<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1997
REGISTRATION NO. 333-22425
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
GLOBECOMM SYSTEMS INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3663 11-3225567
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code) Identification Number)
</TABLE>
------------------------
45 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
(516) 231-9800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
DAVID E. HERSHBERG
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GLOBECOMM SYSTEMS INC.
45 OSER AVENUE
HAUPPAUGE, NEW YORK 11788
(516) 231-9800
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD R. PLUMRIDGE, ESQ. DAVID J. BEVERIDGE, ESQ.
LUCI STALLER ALTMAN, ESQ. SHEARMAN & STERLING
BROBECK, PHLEGER & HARRISON LLP 599 LEXINGTON AVENUE
1633 BROADWAY NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019 (212) 848-4000
(212) 581-1600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 29, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,750,000 SHARES
[LOGO]
COMMON STOCK
-----------------
All of the shares of Common Stock offered hereby (the "Shares") are being
offered by Globecomm Systems Inc. ("GSI" or the "Company").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the
Company. It is currently anticipated that the initial public offering price will
be between $10.00 and $12.00 per share. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price.
Application has been made to have the Common Stock approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, under the symbol
"GCOM."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
Per Share......................... $ $ $
Total............................. $ $ $
Total Assuming Full Exercise of
Over-Allotment Option(3)........ $ $ $
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $1,200,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 412,500 additional shares, on the same terms,
solely to cover over-allotments. See "Underwriting."
-------------------
The Shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to their right to reject orders in whole or in part. It is expected that
delivery of the Shares of Common Stock will be made in New York City on or about
, 1997.
-------------------
PAINEWEBBER INCORPORATED UNTERBERG HARRIS
------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[LOGO]
SYSTEM AND NETWORK INSTALLATIONS
ARTWORK: MAP OF THE WORLD INDICATING LOCATIONS WHERE THE COMPANY HAS COMPLETED
INSTALLATIONS AND WHERE THE COMPANY HAS INSTALLATIONS IN PROGRESS.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND AN OPINION THEREON
EXPRESSED BY AN INDEPENDENT PUBLIC ACCOUNTING FIRM AND WITH QUARTERLY REPORTS
FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM
CONSOLIDATED FINANCIAL INFORMATION.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION IN THIS PROSPECTUS: (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION, (II) REFLECTS A 2.85-FOR-ONE STOCK SPLIT OF THE COMMON
STOCK OF THE COMPANY, $.001 PAR VALUE ("COMMON STOCK") PRIOR TO THE CLOSING OF
THIS OFFERING (THE "STOCK SPLIT"), (III) REFLECTS THE FILING, PRIOR TO THE
CLOSING OF THIS OFFERING, OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF THE COMPANY AND (IV) REFLECTS THE AUTOMATIC CONVERSION OF ALL
OUTSTANDING SHARES OF ALL SERIES OF THE COMPANY'S CONVERTIBLE CLASS A PREFERRED
STOCK AND CONVERTIBLE CLASS B PREFERRED STOCK (COLLECTIVELY, THE "CONVERTIBLE
PREFERRED STOCK") INTO AN AGGREGATE OF 1,958,001 SHARES OF COMMON STOCK UPON THE
CLOSING OF THIS OFFERING (THE "PREFERRED STOCK CONVERSION").
------------------------
THE COMPANY
Globecomm Systems Inc. ("GSI" or the "Company") designs, assembles and
installs satellite ground segment systems and networks which support a wide
range of satellite communications applications, including fixed, mobile and
direct broadcast services as well as certain military applications. The
Company's customers include prime communications infrastructure contractors,
government-owned postal, telephone and telegraph providers ("PTTs"), other
telecommunications carriers, producers and distributors of news and
entertainment content and other corporations. The Company's ground segment
systems typically consist of an earth station, which is an integrated system
designed to transmit and receive signals to and from satellites, together with
ancillary subsystems. The Company's ground segment networks are typically
comprised of two or more ground segment systems communicating with a satellite
and interconnected with a terrestrial network. Since the Company commenced
operations in August 1994, it has completed, or is in the process of completing,
the installation of 77 ground segment systems and networks in 31 countries.
