject to certain redemption provisions.
We received gross proceeds from the private offering of $7,500,000.
Additional information concerning our private placement is included in Item
3.02, "Unregistered Sales of Equity Securities."
Placement agents, selected dealers and advisors received an
aggregate of $200,000 in cash fees in connection with the private placement and
merger. In addition, effective as of the closing, such parties received an
aggregate of 145,000 shares of our common stock and warrants to purchase
2,100,000 shares of common stock.
After the closing of the merger and the closing of the private
placement, we had outstanding 14,433,266 shares of common stock, 7,500 shares of
series A preferred stock (which are convertible into 3,750,000 shares of common
stock at any time), warrants to purchase 3,037,500 shares of common stock, and
stock options to purchase 2,618,071 shares of common stock (to be effective upon
the adoption of the 2005 Stock Option Plan).
LOCK-UP AGREEMENTS. In connection with the merger, former holders of
substantially all of the securities of GlobalOptions outstanding immediately
prior to the merger entered into "lock-up agreements" with us that prohibit such
stockholders from:
o publicly selling, contracting to sell or otherwise transferring
any of the shares of our common stock beneficially owned by the
stockholder following the merger; or
o privately selling, contracting to sell or otherwise
transferring any of the shares beneficially owned by the
stockholder following the merger.
3
Stockholders who entered into these agreements and who acquired
shares of common stock of GlobalOptions Group as a result of the merger may,
however, make transfers, publicly or privately, as follows:
o SHARES OF GLOBALOPTIONS GROUP COMMON STOCK ISSUED IN THE MERGER
(EXCLUDING COMMON STOCK HELD BY THE "INSIDERS," AS DESCRIBED
BELOW) TO HOLDERS OF GLOBALOPTIONS SECURITIES. Persons who held
shares of GlobalOptions common stock and preferred stock prior
to the merger and received GlobalOptions Group common stock
therefor in the merger may transfer the shares of GlobalOptions
Group common stock received in the merger at a rate of 12.5%,
on a cumulative basis, of the total number of shares of
GlobalOptions Group common stock issued to that stockholder in
the merger, per 90-day period at a market price of not less
than $2.00 per share; and beginning immediately after the
closing of a private investment in public equity transaction
(PIPE) or secondary public offering that raises a minimum of
$30.0 million in gross proceeds for our company at a minimum
price of $2.00 per share, such stockholders may sell their
shares at a rate of 25%, on a cumulative basis, of the total
number of shares of GlobalOptions Group common stock issued to
that stockholder in the merger per 90-day period at a market
price of not less than the price of the PIPE or secondary
public offering, subject to applicable securities laws,
beginning 90 days after the effective date of a registration
statement covering such shares.
o SHARES OF GLOBALOPTIONS GROUP COMMON STOCK ISSUED IN THE MERGER
TO THE FOLLOWING "INSIDERS" OF GLOBALOPTIONS: EMPLOYEES AND
DIRECTORS OF GLOBALOPTIONS GROUP AND ITS SUBSIDIARY AND
AFFILIATES OF SUCH PERSONS. Insiders who were holders of
GlobalOptions securities prior to the merger may not transfer
the shares of GlobalOptions Group common stock received in
connection with the conversion of such shares in the merger for
the 24-month period following the merger, except as follows: 12
months after the merger, and at three month intervals
thereafter, Insiders will be permitted to sell 12.5%, on a
cumulative basis, of the total number of shares of
GlobalOptions Group common stock issued to that stockholder in
the merger, as long as we have a minimum trailing 30 day
average trading price of at least $4.00 per share, subject to
applicable securities laws; at 24 months after the merger, and
at three month intervals thereafter, Insiders will be permitted
to sell up to 12.5%, on a cumulative basis, of the total number
of shares of GlobalOptions Group common stock issued to that
stockholder in the merger, per three-month period, regardless
of price, subject to applicable securities laws. All shares
subject to the option pool are subject to the lock-up
restrictions described above.
In addition, in connection with the merger, certain pre-merger
holders of substantially all of our securities entered into "lock-up agreements"
with us that prohibit such stockholders from selling, contracting to sell or
otherwise transferring any of the shares of our common stock beneficially owned
by the stockholder for the 24-month period following the merger at a market
price of less than $2.00 per share.
REGISTRATION STATEMENT. Under the terms of the private placement, we
agreed to file a "resale" registration statement with the SEC covering the
shares of our common stock underlying the series A preferred stock and warrants
issued in the private placement on or before October 28, 2005 (120 days after
the closing). We are obligated to maintain the effectiveness of the "resale"
registration statement from the effective date through and until 12 months after
the date of closing of the merger, unless all securities registered under the
registration statement have been sold or are otherwise able to be sold pursuant
to Rule 144 under the Securities Act of 1933, provided we comply with our
reporting obligations.
4
In the event the "resale" registration statement is not filed with
the SEC on or prior to the 180th day after the completion of the merger, each
investor in the private placement will receive an additional number of shares of
series A preferred stock equal to 2% of the total number of shares of series A
preferred stock subscribed to by such investor in the private placement (which
additional shares of underlying common stock will also be registered) for each
month (or portion thereof) that the registration statement is not so filed,
provided that the aggregate increase in such shares of series A preferred stock
pursuant to this paragraph will in no event exceed 20% of the original number of
shares of series A preferred stock subscribed for in the private placement.
We agreed to use our best efforts to have the "resale" registration
statement declared effective by the SEC as soon as possible after the initial
filing and agreed to respond to all questions or comments by the SEC pertaining
to such registration statement within 30 days of our receipt of such comments.
In the event that we do not respond to questions or comments by the SEC
pertaining to the registration statement within 30 days after our receipt of
such comments, each investor in the private placement will receive an additional
number of shares of series A preferred stock equal to 2% of the total number of
shares of series A preferred stock subscribed to by such investor in the private
placement (which additional shares of underlying common stock will also be
registered) for each month (or portion thereof) that we do not respond to
questions or comments by the SEC pertaining to such registration statement,
provided that the aggregate increase in such shares of series A preferred stock
pursuant to this paragraph will in no event exceed 20% of the original number of
shares of series A preferred stock subscribed to in the private placement.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the number of
shares of our common stock beneficially owned on June 24, 2005 by:
o each person who is known by us to beneficially own 5% or more
of our common stock;
o each of our directors and executive officers; and
o all of our directors and executive officers, as a group.
Except as otherwise set forth below, the address of each of the
persons listed below is GlobalOptions Group, Inc., 75 Rockefeller Plaza, 27th
Floor, New York, New York 10019.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (2)
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5% OR GREATER SHAREHOLDERS:
Rising Wolf LLC (3) 2,647,059 18.3%
Neil Simon (4) 1,514,991 10.4%
Joan Stanton (4) 1,514,991 10.4%
Gale Hayman (4) 1,514,991 10.4%
PS Capital Holdings, L.P. 1,010,287(5) 7.0%
Integris Funds Ltd. (6) 937,500 6.1%
IIU Nominees Ltd. (7) 1,300,000 8.3%
Verus Investment Holdings Inc. (8) 1,112,248 7.6%
DIRECTORS AND EXECUTIVE OFFICERS:
Harvey W. Schiller (9) 1,362,895 8.7%
Per-Olof Loof -- --
Neil C. Livingstone (10) 3,039,216 20.5%
Jeffrey O. Nyweide -- --
Thomas P. Ondeck (11) 3,039,216 20.5%
Ronald M. Starr (12) 980 *
Daniel L. Burstein (13) 980 *
John P. Bujouves (14) -- --
All officers and directors as a group
(8 persons) (15) 4,796,228 29.2%
6
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* Less than 1% of outstanding shares.
(1) Unless otherwise indicated, includes shares owned by a spouse, minor
children and relatives sharing the same home, as well as entities
owned or controlled by the named person. Includes the conversion of
all shares of series A preferred stock and the exercise of warrants
to purchase common stock into common stock. Also includes options to
purchase shares of GlobalOptions exercisable within sixty (60) days,
which are expected to be assumed by GlobalOptions Group upon
adoption of the 2005 Stock Option Plan. Each share of series A
preferred stock is convertible into 500 shares of common stock.
Unless otherwise noted, shares are owned of record and beneficially
by the named person.
(2) Based upon 14,433,266 shares of common stock outstanding on June 24,
2005 and, with respect to each individual holder, rights to acquire
common stock exercisable within sixty (60) days.
(3) Rising Wolf LLC is a Delaware limited liability company. As the
directors and significant members of Rising Wolf LLC, Neil C.
Livingstone and Thomas P. Ondeck may be deemed to be the beneficial
owners of the shares of common stock held by Rising Wolf LLC. The
address of Rising Wolf LLC is 1615 L Street, N.W., Suite 300,
Washington, DC 20036.
(4) The address for Neil Simon, Joan Stanton and Gale Hayman is c/o
GlobalOptions, Inc., 1615 L Street, N.W., Suite 300, Washington, DC
20036. Consists of 1,449,991 shares of common stock, 104 shares of
series A preferred stock and 13,000 shares of common stock reserved
for issuance upon exercise of warrants.
(5) Consists of (i) 966,537 shares of common stock, (ii) 70 shares of
series A preferred stock and (iii) 8,750 shares of common stock
reserved for issuance upon exercise of warrants.
(6) Integris Funds Ltd. is a Cayman Islands company with an address at
c/o Bayshore Bank and Trust, Lauriston House, Lower Collymare Rock,
PO Box 1132, Bridgetown Barbados. Consists of (i) 1500 shares of
series A preferred stock and (ii) 187,500 shares of common stock
reserved for issuance upon exercise of warrants.
(7) IIU Nominees Ltd. is incorporated in Ireland with an address at c/o
International Investment and Underwriting, IFSC House Custom House
Quay, Dublin 1 Ireland. Consists of (i) 50,000 shares of common
stock, (ii) 1500 shares of series A preferred stock and (iii)
500,000 shares of common stock reserved for issuance upon exercise
of warrants.
(8) Verus Investment Holdings Inc. is a British Virgin Islands company.
Includes 68,500 shares of common stock reserved for issuance upon
exercise of warrants issued for strategic advisory services in
connection with the merger. Also includes (i) 358 shares of series A
preferred stock and (ii) 44,750 shares of common stock reserved for
issuance upon exercise of warrants, each purchased in the private
placement transaction, held by Verus International Group Limited, a
Cayman Islands company which is wholly owned by Verus Investment
Holdings Inc. The address for Verus Investment Holdings Inc. is c/o
Abacus Trust and Management Services, Unit 18, Mill Mall, Wickham's
Cay, Road Town, Tortola, British Virgin Islands. The address for
Verus International Group Limited is Ugland House, South Church
Street, Grand Cayman, Cayman Islands.
(9) Consists of (i) 166,498 shares of common stock, (ii) 22 shares of
series A preferred stock, (iii) 2,750 shares of common stock
reserved for issuance upon exercise of warrants and (iv) 1,182,646
shares of common stock issuable upon exercise of stock options that
will be currently exercisable upon adoption of the 2005 Stock Option
Plan.
7
(10) Consists of (i) 392,157 shares of common stock issuable upon
exercise of stock options that will be currently exercisable upon
adoption of the 2005 Stock Option Plan and (ii) 2,647,059 shares of
common stock owned by Rising Wolf LLC, of which Dr. Livingstone is a
director and significant member.
(11) Consists of (i) 392,157 shares of common stock issuable upon
exercise of stock options that will be currently exercisable upon
adoption of the 2005 Stock Option Plan and (ii) 2,647,059 shares of
common stock owned by Rising Wolf LLC, of which Mr. Ondeck is a
director and significant member.
(12) Consists of 980 shares of common stock issuable upon exercise of
stock options that will be currently exercisable upon adoption of
the 2005 Stock Option Plan. Does not include 966,537 shares of
common stock, 70 shares of series A preferred stock and 8,750 shares
of common stock reserved for issuance upon exercise of warrants
owned by PS Capital Holdings, L.P., of which Mr. Starr is the Chief
Financial Officer and General Counsel.
(13) Consists of 980 shares of common stock issuable upon exercise of
stock options that will be currently exercisable upon adoption of
the 2005 Stock Option Plan.
(14) Mr. Bujouves is the Chairman of Bayshore Bank & Trust Corp., an
affiliate of Integris Funds Ltd. He disclaims beneficial ownership
with respect to the shares held by Integris Funds Ltd.
(15) Consists of (i) 2,813,556 shares of common stock, (ii) 22 shares of
series A preferred stock, (iii) 2,750 shares of common stock
reserved for issuance upon exercise of warrants and (iv) 1,968,921
shares of common stock issuable upon exercise of stock options that
will be currently exercisable upon adoption of the 2005 Stock Option
Plan.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Information concerning the principal terms of the merger and the
business of GlobalOptions is set forth below.
THE MERGER
THE MERGER. On June 24, 2005, we, our wholly-owned subsidiary
GlobalOptions Acquisition and GlobalOptions entered into the Merger Agreement.
On June 24, 2005 (referred to as the Merger Closing Date), GlobalOptions
Acquisition was merged with and into GlobalOptions under Delaware corporate law,
with GlobalOptions surviving to become our wholly-owned subsidiary.
Pursuant to the Merger Agreement, at closing, stockholders of
GlobalOptions received one share of our common stock for each 1.7 issued and
outstanding shares of GlobalOptions common stock and preferred stock in the
merger. As a result, at closing GlobalOptions Group issued 9,890,266 shares of
our common stock to the former stockholders of GlobalOptions, representing 41.5%
of our outstanding common stock on a fully-diluted basis following the merger,
in exchange for 100% of the outstanding capital stock of GlobalOptions. The
consideration issued in the merger was determined as a result of arm's-length
negotiations between the parties.
GlobalOptions Group intends to assume all of GlobalOptions'
obligations under its outstanding stock options and intends to reserve 6,500,000
shares of GlobalOptions Group common stock for stock options issuable under a
proposed 2005 Stock Option Plan. At the time of the merger, GlobalOptions had
outstanding stock options to purchase 4,450,721 shares of common stock, which
outstanding options will become stock options to purchase 2,618,071 shares of
common stock of GlobalOptions Group, after giving effect to the merger exchange
ratio. Neither GlobalOptions nor GlobalOptions Group had any warrants to
purchase shares of capital stock outstanding immediately prior to the closing of
the merger.
Following the merger, all of our current business operations will be
conducted through our wholly-owned subsidiary, GlobalOptions, Inc. See
"Description of Business" below. Prior to the merger, there were no material
relationships between us and GlobalOptions or any of the companies' respective
8
affiliates, directors or officers, or any associates of the respective officers
or directors. All of our pre-merger liabilities were settled prior to the
merger.
ELECTION OF BOARD OF DIRECTORS. In accordance with our by-laws for
filling newly-created board vacancies, Carla L. Santia and Mary E. Lawler,
existing Creative Solutions directors, appointed Harvey W. Schiller, Ph.D.,
Per-Olof Loof, Daniel L. Burstein and Ronald M. Starr, previous directors of
GlobalOptions, to serve as additional directors of our company effective at the
closing of the merger agreement. Ms. Santia and Ms. Lawler also resigned as
directors following the closing, with their resignations effective on June 24,
2005. Subsequently, on June 27, 2005, John P. Bujouves was appointed to our
board of directors.
On June 24, 2005, Harvey W. Schiller, Ph.D. was named our Chairman
and Chief Executive Officer, Per-Olof Loof was named Vice Chairman of the Board
of Directors, and Jeffrey O. Nyweide was named Chief Financial Officer,
Executive Vice President-Corporate Development and Secretary. At the same time,
Ms. Santia and Ms. Lawler resigned as our officers. See "Directors and Executive
Officers of the Company After the Merger."
DESCRIPTION OF OUR COMPANY AND ITS PREDECESSOR
We were formed as a Nevada corporation on April 20, 2004 to be a
consulting firm succeeding to the business of Carla Santia & Associates. Prior
to the merger, we were a company that assisted corporate purchasers of art work
in identifying, selecting, acquiring for and placing fine art in their
facilities. After the merger, we discontinued our previous business and
succeeded to the business of GlobalOptions as our sole line of business.
Accordingly, the past trading history of our common stock is not relevant due to
the change in our business.
DESCRIPTION OF BUSINESS
Unless the context otherwise requires, "we," "our," "us" and similar
expressions refer to GlobalOptions, Inc., a Delaware corporation, separately
prior to the merger of a wholly-owned subsidiary of Creative Solutions with and
into GlobalOptions, Inc. on June 24, 2005, and GlobalOptions Group, Inc., as
successor to the business of GlobalOptions, Inc., after giving effect to the
merger.
COMPANY OVERVIEW
We are a provider of high-end risk mitigation services to Fortune
500 corporations, governmental organizations and high-profile individuals
throughout the world. Our risk mitigation services currently include risk
management and security, investigations and litigation support, and crisis
management and corporate governance. These engagements take our staff around the
world and are typically highly sensitive engagements where we are interacting
with senior leaders in both corporations and governments. Our overall mission is
to identify, evaluate, assess and prevent issues that may threaten people,
organizations or strategic initiatives for companies and governments around the
globe.
Founded in 1998, our management, staff and advisory boards include
security and terrorism experts from America's elite military units, former
intelligence and law enforcement officers, professional investigators, and legal
and crisis communications specialists. We provide services to governments, law
firms, private clients and corporations, including two of the ten largest
corporations in the world.
We have been awarded "approved" status as a vendor of consulting and
related services to United States government agencies by the U.S. General
Services Administration (GSA). We are a MOBIS (management, organizational and
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business improvement services) contractor and members of our staff have
high-level security clearances.
CORPORATE INFORMATION
GlobalOptions was incorporated in the State of Delaware in January
2002, but prior to that began providing its risk mitigation services as a
Delaware limited liability company in 1998. Our corporate headquarters are
located at 75 Rockefeller Plaza, 27th Floor, New York, New York 10019. Our
telephone number is (212) 445-6262, and our fax number is (212) 445-0053.
BUSINESS SERVICES
INVESTIGATIONS AND LITIGATION SUPPORT
The difference between business success and failure is often
information. Our investigative team includes highly educated and trained
investigators who understand the complexities in uncovering factual
circumstances surrounding sensitive investigations. Our specialists have
extensive experience providing discreet and timely investigative and business
intelligence services to law firms, corporations and individuals, both
domestically and abroad.
Our investigators have unique access to extensive public and
proprietary databases and are highly experienced in developing case facts
through on-site interviews and domestic and offshore searches. Our investigators
provide reports and intelligence for clients on everything from country risk,
unfair trade practices, new markets, political trends, economic forecasts,
profiles on competitors and satellite reconnaissance.
We have conducted investigations that impeach witnesses, disprove
factual allegations and raise alternative theories of cause. We have
investigated judicial corruption, jury tampering, questionable "expert
witnesses," conspiracies to defraud, industrial espionage, potential business
investments, recovery of assets, defense against class action suits, trademark
infringement, political opposition research and insurance fraud. Asbestos and
product liability cases are our specialties and we work with a wide range of
clients, especially in the automotive and related industries.
In 2004, we completed 135 investigations and litigation support
projects with an average size of more than $20,000 and totaling $2.7 million,
accounting for approximately 49% of our net revenue. Representative
investigations and litigation support projects have included uncovering facts
which impeached credibility of key opposition witnesses in a major civil case,
finding $40 million of a client's assets hidden in foreign countries by a former
business partner, and, for a Fortune 500 company in due diligence, discovering
that the target company was owned by criminals and that the company had
overstated assets by $100 million.
CRISIS MANAGEMENT AND CORPORATE GOVERNANCE
We assist governments, corporations and individuals in the
development and implementation of crisis management and emergency response
plans. Our staff is attuned to regional, national and international political
issues and has well-placed government and media contacts worldwide. While public
relations firms provide media expertise, they generally do not offer other
critical skills, such as our ability to put management, security and
communication resources on the ground in an expedited manner.
We have managed one of the largest civil RICO defense in United
States history, implemented comprehensive security measures nationally at a
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major corporation targeted by animal rights activists, set up a 24/7 emergency
hotline for employees of a large retail organization, conducted searches and
rescue missions for kidnapped persons, and collected critical intelligence about
foreign bribery efforts that threatened billions of dollars in United States
sales.
We work with clients to establish command procedures, train
employees, coordinate rescue efforts and keep operations running. Whether
dealing with a labor strike, security breach, natural disaster, cyber attack,
kidnapping, family crisis, arrest, stolen intellectual property, or school or
workplace violence issue, we believe we have the resources that can provide
expert assistance.
In 2004, we completed 13 crisis management and corporate governance
projects with an average size of more than $133,000 and totaling $1.7 million,
accounting for approximately 32% of our net revenue. Representative crisis
management projects have included:
o A Fortune 500 company was faced with a federal investigation
into its leading product. The company needed data on its
product so the government would drop a potential investigation
which would have crippled the company's brand. Our crisis
containment team (i) developed rebutting data, (ii) obtained
positive press coverage for the company and (iii) used
government contacts to finish the investigation.
o Assisted a small company's new investors in taking control of
corporate headquarters and all proprietary company data from
the ousted former owners.
o Completed United States government emergency security surveys
at critical facilities throughout the United States the day
after September 11, 2001.
RISK MANAGEMENT AND SECURITY
We help clients solve problems that fall outside the scope of
mainstream management resources by providing highly specialized and customized
security services. We provide security assessments, executive protection,
anti-terrorism training, threat analyses, fraud prevention techniques, special
event security, protection from stalkers, private travel management and the
design, implementation and management of total security systems.
We have performed risk assessments of corporate headquarters,
chemical weapon stockpiles, nuclear installations and reactors, factories,
yachts, private aircraft, homes, transportation systems, government facilities,
political conventions, sports stadiums and sporting events.
In 2004, we completed 43 risk management and security projects with
an average size of nearly $25,000 and totaling $1.1 million, accounting for
approximately 19% of our net revenue. Representative risk management and
security projects have included conducting threat and vulnerability assessments
of Russian facilities containing nuclear materials and conducting site surveys
and security assessments for a major corporation facing violent threats and
attacks.
GROWTH STRATEGY
We seek to build the leading integrated enterprise risk mitigation
company. To achieve our vision, we are pursuing a set of defined activities to
achieve what we hope will be a market-leading industry position.
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LEVERAGE TIER-ONE INDUSTRY RELATIONSHIPS TO IDENTIFY COMPLEMENTARY
PLATFORM TARGETS, RAISE CAPITAL, BRING IN A HIGHLY QUALIFIED
MANAGEMENT TEAM AND BUILD SYNERGIES TO EXECUTE ITS VISION.
We have created an initial revenue base and put a management team
and advisory boards in place to execute our vision. We are currently in, or seek
to enter into, discussions with several firms in the risk mitigation industry
about being acquired. With virtually all the acquisition targets being private
concerns, we expect that the negotiations would generally be with
owner-operators that will not only bring new services to our company but, also,
highly capable management.
Creating a well known senior advisory board has given our management
the experience and reputation beyond management's own achievements to gain
introductions at high levels of government and Fortune 500 companies. The
initial platform acquisitions are expected to provide additional strong
relationships with premier companies and individuals. The later "bolt-on"
product and service acquisitions are expected to help fill in product gaps,
create more regional coverage and mass and, in turn, drive our organic revenue
growth.
Effective June 8, 2005, GlobalOptions and Confidential Business
Resources, Inc. entered into a definitive asset purchase agreement with respect
to the proposed acquisition by GlobalOptions of all of the assets and business
activities of CBR. Completion of the transaction is subject to the satisfaction
of closing conditions contained in the definitive agreement, which include the
completion of CBR's audited financial statements for fiscal years 2003 and 2004,
and there can be no assurance that the CBR acquisition will be completed upon
the terms set forth in the definitive agreement, or otherwise.
CREATE AN INITIAL PLATFORM WITH SIGNIFICANT REVENUES.
We intend to target and acquire what we believe are the best
companies in the industry with proven management teams and a strategic long-term
vision. The initial platform acquisitions are expected to be geographically
diverse and offer solutions in different risk mitigation segments to establish
scope and synergies across the GlobalOptions Group family of companies. All
acquisitions are expected to have existing clients, revenue, significant channel
presence and a high margin core business.
USE SYNERGIES ACROSS ACQUIRED COMPANIES TO DRIVE INTERNAL GROWTH.
We expect that acquired companies will give us a substantial revenue
base, a wide array of products and services, geographic reach into almost every
country in the world and experienced operators that will complement our current
team. Our objective is to sell bundled solutions and services through acquired
companies' channels.
We will use a shared services approach in administrative areas to
try to keep indirect costs reasonable and assist us in achieving our profit
goals. Areas for inclusion in the shared services will be global marketing,
human resources, finance, information technology, mergers and acquisitions,
business integration and development, and legal compliance.
LAYER ON ADDITIONAL TARGETS IN EMERGING HIGH GROWTH AREAS.
Ultimately, our goal is to build an end-to-end comprehensive risk
mitigation offering that encompasses consulting and investigations, risk
mitigation solutions, services and related data services. Our intent is to be
the leading full service investigations firm in all markets where we have a
presence.
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Additional revenue growth is expected to come from technology
acquisitions to further drive the data services business and other layered-on
acquisitions to further diversify revenue across different geographies.
ACQUISITION CRITERIA
With acquired assets being central to our strategic vision, it is
necessary to incorporate specific criteria when evaluating potential targets for
acquisition. The criteria are:
o predictability of value;
o ease of acquisition or time to completion;
o ability to ensure management oversight;
o ease of integration or minimal short-term integration needs;
o alignment of target's goals with GlobalOptions' goals;
o expansion of offerings, skills, brand and footprint;
o short-term and long-term benefit; and
o minimal capital requirements.