The Company's revenue grew from $72,000 at the end of its first fiscal year
to $13.5 million for the fiscal year ended June 30, 1996, and to $36.2 million
for the fiscal year ended June 30, 1997. During the fiscal year ended June 30,
1997, the Company booked $65.4 million in contract orders and, at June 30, 1997,
had a backlog of $40.8 million of contract orders. The Company believes that its
revenue growth and its ability to compete are based on its unique combination of
competitive advantages which include: (i) an experienced management group with
extensive technological and engineering expertise, (ii) the proven ability to
meet the complex satellite ground segment requirements of its customers in
diverse political, economic and regulatory environments in various locations
around the world and (iii) its ability to identify, develop and maintain
strategic relationships with developers and suppliers of leading-edge
technologies which enhance performance, reduce costs and broaden applications of
the Company's ground segment systems and networks. An industry source has
recently reported that the Company ranks among the world's seven major
manufacturers-suppliers of large ground segment systems for fixed
telecommunications and currently ranks second behind the industry leader, which
has 50% of this market.
The Company has recently established a subsidiary, NetSat Express, Inc.
("NetSat"), to develop service revenues by providing high-speed,
satellite-delivered data communications to developing markets worldwide. In
order to accomplish this objective, NetSat intends to leverage: (i) the
Company's expertise in satellite ground segment system and network
implementation, (ii) extensive management experience in providing
satellite-delivered communications services, (iii) the knowledge and
capabilities of local market strategic partners and (iv) DirecPC and Personal
Earth Station technology developed and owned by Hughes Network Systems, Inc., a
subsidiary of Hughes Electronics Corp. ("Hughes Network Systems" or "HNS"). Each
project for which NetSat uses HNS' DirecPC technology will require the grant of
a license from HNS to NetSat. NetSat currently is pursuing a joint venture with
local partners in Russia to market low-cost, high-speed satellite Internet
access services, as well as intranet services, to corporate, educational and
government customers who have limited or no access to terrestrial network
infrastructure capable of supporting the economical delivery of such services.
To date, NetSat has generated only limited revenues.
3
<PAGE>
According to Federal Communications Commission (the "FCC") estimates,
providers of satellite-delivered communications services generated approximately
$13.8 billion in revenues in 1995, which amount is projected to grow at a
compound annual rate of 21% to approximately $37.0 billion in 2000. The Company
believes this expected growth in satellite communications services will require
significant investment in new ground segment system and network infrastructure.
Based on industry sources, the markets for ground segment systems and networks
in which the Company competes had aggregate revenues of approximately $1.6
billion in 1996 and are projected to grow at a compound annual rate of
approximately 11% to revenues of approximately $2.5 billion by the year 2000.
Although there are currently no reliable data available on the market for
satellite-delivered Internet and intranet applications in developing countries,
a market in which the Company participates through NetSat, the Company believes
such market has potential for rapid growth. The FCC has estimated that
satellite-delivered data communications services accounted for approximately
$1.3 billion of service revenues worldwide in 1995 and that this amount will
grow at a compound annual rate of approximately 26% to revenues of approximately
$4.2 billion in 2000.
The Company believes that the growth in demand for ground segment
infrastructure is principally a result of the following major factors: (i)
global deregulation and privatization of government-owned monopoly
telecommunications carriers and the emergence of competitive carriers, each of
which is driving capital investment, (ii) rapidly growing worldwide demand for
communications services generally, including data communications services over
the Internet and corporate intranets, (iii) relative cost-efficiency of
satellite communications for many applications and (iv) technological
advancements which reduce costs and increase capacity, thereby broadening
applications for both satellite and terrestrial networks.
The Company's business strategy is to expand its market share in its ground
segment systems and networks business, improve its profitability and create
opportunities to capture recurring service revenues. The Company intends to
execute this strategy by: (i) targeting communications infrastructure
development opportunities worldwide, (ii) focusing on high margin
engineering-intensive ground segment system and network projects, (iii)
developing strategic customer relationships, (iv) developing strategic supplier
relationships and (v) entering the satellite-delivered data communications
services business through NetSat.