In connection with our acquisition strategy, we entered into an
advisory agreement with Cascadia Capital, LLC in July 2004, pursuant to which
Cascadia Capital provides certain capital raising, debt financing and buy-side
mergers and acquisitions services. The advisory agreement terminates when
Cascadia Capital has completed providing such services to us or upon either
party delivering 30-days written notice. In addition to receiving a monthly
retainer, Cascadia Capital earns certain success and performance fees in
association with future financings and transactions. Should it directly assist
us with entering into certain corporate transactions such as a merger or
consolidation, Cascadia Capital has the right of first refusal to serve as the
exclusive advisor to us on such transaction. However, the advisory agreement
also provides that Cascadia Capital disclaims any success fee or right of first
refusal with regards to similar services provided to us by other consulting
companies. No such fees or right of first refusal are owed to Cascadia Capital
in connection with the merger or the private offering.
RISK MITIGATION INDUSTRY AND TRENDS
The security industry has been altered by world events and
regulatory changes. Governments, corporations and private families are now
thinking about security proactively, and as a result the entire global market
has grown to an estimated $120 billion industry, with a projection of $170
billion by 2006.
The risk mitigation market doubled in size from 1990 to 2000 and the
market is expected to continue its steady growth and triple in size from 2000 to
2010. The corporate and government focus on a wide array of bundled risk
mitigation products and services is expected to drive growth. Kroll Inc. was the
giant in the industry, but since it was acquired by insurance broker Marsh &
McLennan Cos., we believe it has been unable to engage in certain relationships
due to the conflict of being owned by Marsh & McLennan. After the Kroll Inc.
acquisition, we believe there is no comprehensive platform provider encompassing
solutions and services. ChoicePoint Inc. and First Advantage Corp., the two
leading providers of background screening, are concentrating their services on
consumer data services. Currently, no established risk mitigation or consulting
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and investigations company has taken over the industry space formerly occupied
by Kroll Inc. There is a significant market opportunity for a global leader. The
growth of major operators will depend on the continued acquisitions of small
expert operators.
Risk mitigation, in the past, has been defined as mitigating
corporate risk and exposure post-incident. Risk mitigation firms were brought in
to assess damage once a serious event, loss or breach in security had occurred.
Engagements were typically non-recurring in nature and usually involved a
consultant working with the company to assist in the reactive initiatives, and
some high-level analysis to reduce loss once an incident had occurred. Today,
risk mitigation encompasses an array of products and services focused on not
just reacting to critical events, but on a proactive basis evaluating,
identifying, quantifying and managing elements of risk. Risk mitigation has
evolved as companies and governments are faced with a variety of new, diverse
elements of risk including terrorism, litigation, fraud, compliance, business
continuity, brand protection, cyber attacks, industrial espionage and regulatory
issues. The evolution of the industry has been a clear departure from a reactive
consultative or investigative approach to a proactive effort that not only
identifies risk, but provides clients with useable information that can help
them make critical business decisions.
The risk mitigation industry is one that is built on the
relationship between the client and the risk mitigation firm. The business is
intensely personal because of the highly confidential nature of the engagements
and the potential damage to brand, reputation, competitive position and overall
market perception. As a result, the industry is extremely fragmented. As smaller
firms attempt to expand to meet the needs of global clients, a lack of capital
resources forces partnering and sub-contractual relationships that hinder their
ability to control costs and provide continuity of service to a global market. A
risk mitigation firm and its principal employees have a limited geographic reach
and personal network from which to draw engagements. The critical aspect of the
business and fundamental means to drive organic growth is the ability to
establish and monetize these strategic relationships. The most profitable
businesses recognized the opportunity to introduce proactive services and
diversification to evolve the business and create an annuity-based business
positioned to not only capture the reactive engagements, but to proactively sell
products and solutions to new and existing clients.
MARKET OPPORTUNITY
According to the Lehman Brothers Security Industry Annual Report
2004, the risk mitigation market doubled in size from 1990 to 2000. There is
every indication that the drivers of increased risk mitigation spending (due to
events such as terrorism across the globe and the enactment of the
Sarbanes-Oxley Act) are likely to continue into the foreseeable future. Morgan
Keegan & Company estimates 11% growth per year in this market through 2010. We
believe that segments of risk mitigation on both the product and services side
are still fragmented and ripe for consolidation with no clear market leader or
dominant brand.
GlobalOptions is an established company, formed to serve as a nexus
for a series of acquisitions that will deliver revenue, capabilities, products
and services designed to meet the ever increasing demand for the management and
assessment of risk. Our vision is to build, through acquisition and new product
development, the dominant risk mitigation solutions business and brand in the
$14 billion dollar risk mitigation industry.
Because of the personal and sensitive nature of risk mitigation and
investigative engagements, the ability to provide services and retain clients is
driven largely by reputation and personal relationships. Under the leadership of
Harvey W. Schiller, our Chairman and Chief Executive Officer, and Neil C.
Livingstone, Chief Executive Officer of GlobalOptions, our team provides not
only vision, management and leadership, but strong relationships with the
leaders in both corporate and government markets. We have the relationships to
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bring in high-margin, well-known clients, while the company's operational
experience allows for execution of these sensitive and critical engagements.
Once these projects are completed, there are a variety of annuity-based,
long-term products and services that can be combined into a comprehensive suite
of high-margin solutions to evolve the business into a more profitable and
recurring revenue product-based business.
Other trends in the industry include the following:
o The risk mitigation market has grown from $3.5 billion in 1990
to approximately $14 billion today. Analysts at Lehman Brothers
estimate the market will grow to $20 billion by 2010.
o Employment of private investigators and detectives is expected
to grow 21% to 35% by 2008, according to the Security Industry
Association.
o Terrorism, corporate scandals and security costs have forced
corporations and governments to focus on risk mitigation and
deploy additional resources to comply with a variety of
regulatory and legislative mandates.
o The increase of awareness and frequency of risks facing an
individual, corporation or government have moved risk
mitigation to a strategic initiative touching every aspect of
an organization.
o In the United States, there are over 7,000 private
investigations firms and 96% of firms are single-location
companies, according to the Lehman Brothers Security Industry
Annual Report 2004.
o Traditional leaders in the space have been acquired or evolved
their business model, leaving a service gap. For example:
- Pinkerton Consulting & Investigations, Inc. migrated to
security officer services (acquired by Securitas AB) and
United States investigations focused on government
services;
- The Wackenhut Corporation migrated to security officer
services (acquired by Group 4 Falck); and
- Vance International, Inc. migrated to security officer
services (acquired by SPX Corporation).
o Large regional companies have emerged and are servicing
national and global accounts through loose partnerships,
sub-contracts and revenue-sharing relationships. We believe
that these structures are inefficient and lack the continuity
and reliable service necessary for a national or global
delivery model.
Changes in world events and regulatory compliance have brought
renewed attention to the security industry. As a result of corporate scandals,
increasing litigation costs and geo-political events, risk mitigation has become
critical for corporations, governments, law firms and individuals. These target
groups are now focusing on their security arrangements in a proactive manner. As
corporate officers, board members and their attorneys are forced to successfully
follow regulations and meet required compliance steps, we will be available to
provide the necessary guidance. As private families, celebrities and executives
focus on their security issues, we will be available to assist them.
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Ultimately, our strategic vision is to build the first truly
integrated enterprise risk mitigation company by selectively acquiring the best
companies in the industry with proven management teams and a strategic long-term
vision. Platform acquisitions are expected to be geographically diverse and
offer solutions in different risk mitigation segments of the market to gain
synergies. Targets are expected to have a combination of existing clients,
revenue, a significant market presence and/or a high margin core business that
will enhance and expand our share of the risk mitigation market.
EMERGING MARKETS
Navigating the maze of regulatory compliance in today's highly
charged environment can result in potential derailment for a company. As
corporate officers and board members face substantial fines and imprisonments,
the rest of a company's executives also face many hazards. Whether the
compliance issue involves the Gramm-Leach-Bliley Act (GLBA), the USA Patriot
Act, the Federal Information Security Act (FISMA), the Health Insurance
Portability and Accountability Act (HIPAA) or the Sarbanes-Oxley Act of 2002,
the need for industry experts to help organizations manage the government
requirements is significant.
The total market potential for regulatory compliance is seen as well
over $50 billion in the United States alone, according to the Manakoa Journal
(January 2005).
o FISMA impacts all federal agencies and government contractors.
o GLBA impacts financial institutions and anyone dealing with
non-public financial information.
o HIPAA has significant information technology management and
privacy provisions.
o The Sarbanes-Oxley Act impacts all public companies with major
reform provisions on reporting, controls and corporate
governance.
SALES AND MARKETING
Our sales and marketing strategy is to maintain and expand our
reputation and track record, the quality of the services we deliver and the
skills and character of the people we deploy on client engagements. In doing so,
we hope to continue to provide the high level of investigative, litigation
support, crisis management, risk management and protective services demanded by
our clients.
The risk mitigation industry is one that is built on the
relationship between the client and the risk mitigation firm. The business is
intensely personal because of the highly confidential nature of the engagements
and the potential damage to brand, reputation, competitive position and overall
market perception. The ability to provide services and retain clients is driven
largely by reputation and personal relationships. Our management, staff and
advisory boards include security and terrorism experts from America's elite
military units, former intelligence and law enforcement officers, professional
investigators, and legal and crisis communications specialists who bring to bear
strong relationships with the leaders in both the corporate and government
markets.
These relationships give us the opportunity to bring in high-margin,
well-known clients, and our operational experience allows us to successfully
complete these sensitive and often critical engagements. The success of this
strategy is demonstrated by the repeat nature of our business with established
clients. In 2004, 60% of our business came from clients we served and satisfied
in 2003. New opportunities typically arise from the ongoing relationships that
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our management personnel have with their client counterparts. As high-level
client personnel move to different companies or agencies, they often call upon
experienced service providers like us in their new environment.
Ultimately, our marketing effectiveness will be based upon a
successful track record, experienced personnel, critical mass and highly
regarded reputation, which we believe will be enhanced and broadened by a well
conceived and implemented acquisition strategy.
PROCUREMENT OF GOVERNMENT CONTRACTS
We compete for most of our government contracts by developing
strategic contacts with the leaders of government agencies. The strategic
contacts allow government agencies to seek us out for a confidential assignment.
The background and experience of our management and advisory boards bring
instant credibility to our government efforts. Due to the sensitive nature of
our services, most government contracts and projects are won as sole source
bids, as opposed to an open RFP (Requests for Proposal) process. We are a MOBIS
(management, organizational and business improvement services) contractor and
are "pre-approved" for government work. If a government agency has a project
that they know we are qualified for based on previous experience, the agency may
come directly to us. These are generally smaller projects (under $100,000), and
many times we are a layer in a series of sub-contractors.
Weekly, a member of our staff reviews the government RFP's posted on
the website FedBizOpps.gov. Based on our experience, our response to an RFP
generally requires us to select partners and to submit a proposal based on
combined subject matter expertise. Proposals can be 40 to 100 pages in length
and require a significant amount of time to prepare. The RFP submission process
is quite complex, open to all interested providers and tends to generate a low
success rate.
SUB-CONTRACTORS AND JOINT VENTURES
The risk management industry uses sub-contractors for each project
or case on an "as needed basis" domestically and may engage in joint ventures
internationally depending upon case requirements. Currently, we employ
approximately 35 sub-contractors on a regular basis. We intend to actively
pursue our acquisition strategy to obtain the necessary footprint, products and
personnel to reduce our dependency on sub-contractors, thus increasing gross
margins.
COMPETITION
Risk mitigation providers encompass an array of products and
services focused on not just reacting to critical events, but on a proactive
basis evaluating, identifying, quantifying and managing elements of risk. The
risk mitigation industry is one that is built on the relationship between the
client and the risk mitigation firm. The business is intensely personal because
of the highly confidential nature of the engagements and the potential damage to
brand, reputation, competitive position and overall market perception. Risk
mitigation competitors include:
o Kroll Inc. was acquired by insurance broker Marsh & McLennan
Cos. in July 2004. This global risk-consulting and security
firm provides risk mitigation services that conduct operations
through four business units: security consulting services,
background screening, data recovery and electronic discovery,
and corporate restructurings. Kroll Inc.'s background screening
annual revenues were running at approximately $175 million in
early 2004, including mortgage, tenant and pre-employment
screening. (See key below: A, B, C)
o ChoicePoint Inc. is the leading provider of public background
screening, the leading provider of database information to the
automobile insurance industry and the leading provider of
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commercial pre-employment and drug testing screening. It
services about 20% of the pre-employment screening market. (A)
o Control Risks Group Limited, out of the United Kingdom, has
grown fast over the last two years in response to terrorism and
corporate demand for security, employee fraud and brand
protection services. Its annual revenues are estimated to be in
the $50 million to $60 million range. (B, C)
o First Advantage Corp. is a smaller employment background
screening company that has grown rapidly through acquisitions
since its formation by merging a division of First American
Corp. with US Search.com Inc. in June 2003. In March 2005, it
entered into an agreement to acquire First American Corp.'s
credit information group. Through acquisitions, First Advantage
Corp. has evolved into a $250 million provider of a wide range
of screening and investigative services. It is the leading
tenant-screening company and has significant businesses in
pre-employment, insurance, drug testing and investigative
services for insurance fraud. (A)
o Hill & Associates, a Hong Kong-based company, is a
predominantly Far East operation in the investigations,
intelligence and consulting area. Its annual revenues are
estimated at roughly $20 million. (A, C)
o Toribos GmbH is a Hamburg-based firm with offices in Europe,
Africa, the Middle East, Asia and North and South America that
specializes in investigations, crisis management and private
security. (A, B, C)
o Olive Security (UK) Ltd is a London and Dubai-based firm with a
strong presence in the Middle East that specializes in risk
consulting and security over a variety of platforms. (C)
- --------------------
(Key: A - Investigations and Litigation Support; B - Crisis
Management and Corporate Governance; and C - Risk Management and
Security)
GOVERNMENT REGULATION
Due to our participation in government contracts, we will be subject
to audit from time to time for our compliance with government regulations by
various agencies. Governmental agencies may also periodically conduct inquiries
or investigations that may cover a broad range of our activity. Investigator
licenses are needed domestically, while surveillance as well as investigator
licenses are generally regulated on a state and local level. We believe that we
operate our business in material compliance with all applicable federal, state
and local government regulations.
EMPLOYEES
As of June 24, 2005, we had 16 full-time and 4 part-time employees.
We enjoy good employee relations. None of our employees are members of any labor
union and we are not a party to any collective bargaining agreement.
FACILITIES
We are located in two leased facilities. Our operating base is
located at 1615 L Street, N.W., Suite 300, Washington, D.C. 20036, and is
comprised of approximately 11,671 square feet leased at a cost of $40,000 per
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month. Our telephone number there is (202) 293-2490. Our administrative
headquarters is located at 75 Rockefeller Plaza, 27th Floor, New York, NY 10019,
and is comprised of approximately 1,800 square feet leased at a cost of $6,450
per month. Our telephone number there is (212) 445-6262.
LITIGATION
We are not a party to any pending or threatened litigation.
CAUTIONARY STATEMENTS
If any of the following material risks occur, our business,
financial condition or results of operations would likely suffer.
RISKS RELATING TO OUR BUSINESS
WE ARE AN EMERGING COMPANY AND HAVE A HISTORY OF OPERATING LOSSES AND UNCERTAIN
FUTURE PROFITABILITY.
GlobalOptions was founded in 1998 and is still in the process of
developing its risk mitigation, investigative and global security services. We
have incurred significant operating losses since inception, including cumulative
net losses of over $2.8 million over the past three years. We also have a
working capital deficiency of $506,549 as of December 31, 2004. We expect to
incur larger losses in the future as we implement our acquisition strategy. We
cannot anticipate when or if we will achieve profitability in the future. We may
not generate sufficient revenues to meet our expenses or to operate profitably
in the future.
WE ARE A WORLDWIDE BUSINESS AND ARE THEREFORE INFLUENCED BY FACTORS AND
REGULATIONS IN MANY COUNTRIES.
We undertake our business worldwide. The occurrence of any of the
following risks could have a materially adverse effect on both the market for
our services or our ability to provide them, and/or the profits and services of
our clients; as a result, these risks could materially adversely affect the
operations and value of any of the our overseas operations:
o changes in, and difficulty in complying with, laws and
regulations of the different countries including authority to
trade or perform the services of a private security company;
o nullification, modification and renegotiation of contracts;
o reversal of current policies, including favorable tax policies,
encouraging foreign investment of foreign trade, or relating to
the use of local agents;
o restrictive actions by local governments including tariffs and
limitations on imports and exports; and
o difficulty in collecting accounts receivable and longer
collection times.
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OUR BUSINESS IS VULNERABLE TO FLUCTUATIONS IN GOVERNMENT SPENDING.
Because many of our contracts are with governmental entities, our
business is subject to certain risks, including global economic developments,
wars, political instability, changes in the tax and regulatory environments,
foreign exchange rate volatility and fluctuations in government spending. For
example, the 2005 Homeland Security Appropriations Act provided $28.9 billion in
discretionary spending for the Department of Homeland Security, $1.8 billion
more than the 2004 level of funding, which may result in increased business
opportunities for us. However, because many clients are federal, state or
municipal governmental agencies with variable and uncertain budgets, the amount
of business that we might receive from them may vary from year to year,
regardless of the perceived quality of our business.
WE MAY HAVE DIFFICULTY PURSUING OUR ACQUISITION STRATEGY AND AFFILIATES MAY FACE
POTENTIAL CONFLICTS.
We intend to grow through acquisitions. However, we may not be able
to identify suitable acquisition candidates, obtain the capital necessary to
pursue our acquisition strategy or complete acquisitions on satisfactory terms.
A number of competitors have also adopted a strategy of expanding and
diversifying through acquisitions. We will likely experience significant
competition in our effort to execute an acquisition strategy. As a result, we
may be unable to continue to make acquisitions or may be forced to pay more for
the acquisition targets than it would otherwise want to pay.
THE INTEGRATION OF ACQUIRED COMPANIES MAY BE DIFFICULT AND MAY RESULT IN A
FAILURE TO REALIZE SOME OF THE ANTICIPATED POTENTIAL BENEFITS OF SOME
ACQUISITIONS.
When companies are acquired, we may not be able to integrate or
manage these businesses to produce returns that justify the investment. Any
difficulty in successfully integrating or managing the operations of such
acquired businesses could have a material adverse effect on our business,
financial condition, results of operations or liquidity, and could lead to a
failure to realize any anticipated synergies. Our management also will be
required to dedicate substantial time and effort to the integration of any
acquisitions. These efforts could divert management's focus and resources from
other strategic opportunities and operational matters.
WE WILL FACE SUBSTANTIAL FUTURE CAPITAL REQUIREMENTS THAT WE MAY NOT BE ABLE TO
SATISFY, AND WHICH MAY CAUSE US TO DELAY OR CURTAIL OUR BUSINESS PLAN.
Our capital requirements in connection with our development, product
expansion, sales and marketing activities, and acquisition strategy will be
significant. We are not currently generating sufficient cash from our operations
to fund our strategic acquisition plan. Therefore, we are dependent on the
proceeds of the private offering and on capturing new business to continue the
development, marketing and sales of our services. We cannot be certain that we
will be able to generate sufficient cash in the future to fund our activities.
We anticipate that the net proceeds of the private offering will be sufficient
to satisfy the anticipated cash requirements of implementing our initial
acquisition strategy for 9 to 12 months, although in some acquisitions we may
use cash from the proceeds of the private offering and additional financing
and/or the issuance of shares of our capital stock to the acquisition target.
The issuance of additional shares of our capital stock would have a dilutive
effect on existing stockholders at the time of such issuance. We may have to
seek additional financing sooner than currently anticipated. We are in
preliminary discussions for additional financing, but have no current
arrangement with respect to additional financing. The inability to obtain
additional financing, when needed and on terms satisfactory to us, could have a
detrimental effect on the implementation of our business plan of growth by
acquisition. If there are no additional acquisitions after the initial two
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acquisitions have been completed, it is anticipated that we will be able to
operate without additional external funding by using our own cash flow and the
ability to borrow on our collateralized line of credit.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUES, THE LOSS OF ANY OF THESE CUSTOMERS COULD CAUSE OUR REVENUES TO DECLINE
SUBSTANTIALLY.
During each of the past two fiscal years, sales of our services to a
limited number of customers have accounted for a substantial percentage of our
total net sales. Our three largest customers accounted for approximately 48% of
our revenues for the year ended December 31, 2004 and approximately 72% of our
revenues for the year ended December 31, 2003. This concentration of customers
can cause our net sales and earnings to fluctuate from quarter-to-quarter, based
on the requirements of our customers and the timing of delivery of services.
Although the particular customers are likely to change from period to period, we
believe that large engagements by a limited number of customers will continue to
account for a substantial portion of our revenues in any fiscal period. In any
period, the unexpected loss of or decline in engagements from a major customer,
or the failure to generate significant revenues from other customers, could have
a material adverse effect on our financial results.
COMPETITIVE CONDITIONS COULD ADVERSELY AFFECT OUR BUSINESS.
We operate in a number of geographic and service markets, all of
which are highly competitive with few barriers to entry. If we are unable to
respond effectively to our competitors, some of which have greater financial
resources, our business and results of operations will be materially adversely
affected. In the risk management and security market, our competitors include
Control Risks Group Limited, ArmorGroup International plc, Kroll Inc., Toribos
GmbH and Olive Security (UK) Ltd. Many of the national and international
accounting and consulting firms, along with other companies such as FTI
Consulting, Inc., Securitas AB and its subsidiary, Pinkerton Consulting &
Investigations, Inc., Alvarez & Marsal, LLC, AlixPartners LLC, Crossroads LLC,
ChoicePoint Inc. and Applied Discovery, Inc., provide investigative, consulting
and other services which are similar to services we provide. Some of these firms
have indicated an interest in providing services similar to ours on a broader
scale and may prove to be formidable competitors if they elect to devote the
necessary resources to these competitive businesses. The national and
international accounting and consulting firms have significantly larger
financial and other resources than we have and have long-established
relationships with their clients, which also are likely to be clients or
prospective clients of our company.
OUR PROFESSIONAL REPUTATION, WHICH IS CRITICAL TO OUR BUSINESS, IS ESPECIALLY
VULNERABLE TO CIRCUMSTANCES OUTSIDE OUR CONTROL.
As a company in a client service business, we depend upon our
reputation and the individual reputations of our senior professionals to obtain
new client engagements. We obtain a substantial number of new engagements from
existing clients or through referrals from existing clients. Any factor that
diminishes our reputation or the reputations of our senior professionals may
make it more difficult to compete successfully for new engagements or to retain
existing clients and, therefore, could materially adversely affect our business.
In addition to any direct liability from any damaging events, any circumstances,
including those where we are not at fault, which might publicly damage our
goodwill, injure our reputation, or damage our business relationships may lead
to a broader materially adverse effect on our business and prospects through
loss of business, goodwill, clients, agents and employees.
21
OUR ABILITY TO SELL OUR PRODUCTS AND SERVICES AND GROW OUR BUSINESS COULD BE
SIGNIFICANTLY IMPAIRED IF WE FAIL TO RETAIN OR RECRUIT KEY PERSONNEL.
Our success will depend to a significant extent upon the abilities
and high visibility of members of our senior management including Harvey W.
Schiller, Ph.D., our Chairman and Chief Executive Officer, Neil C. Livingstone,
Ph.D., the Chief Executive Officer of GlobalOptions, our Board of Directors and
our advisory boards. The loss of the services of Dr. Schiller or Dr.
Livingstone, or any other executive officers, directors or advisors, could have
a materially adverse effect upon our business. Our future success and growth
also largely depends upon our ability to attract, motivate and retain additional
highly competent technical, management, sales and marketing personnel.
Competition for such qualified individuals is highly competitive in the global
security market, and we cannot guarantee that we will be successful in
attracting and retaining such personnel. Departure and additions of key
personnel may be disruptive to and detrimentally affect our business, operating
results and financial condition.
WE MAY BECOME SUBJECT TO SIGNIFICANT LEGAL PROCEEDINGS.
We are subject from time to time to litigation and other adverse
claims, both asserted and unasserted, incidental to our businesses, some of
which may be substantial. For example, those claims may include, but are not
limited to, damages asserted by consumers who are screened by the company,
regulatory agencies, clients, third parties and various other business-related
matters. Final resolution of these matters in the future may impact our results
of operations or cash flows.
OUR EXPOSURE IN A FUTURE LIABILITY ACTION COULD EXCEED OUR INSURANCE COVERAGE.
We may be held liable should any present or future product or
service offerings fail. We may not be able to maintain insurance at levels of
risk coverage or policy limits that we deem adequate for our activities or
guarantee that every contract contains or will contain adequate limitations on
our liability. Because of the increasing cost of liability insurance, we may not
be able to obtain sufficient amounts of insurance coverage, additional insurance
when needed or reasonably-priced insurance policies. If we are sued for any
injury caused by our business offerings, our liability could exceed our total
assets. Any claims against us, regardless of their merit or eventual outcome,
could have a detrimental effect upon our business, operating results and
financial condition.
WE MAY BE SUBJECT TO INCREASED REGULATION REGARDING THE USE OF PERSONAL
INFORMATION.
Certain data and services that we provide are subject to regulation
by various federal, state and local regulatory authorities. Compliance with
existing federal, state and local laws and regulations has not had a material
adverse effect on our results of operations or financial condition to date.
Nonetheless, federal, state and local laws and regulations in the United States
designed to protect the public from the misuse of personal information in the
marketplace, and adverse publicity or potential litigation concerning the
commercial use of such information, may increasingly affect our operations and
could result in substantial regulatory compliance expense, litigation expense
and revenue loss.
OUR INABILITY TO ACCURATELY FORECAST COSTS OF FIXED PRICE CONTRACTS COULD RESULT
IN LOWER THAN EXPECTED MARGINS AND PROFITABILITY.
When working on a fixed-price basis, we deliver our services to a
client's specifications or requirements for a particular project based on a
mutually agreed upon service level agreement. The profits of these projects are
primarily determined by our success in correctly estimating and thereafter
controlling project costs. Costs may in fact vary substantially as a result of
various factors, including underestimating costs, need for unforeseen
specialized subcontractors, difficulties with new technologies, and economic and
22
other changes that may occur during the term of the contract. If for any reason
the costs are substantially higher than expected, we may incur losses on
fixed-price contracts and our profitability on a periodic basis could be
adversely effected.