The Company seeks to build close relationships with customers for whom it
can provide complementary engineering skills by working as part of their system
development teams. A key objective of this strategy is to obtain this business
on a negotiated basis, rather than through the competitive bidding process,
which is likely to carry a lower margin. To date, the Company has developed
strategic relationships with two of its customers: Hughes Network Systems and
Thomson-CSF ("Thomson"). The Company sought the establishment of these
relationships based on these customers' abilities to: (i) generate significant
potential revenues for the Company, (ii) provide access to a large number of
potential business opportunities as a result of their size and global operations
and (iii) provide access to complementary technologies and expertise that could
serve as competitive advantages for the Company. At June 30, 1997, Hughes
Network Systems and Thomson owned equity interests in the Company of 3.7% and
6.3%, respectively. In addition, Hughes Network Systems owns a 19.0% equity
stake in NetSat, with an option to increase this position to 29.0%.
In addition to its strategic customer relationships, the Company also seeks
to develop strategic relationships with suppliers, each of which it believes is
in a position to supply products, technologies or services which will improve
the Company's competitive position in one or more of the market segments it
serves. As of June 30, 1997, the Company has made equity investments aggregating
approximately $1.0 million in three such companies. These suppliers enable the
Company to outsource a significant portion of its research and development
efforts and gain access to advanced technology while the Company continues its
independence to select the most suitable products and technologies to deliver to
its customers from any suppliers.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 2,750,000 shares
Common Stock to be outstanding after the
Offering(1)................................ 8,614,120 shares
Use of Proceeds.............................. Working capital, capital expenditures,
investments in strategic suppliers, start-up
expenses and investments associated with
NetSat, potential acquisitions and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... GCOM
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding as of June 30, 1997. Excludes
1,717,482 shares of Common Stock issuable upon the exercise of stock options
outstanding at June 30, 1997. Also excludes 64,125 shares of Common Stock
issuable upon exercise of warrants. See "Capitalization," "Management--1997
Stock Incentive Plan" and Notes 6 and 8 of Notes to Consolidated Financial
Statements.
------------------------------
The Company was incorporated in Delaware on August 17, 1994. The Company's
principal executive offices are located at 45 Oser Avenue, Hauppauge, New York
11788, and its telephone number is (516) 231-9800.
------------------------
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS. THE COMPANY HAS RECENTLY CHANGED ITS NAME FROM
WORLDCOMM SYSTEMS INC. TO GLOBECOMM SYSTEMS INC.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17, 1994
(INCEPTION)
THROUGH JUNE 30, YEAR ENDED YEAR ENDED
1995 JUNE 30,1996 JUNE 30, 1997
----------------- ------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $ 72 $ 13,476 $ 36,220
Costs of revenues.................................................. 58 11,238 32,060
------- ------------- -------------
Gross profit................................................. 14 2,238 4,160
------- ------------- -------------
Operating expenses:
Selling and marketing............................................ 346 1,915 3,282
Research and development......................................... -- 712 649
General and administrative....................................... 772 1,945 3,449
------- ------------- -------------
Total operating expenses........................................... 1,118 4,572 7,380
------- ------------- -------------
Loss from operations......................................... (1,104) (2,334) (3,220)
Interest income, net............................................... 39 89 276
------- ------------- -------------
Loss before minority interests in operations of consolidated
subsidiary....................................................... (1,065) (2,245) (2,944)
Minority interests in operations of consolidated subsidiary........ -- -- 275
------- ------------- -------------
Net loss..................................................... $ (1,065) $ (2,245) $ (2,669)
------- ------------- -------------
------- ------------- -------------
Pro forma net loss per share (unaudited)(1)........................ $ (.44)
-------------
-------------
Shares used in computing pro forma net loss per share
(unaudited)(1)................................................... 6,086,049
-------------
-------------
OTHER OPERATING DATA:
EBITDA(2).......................................................... $ (1,036) $ (2,142) $ (2,857)
Cash flows used in operating activities............................ (454) (2,510) (1,958)
Cash flows used in investing activities............................ (593) (1,714) (8,221)
Cash flows provided by financing activities........................ 4,554 4,151 11,908
Capital expenditures............................................... 437 339 6,765
Backlog at end of period(3)........................................ 7,716 11,588 40,807
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED(4)
--------- ---------------
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 5,164 $ 32,857
Working capital.......................................................................... 6,379 34,072
Total assets............................................................................. 33,286 60,218
Long-term debt........................................................................... 18 18
Stockholders' equity..................................................................... 15,995 42,928
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2 of Notes to Consolidated Financial
Statements.
(2) EBITDA represents earnings before minority interests in operations of
consolidated subsidiary, interest income, net, income taxes, depreciation
and amortization expense. EBITDA does not represent cash flows as defined by
generally accepted accounting principles and does not necessarily indicate
that cash flows are sufficient to fund all the Company's cash needs. EBITDA
is a financial measure commonly used in the Company's industry and should
not be considered in isolation or as a substitute for net income, cash flows
from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles. EBITDA may not be
comparable to other similarily titled measures of other companies.
(3) The Company records an order in backlog when it receives a firm contract or
purchase order which identifies product quantities, sales price and delivery
dates. Backlog represents the amount of unrecorded revenue on undelivered
orders and a percentage of revenues from sales of products that have been
shipped but have not been accepted by the customer. The Company's backlog at
any given time is not necessarily indicative of future period revenues. See
"Business--Backlog."
(4) Adjusted to reflect the sale of 2,750,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share,
after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company.
------------------------------
Globecomm, GSI, NetSat Express and NetSat are trademarks of the Company.
This Prospectus also includes trademarks and trade names of Hughes Network
Systems and other companies.
6
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
The Company, which was formed in August 1994, has a limited operating
history upon which an evaluation of the Company and its prospects can be based
and has incurred significant operating losses since its inception. The Company
has financed its operations to date primarily from the sale of equity securities
and, to a lesser degree, from stockholder loans. The Company generated its first
revenue from its ground segment systems and networks business in June 1995 and
has generated only minimal revenues from its satellite-delivered data
communications services business, which commenced operations in July 1996. The
Company incurred operating losses of $1.1 million, $2.3 million and $2.7 million
during the fiscal years ended June 30, 1995, 1996 and 1997, respectively, and
currently anticipates that it will incur further operating losses as it attempts
to expand its business. The Company's ability to expand its business and
generate additional revenues and positive operating and net income is dependent,
in large part, on its ability to obtain new contracts and the profitability of
such contracts, and there can be no assurance that the Company will generate
significant additional revenues or positive operating or net income. As of June
30, 1997, the Company had an accumulated deficit of $6.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "--Liquidity and Capital Resources."
INTENSE COMPETITION; LIMITED BARRIERS TO ENTRY
The markets for both ground segment systems and networks and
satellite-delivered data communications services are highly competitive. Many of
the Company's competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than those available to the Company. As a result, such competitors may be able
to develop and expand their products and services more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products and services than
can the Company. In addition, there are limited barriers to entry in the
Company's markets and certain of the Company's strategic suppliers and customers
have technologies and capabilities in the Company's product areas and could
choose to compete with the Company or to replace the Company's products or
services with their own. The entry of new competitors, the decision by a
strategic ally to compete with the Company or the decision by a customer to
develop and employ in-house capability to satisfy its satellite communications
needs could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Competition."
There can be no assurance that the Company's competitors will not develop or
acquire competing products or that such products will not be offered at
significantly lower prices. In addition, current and potential competitors in
both markets in which the Company competes have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products and services to address the needs of the Company's
current and prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross profit margins and loss of market share, any of which
would have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Competition."
7
<PAGE>
The Company also is dependent on the continued success and development of
the satellite communications industry, which itself competes with other
technologies such as terrestrial microwave, copper wire
and fiber optic communications systems. Any failure of the satellite
communications industry to continue to develop, or any technological development
which significantly improves the capacity, cost or efficiency of such competing
systems relative to satellite systems, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"--Rapid Industry Change; Technological Obsolescence."