RISKS RELATED TO OUR COMMON STOCK
THERE HAS PREVIOUSLY BEEN NO ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK, AND OUR
STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE AT
WHICH SUCH SHARES WERE PURCHASED, OR AT ALL.
There has been no active public market for our common stock to date.
We have not disclosed in this Report information regarding past trading of our
common stock because we will be conducting a different type of business
following the merger. An active public market for the common stock may not
develop or be sustained.
The market price of our common stock may fluctuate significantly in
response to factors, some of which are beyond our control, including the
following:
o changes in financial estimates or investment recommendations by
securities analysts relating to our stock,
o changes in market valuations of security and risk management
service providers,
o loss of a major client,
o changes in key personnel, and
o announcements by us or our competitors of significant
contracts, acquisitions, strategic partnerships, joint ventures
or capital commitments.
The stock market in general has recently experienced extreme price
and volume fluctuations. In particular, market prices of securities of
security-related companies have experienced fluctuations that often have been
unrelated or disproportionate to the operating results of these companies.
Continued market fluctuations could result in extreme volatility in the price of
our common stock, which could cause a decline in the value of our common stock.
Price volatility might be worse if the trading volume of our common stock is
low.
BECAUSE WE BECAME PUBLIC BY MEANS OF A REVERSE MERGER, WE MAY NOT BE ABLE TO
ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.
Additional risks may exist since we became public through a "reverse
merger." Securities analysts of major brokerage firms may not provide us with
coverage since there is no incentive for brokerage firms to recommend the
purchase of our common stock. No assurance can be given that brokerage firms
will want to conduct any secondary offerings on our behalf in the future.
OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.
The SEC has adopted regulations which generally define "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to specific exemptions.
Initially, the market price of our common stock is likely to be less than $5.00
per share and therefore may be designated as a "penny stock" according to SEC
23
rules. This designation requires any broker or dealer selling these securities
to disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of
investors to sell their shares. In addition, since our common stock is currently
traded on the NASD's OTC Bulletin Board, investors may find it difficult to
obtain accurate quotations of our common stock and may experience a lack of
buyers to purchase such stock or a lack of market makers to support the stock
price.
A SIGNIFICANT NUMBER OF OUR SHARES WILL BE ELIGIBLE FOR SALE, AND THEIR SALE
COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a significant number of shares of our common stock in the
public market could harm the market price of our common stock. As additional
shares of our common stock become available for resale in the public market
pursuant to the registration of shares of common stock underlying the shares of
series A preferred stock and warrants issued in the private placement, the
supply of our common stock will increase, which could decrease its price. We
issued securities in connection with the private placement that are convertible
or exercisable into an aggregate of 6,787,500 shares of common stock. Some or
all of the shares of common stock may be offered from time to time in the open
market pursuant to Rule 144, and these sales may have a depressive effect on the
market for our shares of common stock. In general, a person who has held
restricted shares for a period of one year may, upon filing with the SEC a
notification on Form 144, sell into the market common stock in an amount equal
to the greater of 1% of the outstanding shares or the average weekly number of
shares sold in the last four weeks prior to such sale. Such sales may be
repeated once each three months, and any of the restricted shares may be sold by
a non-affiliate after they have been held two years.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTEREST OF OTHER STOCKHOLDERS.
Our officers, directors and principal stockholders control
approximately 29.2% of our currently outstanding common stock. If these
stockholders act together, they may be able to exert significant control over
our management and affairs requiring stockholder approval, including approval of
significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control and might adversely affect
the market price of our common stock. This concentration of ownership may not be
in the best interests of all our stockholders.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS FOR THE FORESEEABLE FUTURE, AND THE
LACK OF DIVIDENDS MAY HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE.
We have never declared or paid any cash dividends or distributions
on our capital stock. We currently intend to retain our future earnings to
support operations and to finance expansion and therefore we do not anticipate
paying any cash dividends on our common stock in the foreseeable future.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS AND
INDUSTRY DATA
Some of the statements under "Cautionary Statements," "Description
of Business" and elsewhere in this Report constitute "forward-looking
statements" that involve risks and uncertainties, many of which are beyond our
control. Our actual results could differ materially and adversely from those
anticipated in such forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Report.
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All statements, other than statements of historical facts, included
in this Report regarding our strategy, future operations, financial position,
estimated revenue or losses, projected costs, prospects and plans and objectives
of management are forward-looking statements. When used in this Report, the
words "will," "may," "believe," "anticipate," "intend," "estimate," "expect,"
"project," "plan" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this Report. We are under no duty to update any forward-looking statements or
other information contained in this Report. Stockholders and potential investors
should not place undue reliance on these forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements in this Report are reasonable, we cannot assure
stockholders and potential investors that these plans, intentions or
expectations will be achieved. We disclose important factors that could cause
our actual results to differ materially from our expectations under "Cautionary
Statements" and elsewhere in this Report. These cautionary statements qualify
all forward-looking statements attributable to us or persons acting on our
behalf.
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DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES AFTER THE MERGER
The following table sets forth information regarding the members of
our board of directors and our executive officers. Harvey W. Schiller, Ph.D.,
Per-Olof Loof, Daniel L. Burstein, and Ronald M. Starr became directors and
officers on June 24, 2005, the closing date of our reverse merger and private
offering transactions. John P. Bujouves was subsequently appointed to the board
of directors on June 27, 2005. All directors hold office until the next annual
meeting of shareholders and the election and qualification of their successors.
Officers are elected annually by the board of directors and serve at the
discretion of the board.
NAME AGE POSITION
---- --- --------
Harvey W. Schiller, Ph.D. 65 Chairman of the Board of Directors
and Chief Executive Officer
Per-Olof Loof 54 Vice Chairman of the Board of
Directors
Jeffrey O. Nyweide 49 Chief Financial Officer, Executive
Vice President-Corporate Development
and Secretary
Daniel L. Burstein 51 Director
Ronald M. Starr 36 Director
John P. Bujouves 43 Director
Neil C. Livingstone, Ph.D. 58 Chief Executive Officer and
Secretary of GlobalOptions, Inc.
Thomas P. Ondeck 58 President of GlobalOptions, Inc.
The principal occupations for the past five years (and, in some
instances, for prior years) of each of our directors and officers are as
follows:
HARVEY W. SCHILLER, PH.D., had been Chairman of the Board of
Directors of privately-held GlobalOptions since February 2004, and became our
Chairman and Chief Executive Officer on June 24, 2005. Mr. Schiller oversees our
New York office with a focus on our strategy and new business development. Prior
to joining GlobalOptions Dr. Schiller served as Chairman of Assante U.S. Prior
to joining Assante, he was Chairman and Chief Executive Officer of YankeeNets.
His previous experience includes President of Turner Sports, Inc., Executive
Director and Secretary General of the United States Olympic Committee and
Commissioner of the Southeastern Conference. Prior to joining the United States
Olympic Committee, Dr. Schiller served for more than 25 years in the United
States Air Force, achieving the rank of Brigadier General. Dr. Schiller
currently is acting Chairman of the Management Committee for New York City's
2012 Olympic Bid Committee in addition to several national organizations and
corporate boards. Dr. Schiller is a partner in The QuanStar Group, LLC, a
management consulting firm in New York.
PER-OLOF LOOF had been Vice Chairman of the Board of Directors of
privately-held GlobalOptions since August 2004, and became our Vice Chairman on
June 24, 2005. Mr. Loof is also the Chief Executive Officer and a Director of
Kemet Corporation, a standardized-components supplier in Greenville, South
Carolina. Mr. Loof has significant experience in acquisition integration efforts
through past positions at Sensormatic Electronics Corporation, where he was
President and Chief Executive Officer from 1999 until its acquisition by Tyco
International, Ltd. in 2001. Prior to Sensormatic, Mr. Loof was Senior Vice
26
President at NCR Corporation and Chief Executive Officer of AT&T ISTEL. He also
worked for 12 years at Digital Equipment Corporation as Vice President of Sales
and Marketing. Mr. Loof is a partner in The QuanStar Group, LLC.
JEFFREY O. NYWEIDE had been Chief Financial Officer and Executive
Vice President-Corporate Development of privately-held GlobalOptions since April
2003, and became our Chief Financial Officer, Executive Vice President of
Corporate Development and Secretary on June 24, 2005. Mr. Nyweide has been a
successful entrepreneur and executive for the past 20 years. Before joining
GlobalOptions Mr. Nyweide was a Venture Partner with Millennium Technology
Ventures, L.P., a New York-based venture capital firm. Mr. Nyweide co-founded
two United States-based technology companies; from 1987 to 2000 he co-founded
and then grew Dataware Technologies, Inc., a software and services company, as
Director, President and Chief Operating Officer and took the company public. In
1995, he helped found Northern Light Technology LLC. Mr. Nyweide has significant
experience in mergers and acquisitions, finance, and operations as well as with
establishing international business in Europe and Asia from prior experience as
a founder and managing director of Quantum Management in Greenwich, Connecticut
and Munich, Germany. In this role he worked with European and United States
investment banks and corporations developing merger and acquisition strategies
as well as strategic alliances. His previous experience in the services and
solutions business also includes sales, marketing and operating experience as an
executive with The Service Bureau Company, a subsidiary of Control Data
Corporation, in Chicago, Atlanta and Greenwich.
DANIEL L. BURSTEIN had been a director of privately-held
GlobalOptions since November 1998, and became a member of our Board of Directors
on June 24, 2005. Since January 2000, Mr. Burstein has served as the Managing
Partner of Millennium Technology Ventures Advisors, LLC, the general partner of
Millennium Technology Ventures, L.P., a venture capital fund currently focused
on late stage and post-public technology investments. Prior to founding
Millennium, Mr. Burstein served as Chief Investment Officer for PS Capital
Holdings, L.P. and PS Capital Ventures, L.P., the predecessor funds of
Millennium. From 1989 to March 2000, Mr. Burstein served as senior advisor at
The Blackstone Group, a private merchant bank. Mr. Burstein is the author of
five books on new technology trends and global economic issues, including Road
Warriors, a 1995 book about the birth of digital media and the Internet. Mr.
Burstein has been a forum fellow at the World Economic Forum in Davos and has
been honored many times for his books and journalistic work, including awards
from the Overseas Press Club and Sigma Delta Chi.
RONALD M. STARR had been a director of privately-held GlobalOptions
since November 1998, and became a member of our Board of Directors on June 24,
2005. Mr. Starr is currently a Managing Director at Starr & Company, LLC, an
accounting and business management firm for high net worth individuals. Mr.
Starr is a former General Partner of Millennium Technology Ventures, L.P. a
venture capital fund focusing on technology and Internet-related companies, and
is the Chief Financial Officer and General Counsel of the venture capital funds
PS Capital Holdings, L.P. and PS Capital Ventures, L.P., where his duties have
included negotiating and structuring the funds' venture capital investments.
Prior to working at Millennium Technology Ventures, PS Capital and Starr &
Company, Mr. Starr was an attorney in the tax department at Proskauer Rose LLP,
a New York City law firm. Mr. Starr received a B.A. degree in Economics from
Tufts University and a J.D. degree from New York University School of Law.
JOHN P. BUJOUVES became a member of our Board of Directors on June
27, 2005. Mr. Bujouves is the President of Bayshore Asset Management Inc., and
the Chief Executive Officer of Integris Funds Limited, a Cayman Islands based
mutual fund company. Mr. Bujouves is a director Nationwide Credit Inc., one of
the ten largest account receivable companies in the United States. He also
serves as Chairman of Globacor Capital Inc., a Canadian private equity
investment firm, Bayshore Bank & Trust Corp., one of Barbados' largest private
banks, and the Ontario Arthritis Society. Mr. Bujouves' past experiences include
27
directing CIBC's International Private Banking group in Canada, where he
provided leadership and technical expertise to a professional consulting group
on the uses of international banking and trust services. Prior to that, as
Managing Partner for Royal Trust International, Mr. Bujouves launched Royal
Trust Corporation's first two locations in the United States.
KEY EMPLOYEES
NEIL C. LIVINGSTONE, PH.D., has been Chief Executive Officer of
GlobalOptions since November 1998. Dr. Livingstone has spent more than two
decades advising clients regarding a wide array of difficult and complex
problems ranging from the prevention of industrial espionage to conducting
internal investigations, suppressing the theft of intellectual property,
advising corporations on political and economic risks, protecting corporate
leaders and celebrities, and recovering hostages and kidnap victims. He is a
familiar face on the nation's newscasts as a commentator on terrorism,
intelligence, and other national security issues. A veteran of more than 1,000
television appearances and the author of nine books on terrorism, Dr.
Livingstone has delivered nearly 500 major addresses, both in the United States
and abroad, including appearances before the Congress of the United States.
THOMAS P. ONDECK has been President of GlobalOptions since January
1999, where he heads multi-disciplinary crisis management teams comprised of
investigatory, legal, government relation and public relations experts. He has
dealt with national and international crises, including assisting companies
besieged by activist and hate groups, plaintiffs' product liability litigation
campaigns, the financial impact of violence in Southeast Asia, threats against
multinational businesses by organized criminal elements in the former Soviet
Union, extortive litigation involving misuse of the United States civil RICO
statute by business competitors and asset looting in Latin America. Mr. Ondeck
also heads our investigations and business intelligence practice areas. He
supervises our litigation support investigations for law firms. In so doing, Mr.