RELIANCE ON STRATEGIC RELATIONSHIPS
The Company is dependent on certain customers and suppliers for the
development and expansion of its ground segment system and network business.
However, such relationships are not governed by any contract and accordingly
neither the Company nor such customers or suppliers are obligated to maintain
such strategic relationships. There can be no assurance that the Company will be
able to maintain such strategic relationships, that its strategic customers and
suppliers will continue to assist the Company by developing and expanding its
business and by providing research and development expertise, or that such
strategic customers and suppliers will not actually compete with the Company in
the future. See "--Intense Competition; Limited Barriers to Entry."
In addition, the Company relies on the Personal Earth Station and DirecPC
technologies provided by Hughes Network Systems in connection with the planned
operation of NetSat's satellite-delivered data communications services business.
Each project for which NetSat uses HNS' DirecPC technology will require the
grant of a license from HNS to NetSat. Hughes Network Systems is under no
obligation to grant such licenses and there can be no assurance that NetSat will
be able to negotiate such licensing arrangements with Hughes Network Systems on
acceptable terms, or at all. In addition, failure to maintain a business
relationship with Hughes Network Systems would have a material adverse effect on
the Company's business, financial condition and results of operations.
Because the Company intends to provide its satellite-delivered data
communications services almost entirely in developing markets where the Company
has little or no market experience, the Company will also be dependent on local
partners in such markets to provide marketing expertise and knowledge of the
local regulatory environment in order to facilitate the acquisition of necessary
licenses and access to existing customers. The Company has not yet formally
established an alliance with a local partner. The Company's failure to form and
maintain such alliances with local partners, or the preemption or disruption of
such alliances by the actions of the Company's competitors or otherwise, would
adversely affect the Company's ability to penetrate and compete successfully in
such emerging markets. There can be no assurance that the Company will be able
to compete successfully in the future in such markets or that competition will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Strategic Relationships" and
"--Competition."
RISK OF CUSTOMER CONCENTRATION
The Company typically relies upon a small number of customers for a large
portion of its revenues. For example, approximately 29% and 13% of the Company's
revenues in fiscal 1997 were derived from sales to American Sky Broadcasting LLC
("ASkyB") and Hughes Network Systems. At June 30, 1997, $20.8 million, or
approximately 51% of the Company's backlog, was accounted for by a contract
between the Company and Sonangol, U.E.E. and $5.0 million, or approximately 12%
of the Company's backlog, was accounted for by a contract between the Company
and ASkyB. The Company expects that in the near term a significant portion of
its revenues will continue to be derived from one or a limited number of
customers (the identity of whom may vary from year to year) as the Company seeks
to expand its business and its customer base. The reduction, delay, or
cancellation of orders from one or more of such significant customers would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Customers."
8
<PAGE>
RISK OF MANAGEMENT OF RAPID GROWTH
The Company has been significantly and rapidly expanding its operations
since its inception. In order to pursue successfully the opportunities presented
by the ground segment and emerging satellite-delivered communications and
Internet/intranet-infrastructure markets, the Company will be required to
continue to expand its operations. Such expansion has placed, and is expected to
continue to place, a significant strain on the Company's personnel, management,
financial and other resources. In order to manage any future growth effectively,
the Company will, among other things, be required to attract, train, motivate
and manage a significantly larger number of employees successfully to conduct
product engineering and management, product implementation, sales activity and
customer support activities; manage higher working capital requirements; and
improve its operating and financial systems. Any failure to manage any future
growth in an efficient manner and at a pace consistent with the Company's
business could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview,"
"Business--Product Design, Assembly and Testing," "--Facilities" and
"--Employees."
RISK OF FIXED-PRICE CONTRACTS
Virtually all of the Company's contracts for installation of ground segment
systems and networks are on a fixed-price basis. Profitability of such contracts
is subject to inherent uncertainties as to the cost of performance. In addition
to possible errors or omissions in making initial estimates, cost overruns may
be incurred as a result of unforeseen obstacles, including both physical
conditions and unexpected problems encountered in engineering, design and
testing. Since the Company's business may at certain times be concentrated in a
limited number of large contracts, a significant cost overrun on any one
contract could have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Customer Concentration."