Ondeck's substantial experience as a litigator enables him to quickly reach the
core of clients' investigative needs, and ensure that their needs are fully met.
Mr. Ondeck also spearheads our investigative services for corporations,
including due diligence investigations in connection with corporate
acquisitions, and internal corporate investigations into potential theft of
assets, identity misrepresentation and fraud. Mr. Ondeck was previously a
partner in two international law firms and served in the White House as an aide
to former President Richard M. Nixon.
ADVISORY BOARDS
In addition to our management team, we utilize a group of advisors
to provide assistance with corporate and governmental contacts, as well as
business development. Our senior advisory board and business advisory board are
expected to meet with both management and the Board of Directors at least four
times a year.
Our current senior advisory board includes the following
individuals:
FRANCES J. COOK, former Ambassador to Burundi in 1980 and the
youngest career officer ever to occupy that position; former Ambassador to
Cameroon; former Ambassador to the Sultanate of Oman and the first female
Ambassador from any country in the Arabian Gulf; former Deputy Assistant
Secretary of State for Refugee Programs (1986); and former Deputy Assistant
Secretary of State for Political-Military Affairs (1993). She currently serves
as an international business consultant in Washington, D.C.
ADMIRAL WILLIAM CROWE, former United States Ambassador to the United
Kingdom; former Commander of the United States Naval Forces in the Persian Gulf;
former Commander of NATO (North Atlantic Treaty Organization) forces in Southern
Europe; and President Reagan's Chairman of the Joint Chiefs of Staff and
Chairman of the President's Foreign Intelligence Advisory Board.
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HONORABLE ROBERT L. LIVINGSTON, former House Member (18 years);
former Chairman of the Appropriations Committee; and elected to serve as
Speaker-Designate for the 106th Congress, but retired in 1999. After leaving
office, he established the Livingston Group, a top government relations company
in Washington, D.C. Former Assistant United States Attorney from 1970 to 1973;
former Deputy Chief of the Criminal Division of the United States Attorney's
Office; former Chief Special Prosecutor; former Chief of the Armed Robbery
Division of the Orleans Parish District Attorney's Office; and former Chief
Prosecutor for the Organized Crime Unit of the Louisiana Attorney General's
Office.
SIR RICHARD NEEDHAM, former United Kingdom Minister for Trade and
Industry; former Minister in Northern Ireland for Health and Social Security,
Transport, Energy, Employment, Trade & Industry, and Environment; former Member
of Parliament for Chippenham. Sir Richard Needham is now involved in a number of
businesses, including as Deputy Chairman of Dyson Appliances Ltd. He is the
author of "Honorable Member" and "Battling for Peace."
HONORABLE WILLIAM S. SESSIONS, former Director of the Federal Bureau
of Investigation; former Chief of the Government Operations Section of the
Department of Justice; and former United States Attorney for the Western
District of Texas. Currently serves on the Texas Anti-Crime and Homeland
Security Task Force.
RODNEY SLATER, former United States Secretary of Transportation;
former head of the Federal Highway Administration; former Director of Government
Relations at Arkansas State University; former Executive Assistant for Economic
and Community Programs for then-Governor Bill Clinton; former Governor's Special
Assistant for Community and Minority Affairs; former Assistant Attorney
General-Litigation Division of the Arkansas State Attorney General's Office; and
former chairman of the Arkansas State Highway Commission. Mr. Slater joined the
law firm Patton Boggs LLP in 2001 as a partner in its public policy practice
group, and head of its transportation practice group in Washington, D.C.
HONORABLE WILLIAM H. WEBSTER, former Director of the Central
Intelligence Agency (1987-91); former Director of the Federal Bureau of
Investigation (1978-87); former United States Attorney for the Eastern District
of Missouri; former member of the Missouri Board of Law Examiners; former judge
of the United States District Court for the Eastern District of Missouri; and
former judge of the United States Court of Appeals for the Eighth Circuit. Judge
Webster was awarded the Presidential Medal of Freedom and the National Security
Medal.
HONORABLE R. JAMES WOOLSEY, former Director of the Central
Intelligence Agency (1993-95); former member of the National Commission on
Terrorism; former Undersecretary of the Navy; and former General Counsel to the
United States Senate Committee on Armed Services.
Our current business advisory board includes the following
individuals:
ARNOLD BURNS, former Associate and Deputy Attorney General in the
United States Department of Justice. Mr. Burns is the Chairman of The QuanStar
Group, LLC.
JAMES CANNAVINO, former President and Chief Executive Officer of
Perot Systems Corporation; 32 years with International Business Machines
Corporation in strategy positions. Mr. Cannavino is a partner in The QuanStar
Group, LLC.
HAROLD CHEFITZ, former head of healthcare investment banking at
Prudential Securities Incorporated and Boles, Knop & Company, LLC. Mr. Chefitz
is a partner in The QuanStar Group, LLC.
29
SANFORD CLIMAN, Managing Director of Entertainment Media Ventures
LLC.
ELLIOTT H. COLE, Partner, Patton Boggs LLP, a Washington D.C. law
firm; trustee of Boston University.
MARK SIRANGELO, Founder and Chief Executive Officer of The QuanStar
Group, LLC; former senior officer at Natexis Bleichroeder Inc.
ALLAN TESSLER, former Chairman and Chief Executive Officer of JNet
Enterprises, Inc.; former Co-Chief Executive Officer of Data Broadcasting
Corporation. Mr. Tessler is a partner in The QuanStar Group, LLC.
MEETINGS OF OUR BOARD OF DIRECTORS
Our board of directors held no meetings during the year ended
December 31, 2004.
BOARD COMMITTEES
AUDIT COMMITTEE. We intend to establish an audit committee of the
board of directors, which will consist of independent directors. The audit
committee's duties would be to recommend to our board of directors the
engagement of independent auditors to audit our financial statements and to
review our accounting and auditing principles. The audit committee would review
the scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee would at all times be composed
exclusively of directors who are, in the opinion of our board of directors, free
from any relationship which would interfere with the exercise of independent
judgment as a committee member and who possess an understanding of financial
statements and generally accepted accounting principles.
COMPENSATION COMMITTEE. We intend to establish a compensation
committee of the board of directors. The compensation committee would review and
approve our salary and benefits policies, including compensation of executive
officers. The compensation committee would also administer our 2004
Non-Statutory Stock Option Plan and, when adopted, our 2005 Stock Option Plan,
and recommend and approve grants of stock options under both plans.
DIRECTOR COMPENSATION
Each member of our board of directors will receive an annual stock
option or restricted stock grant, plus additional stock options or restricted
stock for each board meeting and each meeting of a committee of which such
director is a member attended in person. All stock options will be exercisable
at the then prevailing market price on the date of grant. We have not determined
the exact number of options to be granted in accordance with this plan. No other
fees will be paid to members of our board. Before June 24, 2005, our directors
were not compensated for their services as directors.
30
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No executive officer, present director, proposed director or any
member of these individuals' immediate families or any corporation or
organization with whom any of these individuals is an affiliate is or has been
indebted to us since the beginning of our last fiscal year.
FAMILY RELATIONSHIPS
There are no family relationships among our directors and executive
officers.
LEGAL PROCEEDINGS
As of the date of this Report, there is no material proceeding to
which any of our directors, executive officers, affiliates or stockholders is a
party adverse to us.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth, for the years
indicated, all cash compensation paid, distributed or accrued for services,
including salary and bonus amounts, rendered in all capacities by Creative
Solutions' and GlobalOptions' chief executive officer and all other executive
officers who received or are entitled to receive remuneration in excess of
$100,000 during the stated periods.
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SUMMARY COMPENSATION TABLE
Annual Long-term
Compensation Compensation
---------------------------------------------------
Awards Payouts
-----------------------
Securities
Underlying LTIP All Other
Fiscal Salary Bonus Options/ Payouts Compensation
Name and Principal Position Year ($) ($) SARs (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------
Carla L. Santia (1) 2004 $ 43,465 -- -- -- --
Former President, Secretary, 2003 $ 96,997 -- -- -- --
CEO, CFO, Chief Accounting 2002 -- -- -- -- --
Officer and Chairwoman
Harvey W. Schiller, Ph.D 2004 180,762 -- 2,000,000 --
Chairman and Chief Executive 2003 -- -- -- --
Officer(2) 2002 -- -- -- --
Neil C. Livingstone, Ph.D 2004 270,000 50,000 200,000 --
Chief Executive Officer(3) 2003 260,000 175,000 200,000 --
2002 250,000 -- 600,000 --
Thomas P. Ondeck 2004 259,632 50,000 200,000
President(4) 2003 250,016 175,000 200,000
2002 240,000 -- 600,000
Jeffrey O. Nyweide 2004 300,000 -- 25,000 --
Chief Financial Officer and 2003 225,000 -- -- --
Executive Vice President 2002 225,000 -- -- --
- ------------------
(1) Ms. Santia joined the predecessor to Creative Solutions in 1998 and
resigned as an officer and director of Creative Solutions on June 24,
2005.
(2) Dr. Schiller was appointed Chairman and Chief Executive Officer of our
company on June 24, 2005, in connection with the closing of the merger.
(3) Dr. Livingstone is the Chief Executive Officer and Secretary of
GlobalOptions.
(4) Mr. Ondeck is the President of GlobalOptions.
OPTIONS/SAR GRANTS AND FISCAL YEAR END OPTION EXERCISES AND VALUES
In April 2004, the board of directors and stockholders of Creative
Solutions adopted our 2004 Non-Statutory Stock Option Plan. Creative Solutions
made no stock option or SAR grants in the last fiscal year. GlobalOptions Group
intends to assume all of GlobalOptions' obligations under its outstanding stock
options and intends to reserve 6,500,000 shares of GlobalOptions Group common
stock for stock options issuable under a proposed 2005 Stock Option Plan. At the
time of the merger, GlobalOptions had outstanding stock options to purchase
4,450,721 shares of common stock, which outstanding options will become stock
options to purchase 2,618,071 shares of common stock of GlobalOptions Group,
after giving effect to the merger exchange ratio.
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EMPLOYMENT AND CONSULTING AGREEMENTS
Prior to the closing of the merger, GlobalOptions had employment
agreements with Harvey W. Schiller, Ph.D., its executive Chairman of the Board,
Neil C. Livingstone, Ph.D., its Chief Executive Officer, and Thomas P. Ondeck,
its President. Following the closing of the merger, we assumed Dr. Schiller's
employment agreement. Following the closing of the merger, Dr. Livingstone and
Mr. Ondeck continued in their current positions with GlobalOptions, which is a
wholly-owned subsidiary of our company.
Dr. Schiller entered into an employment agreement with GlobalOptions
in January 2004, which extends through January 2007, subject to automatic
one-year extensions unless either party provides notice to the other party of
its intention not to renew the agreement. The employment agreement provides that
Dr. Schiller will devote a substantial amount of his business time to the
business. The employment agreement provides for an annual base salary of
$200,000 with annual merit increases to be determined by the Compensation
Committee of the Board of Directors, and an annual bonus of at least four times
his base salary, payable in cash, equity or a combination thereof, as determined
by the Compensation Committee of the Board of Directors based on mutually-agreed
objectives established at the beginning of each annual period. In the event of
death or disability, Dr. Schiller (or his estate) will be entitled to salary and
pro rata bonus until termination, and 90 days from termination to exercise
vested options; unvested options will be forfeited. If terminated for cause, Dr.
Schiller will forfeit all unexercised options. In the event Dr. Schiller
terminates for good reason or the employment agreement is terminated without
cause, 50% of his unvested stock options will vest and all vested options will
remain exercisable for a period of 90 days from termination. The employment
agreement contains non-compete and non-solicitation provisions for 12 months
following termination, as well confidentiality provisions. In the event of a
change of control of the company, the employment agreement provides for the
vesting of all unvested options.
Dr. Schiller's employment agreement was assigned to us effective as
of June 27, 2005. With the successful consummation of the merger, we have agreed
to assume all of GlobalOptions's rights and responsibilities under the
employment agreement. Pursuant to the assignment, the following modifications,
among others, were made to the employment agreement: (i) Dr. Schiller's salary
was increased to the annual rate of $300,000 retroactive to January 1, 2005,
(ii) all 2,010,500 of Dr. Schiller's stock options in GlobalOptions (1,182,647
options in our company post-merger) were confirmed to vest immediately upon the
consummation of the merger, (iii) Dr. Schiller agreed to forego receiving any
2005 annual bonus that he is entitled to under the employment agreement, and
(iv) we and Dr. Schiller agree to negotiate in good faith bonus arrangements
after December 31, 2005.
Dr. Livingstone and Mr. Ondeck entered into employment agreements in
January 2002, which extend through January 2007, subject to automatic one-year
extensions unless either party provides notice to the other party of its
intention not to renew the agreement. Dr. Livingstone and Mr. Ondeck serve as
Chief Executive Officer and President, respectively, of GlobalOptions and
perform such other duties and responsibilities as the Board of Directors may
assign, and will devote their full business time to GlobalOptions. The
employment agreements provide for annual base salaries of $260,000 and $250,000
for Dr. Livingstone and Mr. Ondeck, respectively, and annual bonuses based on
goals mutually established with the Compensation Committee of the Board of
Directors. Under the employment agreements, GlobalOptions maintains "key-man"
life insurance policies on the lives of each executive with a face amount of
$500,000. The employment agreements may be terminated for cause by
GlobalOptions, upon the death or disability of the executive, or upon 30-days'
notice by either party. In the event GlobalOptions terminates the employment
agreements without cause, it is required to pay the executives the lesser of
their compensation and benefits for 12 months or the remaining term of the
33
agreement. The employment agreements contain non-compete and non-solicitation
provisions for 12 months following termination, as well as confidentiality
provisions.
During 2004, the aggregate amount of compensation paid by
GlobalOptions to its executive officers as a group was $1,141,632.
2004 NON-STATUTORY STOCK OPTION PLAN
In April 2004, the board of directors and stockholders of Creative
Solutions adopted and approved the 2004 Non-Statutory Stock Option Plan (the
"2004 Plan"), which provided for grants of non-statutory, or non-qualified,
stock options to purchase up to 1,500,000 shares of our common stock.
Non-qualified stock options do not meet certain requirements of the Internal
Revenue Service as compared to incentive stock options which meet the
requirements of Section 422 of the Internal Revenue Code. Nonqualified options
have two disadvantages compared to incentive stock options. One is that
recipients have to report taxable income at the time that they exercise the
option to buy stock, and the other is that the income is treated as
compensation, which is taxed at higher rates than long-term capital gains. The
principal terms of the 2004 Plan are summarized below.
The purpose of the 2004 Plan is to provide directors, officers and
employees of, as well as consultants, attorneys and advisors to our company and
our subsidiaries, if any, with additional incentives by increasing their
ownership interest in our company. The board of directors believes that our
policy of granting stock options to such persons will provide us with a
potential critical advantage in attracting and retaining qualified candidates.
In addition, the 2004 Plan is intended to provide us with maximum flexibility to
compensate plan participants. We believe that such flexibility will be an
integral part of our policy to encourage employees, non-employee directors,
consultants, attorneys and advisors to focus on the long-term growth of
stockholder value. The board of directors believes that important advantages to
our company are gained by an option program such as the 2004 Plan which includes
incentives for motivating our employees, while at the same time promoting a
closer identity of interest between employees, non-employee directors,
consultants, attorneys and advisors on the one hand, and the stockholders on the
other.
Directors, officers and other employees of our company and our
subsidiaries are eligible to participate in the 2004 Plan. Options in the form
of non-qualified stock options may also be granted to directors who are not
employed by us and consultants, attorneys and advisors to us providing valuable
services to us and our subsidiaries. In addition, individuals who have agreed to
become an employee of, director of or an attorney, consultant or advisor to us
and/or our subsidiaries are eligible for option grants, conditional in each case
on actual employment, directorship or attorney, advisor and/or consultant
status. The 2004 Plan provides for the issuance of non-qualified stock options
only, which are not intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code, as amended. Further,
non-qualified stock options have two disadvantages compared to incentive stock
options in that recipients of non-qualified stock options must report taxable
income at the time of option exercise and income from is treated as compensation
which is taxed at higher rates than long-term capital gains.
Our board of directors or a compensation committee (once
established) will administer the 2004 Plan with the discretion generally to
determine the terms of any option grant, including the number of option shares,
exercise price, term, vesting schedule and the post-termination exercise period.
Notwithstanding this discretion (i) the term of any option may not exceed 10
years and (ii) an option will terminate as follows: (a) if such termination is
on account of termination of employment for any reason other than death, without
cause, such options shall terminate one year thereafter; (b) if such termination
is on account of death, such options shall terminate 15 months thereafter; and
34
(c) if such termination is for cause (as determined by the board of directors
and/or compensation committee), such options shall terminate immediately. Unless
otherwise determined by the board of directors or compensation committee, the
exercise price per share of common stock subject to an option shall be equal to
no less than 10% of the fair market value of the common stock on the date such
option is granted. No NSO shall be assignable or otherwise transferable except
by will or the laws of descent and distribution or except as permitted in
accordance with SEC Release No. 33-7646 as effective April 7, 1999.
The 2004 Plan may be amended, altered, suspended, discontinued or
terminated by the board of directors without further stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the common stock is then
listed or quoted. Thus, stockholder approval will not necessarily be required
for amendments which might increase the cost of the 2004 Plan or broaden
eligibility except that no amendment or alteration to the 2004 Plan shall be
made without the approval of stockholders which would:
o decrease the option price (except as provided in paragraph 9 of
the 2004 Plan) or change the classes of persons eligible to
participate in the 2004 Plan, or
o extend the option period, or
o materially increase the benefits accruing to 2004 Plan
participants, or
o materially modify 2004 Plan participation eligibility
requirements, or
o extend the expiration date of the 2004 Plan.
Unless otherwise indicated the 2004 Plan will remain in effect for a
period of ten years from the date adopted unless terminated earlier by the board
of directors except as to non-qualified stock options then outstanding, which
shall remain in effect until they have expired or been exercised. No options
have been issued or are outstanding under the 2004 Plan as of December 31, 2004.
2005 STOCK OPTION PLAN
GlobalOptions Group intends to assume all of GlobalOptions'
obligations under its outstanding stock options and intends to reserve 6,500,000
shares of GlobalOptions Group common stock for stock options issuable under a
proposed 2005 Stock Option Plan (the "2005 Plan"). At the time of the merger,
GlobalOptions had outstanding stock options to purchase 4,450,721 shares of
common stock, which outstanding options will become stock options to purchase
2,618,071 shares of common stock of GlobalOptions Group, after giving effect to
the merger exchange ratio. Following is a summary of the proposed terms of the
2005 Plan.
The purpose of the 2005 Plan will be to attract, retain and motivate
key employees, directors and, on occasion, consultants, by providing them with
stock options. Stock options granted under the 2005 Plan may be either incentive
stock options, as defined in Section 422A of the Internal Revenue Code of 1986,
or non-qualified stock options. We intend to reserve 6,500,000 shares of common
stock for issuance under the 2005 Plan.
The 2005 Plan will be administered by the Compensation Committee of
the Board of Directors, or by the Board of Directors as a whole. The Board of
Directors will have the power to determine the terms of any stock options
granted under the 2005 Plan, including the exercise price, the number of shares
subject to the stock option and conditions of exercise. Stock options granted
under the 2005 Plan will generally be not transferable and will be exercisable
during the lifetime of the optionee only by such optionee. The exercise price of
35
all incentive stock options granted under the 2005 Plan must be at least equal
to the fair market value of the shares of common stock on the date of the grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of the company's stock, the exercise price of any
incentive stock option granted must be equal to at least 110% of the fair market
value on the grant date.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GlobalOptions is a party to an advisory agreement with The QuanStar
Group, LLC, pursuant to which QuanStar renders strategic and consulting services
to GlobalOptions, particularly in the areas of corporate finance and strategic
acquisitions. In addition to paying QuanStar a monthly retainer of $15,000,
GlobalOptions issued QuanStar a warrant to purchase 300,000 shares of its common
stock and has agreed to pay QuanStar certain success and performance fees for
future acquisitions and financings. No such fees were due in connection with the
merger or the private offering. The advisory agreement was entered into as of
August 2004 and has an initial term of 24 months renewing automatically for
successive one-year periods, unless terminated by either party. GlobalOptions
has also issued a $250,000 convertible note to QuanStar. QuanStar converted its
convertible note into shares of common stock of GlobalOptions prior to the
closing of the private offering. QuanStar received 615,215 shares of common
stock in connection with the conversion. Harvey W. Schiller, Ph.D., our Chairman
and Chief Executive Officer, and Per-Olof Loof, our Vice Chairman of the Board,
are partners in QuanStar. In addition, on our current business advisory board
are Arnold Burns, Chairman of QuanStar, Mark Sirangelo, Founder and Chief
Executive Officer of QuanStar, and James Cannavino, Harold Chefitz and Allan
Tessler, partners in QuanStar.
Prior to the merger, we had our principal offices located at 32C
Hadley Village Road, South Hadley, Massachusetts in office space provided to us
by Carla L. Santia, our former President and Chief Executive Officer and
Director, at no cost. There was no written lease agreement.
From time to time, Ms. Santia made short-term interest-free advances
to us. No amounts were outstanding at December 31, 2004 or 2003. During 2004 and
2003, loans amounted to $33,403 and $11,900, respectively, all of which have
been fully repaid.
Upon incorporation in April 2004, Creative Solutions issued
5,633,000 shares of common stock to Ms. Santia, and 60,000 shares to Mary E.
Lawler, our former Treasurer and Director, all valued at $.001 per share and all
in exchange for the business of Carla Santia & Associates.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES
THE PRIVATE PLACEMENT
In connection with the merger, we completed the closing of a private
placement of a total of 7,500 units, each unit consisting of one share of our
series A convertible preferred stock, par value $.001 per share, and a
detachable, transferable warrant to purchase shares of our common stock, at a
purchase price of $1,000 per unit, to accredited investors pursuant to the terms
of a Confidential Private Offering Memorandum, dated April 18, 2005, as
supplemented. Each share of series A preferred stock is initially convertible
into 500 shares of common stock at any time. Each warrant entitles the holder to
purchase 125 shares of common stock at an exercise price of $2.50 per share
through June 24, 2009, subject to certain redemption provisions. We received
gross proceeds from the private placement of $7,500,000.
The private placement was made solely to "accredited investors," as
that term is defined in Regulation D under the Securities Act of 1933. None of
the units, warrants or the series A preferred stock, or shares of our common
36
stock underlying such securities were registered under the Securities Act of
1933, or the securities laws of any state, and were offered and sold in reliance
on the exemption from registration afforded by Section 4(2) and Regulation D
(Rule 506) under the Securities Act of 1933 and corresponding provisions of
state securities laws, which exempts transactions by an issuer not involving any
public offering.
We expect to use a significant portion of net proceeds of the
private placement for acquisition funding. A lesser portion of the net proceeds
will be used for general and administrative expenses including SEC compliance
and related costs, sales and marketing, and capital marketing initiatives.
We believe that the net proceeds from the private placement
available for our working capital will be sufficient to sustain our operating
expenses for approximately 9 to 12 months after the initial closing of the
private placement. We may need to seek additional sources of financing,
including equipment financing and debt and equity financing, within the next 9
to 12 months, depending on the availability of cash flow at that time, and our
success in further identifying and closing acquisitions. Any additional equity
financing will result in dilution to the percentage ownership of our
stockholders. There is no assurance that we will be able to obtain additional
financing when it is needed, or that such financing, if available, can be
obtained on terms favorable to us and our stockholders.
Brookshire Securities Corporation served as placement agent in
connection with the private placement. The placement agent received a cash fee
in the aggregate of $200,000, four-year warrants to purchase 150,000 shares of
our common stock at an exercise price of $2.00 per share, and four-year warrants
to purchase an additional 350,000 shares of common stock at an exercise price of
$2.50 per share on terms which are identical to those warrants included in the
units.
Verus International Group served as advisor to GlobalOptions on the
structuring and execution of the merger. In connection with the identification
and structuring of the merger, and effective as of the closing of the merger, we
paid Verus or its designees a stock fee equal to 145,000 shares of common stock,
a warrant fee equal to 396,095 cashless four-year warrants to purchase our
common stock exercisable at $2.00 per share, and a warrant fee equal to
1,053,905 warrants to purchase our common stock exercisable at $2.50 per share
on terms which are identical to those warrants included in the units.
Our placement agent entered into a selected dealer agreement with
Starboard Capital Markets, LLC, a registered broker-dealers for the sale of
certain of the units. Pursuant to the form of selected dealer agreement, for
units sold by the selected dealer which were received and accepted by us and the
placement agent, Starboard Capital received (i) a cash fee of $7,500 and (ii)
warrants to purchase 150,000 shares of our common stock. These warrants are
comprised of (i) warrants to purchase 42,000 shares of common stock with an
exercise price equal to $2.00 per share, exercisable for a four-year period
commencing on the date of issuance, with cashless exercise features, and (ii)
warrants to purchase 108,000 shares of common stock with an exercise price equal
to $2.50 per share, exercisable for a four-year period commencing on the date of
issuance, with features otherwise identical to the warrants sold in the private
placement. Starboard Capital's warrants have the same registration rights as
those afforded to investors in the private placement. With regard to sales by
Starboard Capital, we reimbursed in full the placement agent for the cash or
warrant fees that the placement agent paid to Starboard Capital pursuant to the
selected dealer agreement.
We also paid actual, reasonable and necessary out-of-pocket expenses
incurred by the placement agent and Verus at closing, including, but not limited
to, legal, accounting, printing, delivery and travel costs, of $300,000.
37
We have agreed to engage Verus for a period of 24 months following
the closing of the merger and private offering to provide capital markets
advisory services to us at a monthly rate of $10,000, payable 50% in cash and
50% in common stock at the then-current market value. The cash portion of the
consulting fee will be offset directly against funds set aside for capital
markets initiatives.