INHERENT RISK OF INTERNATIONAL OPERATIONS
Most of the Company's revenues are derived from sales to customers outside
the United States. Revenues from foreign sales accounted for 22% and 40% of
total revenues in fiscal 1996 and 1997, respectively, and the Company
anticipates that foreign sales will continue to account for a significant
portion of total revenues in the foreseeable future. The Company's foreign sales
are generally denominated in U.S. dollars. Consequently, a decrease in the value
of foreign currencies relative to the U.S. dollar may adversely affect demand
for the Company's products and services by increasing the price of the Company's
products and services in the currency of the countries in which they are sold.
Additional risks inherent in the Company's international business activities
include various and changing regulatory requirements, costs and risks of relying
upon local subcontractors for the installation of its ground segment systems and
networks, increased sales and marketing expenses, availability of export
licenses, tariffs and other trade barriers, political and economic instability,
difficulties in staffing and managing foreign operations, potentially adverse
taxes, complex foreign laws and treaties and the possibility of difficulty in
accounts receivable collections. In addition, the Company is subject to the
Foreign Corrupt Practices Act (the "FCPA") which may place the Company at a
competitive disadvantage to foreign companies, which are not subject to the
FCPA. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPHASIS ON DEVELOPING MARKETS; UNCERTAIN MARKET POTENTIAL
The Company believes a substantial portion of the growth in demand for its
ground segment systems and networks and its recently launched
satellite-delivered data communications services will come from customers in
developing countries. There can be no assurance that such increases in demand
will occur or that prospective customers will accept such products and services
in sufficient quantities or at all. The degree to which the Company is able to
penetrate potential markets in developing countries will be affected in major
part by the speed with which other competing elements of the communications
infrastructure, such as telephone lines, other satellite-delivered solutions and
fiber optic cable and
9
<PAGE>
television cable, are installed in the developing countries and with respect to
the Company's data communications services, on the effectiveness of the
Company's local partners in such markets. The failure to have its products and
services accepted in developing countries would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"--Intense Competition; Limited Barriers to Entry" and "--Reliance on Strategic
Relationships."
RAPID INDUSTRY CHANGE; TECHNOLOGICAL OBSOLESCENCE
The telecommunications industry, including the satellite communications
ground segment systems and networks and data communication services businesses,
is characterized by rapid and continuous technological change. Future
technological advances in the telecommunications industry may result in the
availability of new products or services that could compete with the satellite
ground segment products and services provided by the Company or render the
Company's products and services obsolete. There can be no assurance that the
Company will be successful in developing and introducing new products and
services that meet changing customer needs or in responding to technological
changes or evolving industry standards in a timely manner, if at all, or that
services or technologies developed by others will not render the Company's
products or services noncompetitive. Any failure by the Company to respond to
changing market conditions, technological developments, evolving industry
standards or changing customer requirements, or the development of competing
technology or products that render the Company's products and services
noncompetitive or obsolete would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Research
and Development" and "-- Competition."
DEPENDENCE UPON SUPPLIERS; SOLE AND LIMITED SOURCES OF SUPPLY
The Company currently procures most of the critical components and services
for its products from single or limited sources in connection with specific
contracts and does not otherwise carry significant inventories or have long-term
or exclusive supply contracts with its source vendors. The Company has from time
to time experienced delays in receiving products from certain of its vendors due
to quality control or manufacturing problems, shortages of materials or
components or product design difficulties. There can be no assurance that
similar problems will not recur or that replacement products will be available
when needed at commercially reasonable rates, or at all. If the Company were to
change certain of its vendors, the Company would be required to perform
additional testing procedures upon the components supplied by such new vendors,
which could prevent or delay product shipments. Additionally, prices could
increase significantly in connection with changes of vendors. Any inability of
the Company to obtain timely deliveries of materials of acceptable quality or
timely services, or any significant increase in the prices of materials or
services, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Risk of Fixed-Price
Contracts," "--Quarterly Fluctuations" and "Business--Product Design, Assembly
and Testing."
QUARTERLY FLUCTUATIONS
The Company may in the future experience significant quarter to quarter
fluctuations in its results of operations, which may result in volatility in the
price of the Company's Common Stock. Quarterly results of operations may
fluctuate as a result of a variety of factors, including the timing of the
initiation and completion of contracts, the demand for the Company's products
and services, the introduction of new or enhanced products and services by the
Company or its competitors, market acceptance of new products and services, the
mix of revenues between custom-built satellite communications systems and
networks designed for its customers and standard installations provided to its
customers, the growth of demand for Internet infrastructure-based products and
services in developing countries, the timing of significant marketing programs,
the extent and timing of the hiring of additional personnel, competitive
conditions in the industry and general economic conditions. Due to the foregoing
factors, it is likely that in one or more future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the price of
the Company's Common
10
<PAGE>
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Quarterly Results."
RISK OF FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS
The Company is subject to various federal laws and regulations which may
have negative effects on the Company. The Company intends to erect a teleport in
Hauppauge, New York, which will be subject to FCC Rules and Regulations. The
Company will be required to obtain a license from the FCC for both domestic and
international operation of the teleport and must operate it in compliance with
FCC Rules and Regulations for the term of the license. There can be no assurance
that the Company will be able to obtain or maintain the necessary license. See
"Business--Government Regulation."
Under the FCC Rules and Regulations, non-U.S. citizens or their
representatives, foreign governments, or corporations otherwise subject to
control by non-U.S. citizens, may not own more than 20% of a licensee directly,
or, if the FCC finds it consistent with the public interest, may not own more
than 25% of the parent of a licensee. Non-U.S. citizens may not serve as
officers of a licensee or as members of a licensee's board of directors,
although the FCC may waive this requirement in whole or in part. Failure to
comply with these requirements may result in the FCC issuing an order to the
entity requiring divestiture of alien ownership to bring the entity into
compliance with the FCC Rules and Regulations. In addition, fines, a denial of
renewal or revocation of the license are possible. The Company has no knowledge
of any present foreign ownership which would result in a violation of the FCC
Rules and Regulations, but there can be no assurance that foreign holders will
not in the future hold more than 20% or 25% of the Common Stock of the Company.
Regulatory schemes in countries in which the Company may seek to provide its
satellite-delivered data communications services may impose impediments on the
Company's operations. Certain countries in which the Company intends to operate
have telecommunications laws and regulations that do not currently contemplate
technical advances in broadcast technology such as Internet/intranet
transmission by satellite. There can be no assurance that the present regulatory
environment in any such country will not be changed in a manner which may have a
material adverse impact on the Company's business. The Company or its local
partners typically must obtain authorization for each country in which the
Company provides its satellite-delivered data communications services. Although
the Company believes that it or its local partners will be able to obtain the
requisite licenses and approvals from the countries in which the Company intends
to provide service, the regulatory schemes in each country are different and
thus there may be instances of noncompliance of which the Company is not aware.
Although the Company believes these regulatory schemes will not prevent the
Company from pursuing its business plan, there can be no assurance such licenses
and approvals are or will remain sufficient in the view of foreign regulatory
authorities, or that necessary licenses and approvals will be granted on a
timely basis in all jurisdictions in which the Company wishes to offer its
services or that restrictions applicable thereto will not be unduly burdensome.
See "Business--Government Regulation."
The sale of the Company's ground segment systems and networks outside the
United States is subject to compliance with the regulations of the United States
Export Administration Regulations. The absence of comparable restrictions on
competitors in other countries may adversely affect the Company's competitive
position. In addition, in order to ship its products into European Union
countries, the Company must satisfy certain technical requirements. If the
Company were unable to comply with such requirements with respect to a
significant quantity of the Company's products, the Company's sales in Europe
could be restricted, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Government Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on its
executive officers and certain technical, managerial and marketing personnel.