SERIES A CONVERTIBLE PREFERRED STOCK
GENERAL. The following description of the series A convertible
preferred stock is qualified in its entirety by reference to the form of
Certificate of Designation fixing the rights, powers and privileges of the
series A preferred stock, a copy of which is attached to this Report as an
exhibit.
CONVERSION. Holders of series A preferred stock will be entitled at
any time to convert their shares of series A preferred stock into common stock,
without any further payment therefor. Each share of series A preferred stock is
initially convertible into 500 shares of common stock. The number of shares of
common stock issuable upon conversion of the series A preferred stock is subject
to adjustment upon the occurrence of certain events, including, among others, a
stock split, reverse stock split or combination of our common stock; an issuance
of common stock or other securities of our company as a dividend or distribution
on our common stock; a reclassification, exchange or substitution of our common
stock; or a capital reorganization of our company. In the event that we issue
any shares of common stock or common stock equivalents in a private placement,
secondary offering or shelf offering for cash consideration at a price less than
$2.00 per share of common stock, the conversion rate will be that number of
shares of common stock equal to $1,000 divided by the price per share at which
we issue common stock (the "Denominator"), but in no event will the Denominator
be less than $.765 per share.
VOTING RIGHTS. Holders of series A preferred stock are entitled to
vote their shares on an as-if-converted to common stock basis, and will vote
together with the holders of the common stock, and not as a separate class.
Holders of series A preferred stock will also have any voting rights to which
they are entitled by law.
LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of our company, holders of series A
preferred stock will be entitled to receive out of assets of our company
available for distribution to our shareholders, before any distribution is made
to holders of our common stock, liquidating distributions in an amount equal to
$1,000 per share. After payment of the full amount of the liquidating
distributions to which the holders of the series A preferred stock are entitled,
holders of the series A preferred stock will receive liquidating distributions
pro rata with holders of common stock, based on the number of shares of common
stock into which the series A preferred stock is convertible at the conversion
rate then in effect.
REDEMPTION. The series A preferred stock may not be redeemed by us
at any time.
DIVIDENDS. Holders of series A preferred stock will not be entitled
to receive any dividends, except to the extent that any dividends are declared
on our common stock, in which case holders of series A preferred stock will be
entitled to receive such dividends on an as-if-converted basis.
COMMON STOCK
The holders of our common stock are entitled to one vote per share.
Our certificate of incorporation does not provide for cumulative voting. The
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of legally available funds.
However, the current policy of the Board of Directors is to retain earnings, if
any, for the operation and expansion of our company. Upon liquidation,
38
dissolution or winding-up of our company, the holders of common stock are
entitled to share ratably in all assets of our company which are legally
available for distribution, after payment of or provision for all liabilities
and the liquidation preference of any outstanding series A preferred stock. The
holders of common stock have no preemptive, subscription, redemption or
conversion rights. All outstanding shares of common stock are, and the common
stock reserved for issuance upon conversion of the series A preferred stock and
exercise of the warrants will be, when issued, fully-paid and non-assessable.
WARRANTS (SERIES A & B)
Each warrant, of which 937,500 of the Series A were issued to
investors and 1,511,905 of the Series B were issued to the placement agent and
advisors, entitles the holder thereof to purchase 125 shares of common stock at
an exercise price of $2.50 per share from the date of issuance until the fourth
anniversary thereof. These warrants also share the following features:
REDEMPTION. We may call the warrants (i) beginning 15 months after
the closing of the private placement, or June 24, 2006, at a rate of 25% per
quarter if at any time during such quarter the 30-day trailing average stock
price is greater than $4.00 per share.
TRANSFER, EXCHANGE AND EXERCISE. The warrants may be exercised upon
surrender of the certificate therefor on or prior to the expiration date (as
explained below) at our offices with the form of "Subscription Form" on the
reverse side of the warrant certificate filled out and executed as indicated,
accompanied by payment (in the form of certified or cashier's check payable to
the order of GlobalOptions Group, Inc.) of the full exercise price for the
number of warrants being exercised.
ADJUSTMENTS. In the event that we issue any shares of our common
stock or common stock equivalents following in a private placement, secondary
offering or shelf offering for cash consideration at a price less than $2.50 per
share of common stock, (i) the number of shares of common stock for which each
warrant is exercisable will be adjusted to equal that number which is the result
of the original number of shares of common stock for which each warrant is
exercisable multiplied by $2.50 and divided by the price per share at which we
issue such common stock, but in no event will the denominator be less than $.765
per share, and (ii) the exercise price of each warrant shall be reduced to equal
the price per share at which we issue such common stock or common stock
equivalents, but in no event will the exercise price be reduced to less than
$.765 per share. Additionally, the warrants contain provisions that protect the
holders thereof against dilution by adjustment of the purchase price in certain
events, such as stock dividends, stock splits, and other similar events.
WARRANTS (SERIES C)
Each warrant, of which 588,095 were issued to the placement agent
and advisors, entitles the holder thereof to purchase 125 shares of common stock
at an exercise price of $2.00 per share from the date of issuance until the
fourth anniversary thereof. These warrants also share the following features:
TRANSFER, EXCHANGE AND EXERCISE. The warrants may be exercised upon
surrender of the certificate therefor on or prior to the expiration date (as
explained below) at our offices with the form of "Subscription Form" on the
reverse side of the warrant certificate filled out and executed as indicated,
accompanied by payment (in the form of certified or cashier's check payable to
the order of GlobalOptions Group, Inc.) of the full exercise price for the
number of warrants being exercised. The holder may also alternatively exercise
these warrants on a cashless basis by surrendering the warrant with an executed
notice of cashless exercise attached thereto, in which event we will issue to
the holder the number of shares of stock determined following the formula
contained therein.
39
ADJUSTMENTS. In the event that we issue any shares of our common
stock or common stock equivalents following in a private placement, secondary
offering or shelf offering for cash consideration at a price less than $2.00 per
share of common stock, (i) the number of shares of common stock for which each
warrant is exercisable will be adjusted to equal that number which is the result
of the original number of shares of common stock for which each warrant is
exercisable multiplied by $2.00 and divided by the price per share at which we
issue such common stock, but in no event will the denominator be less than $.765
per share, and (ii) the exercise price of each warrant shall be reduced to equal
the price per share at which we issue such common stock or common stock
equivalents, but in no event will the exercise price be reduced to less than
$.765 per share. Additionally, the warrants contain provisions that protect the
holders thereof against dilution by adjustment of the purchase price in certain
events, such as stock dividends, stock splits, and other similar events.
The holders of any type of warrant will not possess any voting or
other rights as a stockholder of our company unless and until the holder
exercises the warrant.
Discussion of the warrants in this Report is qualified entirely by
reference to the forms of warrants attached as an exhibit to this Report.
TRADING INFORMATION
Our common stock is currently quoted on the OTC Bulletin Board under
the trading symbol GLOI.OB. As soon as practicable, and assuming we satisfy all
necessary initial listing requirements, we intend to apply our common stock for
trading on the American Stock Exchange or Nasdaq SmallCap Market, although we
cannot be certain that this application will be approved.
The transfer agent for our common stock is Continental Stock
Transfer & Trust Company, Inc., 17 Battery Place, 8th Floor, New York, New York
10004. We will serve as transfer agent for our outstanding shares of series A
preferred stock and as warrant agent for our outstanding warrants.
ITEM 4.01. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Effective as of June 30, 2005, we replaced Sherb & Co., LLP as
our independent accountant. Sherb & Co., LLP had been previously engaged as
the principal accountant to audit our financial statements. The reason for the
replacement of Sherb & Co., LLP was that, following the merger, the
stockholders of GlobalOptions own a majority of the outstanding shares of our
common stock. GlobalOptions is our primary business unit, and the current
independent registered public accountants of GlobalOptions are the firm of
Marcum & Kliegman LLP. We believe that it is in our best interest to have
Marcum & Kliegman LLP continue to work with our business, and we therefore
retained Marcum & Kliegman LLP as our new independent registered accounting
firm effective as of June 30, 2005. Marcum & Kliegman LLP is located at 655
Third Avenue, 16th Floor, New York, New York 10017.
The reports of Sherb & Co., LLP on our financial statements for the
past two years contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
The decision to change accountants was approved by our board of
directors on June 27, 2005.
During our two most recent fiscal years, and the subsequent interim
periods, prior to June 30, 2005, there were no disagreements with Sherb & Co.,
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
40
satisfaction of Sherb & Co., LLP, would have caused it to make reference to the
matter in connection with its reports. There were no "reportable events" as that
term is described in Item 304(a)(1)(v) of Regulation S-K.
As of June 30, 2005, Marcum & Kliegman LLP was engaged as our
new independent registered public accountants. Appointment of Marcum &
Kliegman LLP was recommended and approved by our board of directors. During our
two most recent fiscal years, and the subsequent interim periods, prior to June
30, 2005, we did not consult Marcum & Kliegman LLP regarding either: (i) the
application of accounting principles to a specified transaction, completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements, or (ii) any matter that was either the subject of a
disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable
event as described in Item 304(a)(1)(v) of Regulation S-K.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. In accordance with
Item 9.01(a), our audited financial statements for the fiscal years ended
December 31, 2004 and 2003 will be filed by an amendment to this Current Report
on Form 8-K as soon as practicable, but in no event later than 71 days after
this Report on Form 8-K is required to be filed.
(b) PRO FORMA FINANCIAL INFORMATION. In accordance with Item
9.01(b), our pro forma financial statements will be filed by an amendment to
this Current Report on Form 8-K as soon as practicable, but in no event later
than 71 days after this Report on Form 8-K is required to be filed.
(c) EXHIBITS.
The exhibits listed in the following Exhibit Index are filed as part
of this Report.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger, dated June 24, 2005,
among Creative Solutions, GlobalOptions Acquisition
Corp. and GlobalOptions, Inc.(1)
3.1 Certificate of Amendment to Articles of Incorporation
changing name of Registrant to GlobalOptions Group,
Inc.
3.2 Certificate of Designations, Powers, Preferences and
Other Rights and Qualifications of Series A
Convertible Preferred Stock.
4.1 Form of Four-Year Warrant to Purchase Common Stock at
$2.00 per share.
4.2 Form of Four-Year Warrant to Purchase Common Stock at
$2.50 per share.
10.1 2004 Non-Statutory Stock Option Plan.(2)
10.2 Employment Agreement, dated as of January 29, 2004,
between Harvey W. Schiller, Ph.D. and GlobalOptions,
Inc., assigned to and assumed by GlobalOptions Group,
Inc.
10.3 Letter Agreement among GlobalOptions Group, Inc.,
GlobalOptions, Inc. and Harvey W. Schiller dated as of
June 27, 2005.
41
10.4 Employment Agreement, dated as of January 24, 2002,
between Neil C. Livingstone, Ph.D. and GlobalOptions,
Inc.
10.5 Employment Agreement, dated as of January 24, 2002,
between Thomas P. Ondeck and GlobalOptions, Inc.
10.6 Form of Lock-Up letter between GlobalOptions Group and
certain pre-merger stockholders.
10.7 Form of Lock-Up letter between GlobalOptions Group and
former GlobalOptions stockholders.
10.8 Form of Private Placement Subscription Agreement.
99.1 Press Release issued by GlobalOptions, Inc. on June
27, 2005(1)
- ----------------------
(1) Incorporated by reference to the exhibits included with our Current
Report on Form 8-K filed with the SEC on June 27, 2005.
(2) Incorporated by reference to the exhibits included with our
Registration Statement on Form SB-2, filed with the SEC on July 20,
2004.
42
SIGNATURES
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.
Date: June 30, 2005 GLOBALOPTIONS GROUP, INC.
By: /s/ Harvey W. Schiller
--------------------------------------
Harvey W. Schiller, Ph.D.
Chairman and Chief Executive Officer
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Amendment to Articles of Incorporation
changing name of Registrant to GlobalOptions Group,
Inc.
3.2 Certificate of Designations, Powers, Preferences and
Other Rights and Qualifications of Series A
Convertible Preferred Stock.
4.1 Form of Four-Year Warrant to Purchase Common Stock at
$2.00 per share.
4.2 Form of Four-Year Warrant to Purchase Common Stock at
$2.50 per share.
10.2 Employment Agreement, dated as of January 29, 2004,
between Harvey W. Schiller, Ph.D. and GlobalOptions,
Inc., assigned to and assumed by GlobalOptions Group,
Inc.
10.3 Letter Agreement among GlobalOptions Group, Inc.,
GlobalOptions, Inc. and Harvey W. Schiller dated as of
June 27, 2005.
10.4 Employment Agreement, dated as of January 24, 2002,
between Neil C. Livingstone, Ph.D. and GlobalOptions,
Inc.
10.5 Employment Agreement, dated as of January 24, 2002,
between Thomas P. Ondeck and GlobalOptions, Inc.
10.6 Form of Lock-Up letter between GlobalOptions Group and
certain pre-merger stockholders.
10.7 Form of Lock-Up letter between GlobalOptions Group and
former GlobalOptions stockholders.
10.8 Form of Private Placement Subscription Agreement.