The loss of the services of any of these individuals or group of individuals
could have a material adverse effect on the Company's business, financial
condition and
11
<PAGE>
results of operations. The Company maintains term life insurance in the amount
of $1.0 million on David E. Hershberg, the Chairman and Chief Executive Officer
of the Company and term life insurance in the amount of $500,000 for each of
Messrs. Miller, DiCicco, Woodring, Yablonski and Melfi, all of whom are officers
of the Company. The Company believes that its future success also will depend
significantly upon its ability to attract, motivate and retain additional highly
skilled technical, managerial and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting, assimilating and retaining the personnel it requires
to grow and operate profitably. See "Management--Directors and Executive
Officers and Other Key Employees" and "Business--Employees."
PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company relies heavily on the technological and creative skills of its
personnel, new product developments, computer programs and designs, frequent
product enhancements, reliable product support and proprietary technological
expertise in maintaining its competitive position, and lacks patent protection
for its products and services. There can be no assurance that others will not
independently develop or acquire substantially equivalent techniques or
otherwise gain access to the Company's proprietary and confidential
technological expertise or disclose such technologies or that the Company can
ultimately protect its rights to such proprietary technological expertise.
The Company generally relies on confidentiality agreements with its
consultants, key employees and sales representatives to protect its proprietary
technological expertise, and generally controls access to and distribution of
its technology, software and other proprietary information. Despite these
precautions, there can be no assurance that such agreements will not be
breached, that the Company will have adequate remedies for any such breach or
that a third party will not copy or otherwise obtain and use the Company's
products or technology without authorization or develop similar products or
technology independently. Failure by the Company to maintain protection of its
proprietary technological expertise for any reason could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Intellectual Property."
The Company is subject to the risk of alleged infringement of intellectual
property rights of others. Most of the Company's officers and employees were
formerly officers or employees of other companies in the industry. The Company
believes that neither it nor its officers or employees have violated any
agreements with, or obligations to, prior employers. Although the Company is not
aware of any pending or threatened infringement claims with respect to the
Company's current or future products, there can be no assurance that third
parties, including previous employers, will not assert such claims or that any
such claims will not require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims. No assurance can be given that any necessary licenses will be available
or that, if available, such licenses can be obtained on commercially reasonable
terms. Furthermore, litigation may be necessary to enforce or protect the
Company's intellectual property rights, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company currently has two patent applications pending in the United
States and a Patent Cooperation Treaty ("PCT") application, corresponding to one
of the United States applications, is pending in a number of foreign
jurisdictions. The Company also intends to seek further patents on its
technology, if appropriate. There can be no assurance that patents will issue
from any of the Company's pending or any future applications or that any claims
allowed from such applications will be of sufficient scope or strength, or be
issued in all countries where the Company's products can be sold, to provide
meaningful protection or any commercial advantage to the Company. Also,
competitors of the Company may be able to design around the Company's patents.
The laws of certain foreign countries in which the Company's products are or may
be developed, manufactured or sold may not protect the Company's
12
<PAGE>
products or intellectual property rights to the same extent as do the laws of
the United States and thus make the possibility of piracy of the Company's
technology and products more likely.
The Company has filed applications for trademark registration of Globecomm
Systems Inc. in the United States and of NetSat in the United States, Singapore,
the European Union, the Russian Federation and Brazil, and intends to seek
registration of other trademarks in the future. There can be no assurance that
registrations will be granted from any of the Company's pending or future
applications, or that any registrations that are granted to the Company will
prevent others from using similar trademarks in connection with related goods
and services.
RISK OF CONCENTRATED OWNERSHIP
Upon completion of this Offering, the Company's officers and directors, and
their affiliates, will beneficially own approximately 2,352,571 shares,
constituting approximately 26.7% of the Company's outstanding Common Stock.
These stockholders, if acting together, may be able to exert significant
influence over the election of directors and other corporate actions requiring
stockholder approval. See "Management" and "Principal Stockholders."
RISK OF SALES OF COMMON STOCK UPON EXPIRATION OF RULE 144 HOLDING PERIOD AND
LOCK-UP AGREEMENTS
Sales of substantial numbers of shares of Common Stock in the public market
after this Offering could adversely affect the market price of the Common Stock.
Upon completion of this Offering, the Company will have outstanding 8,614,120
shares of Common Stock. In addition to the 2,750,000 shares of Common Stock
offered hereby, as of the effective date of the Registration Statement of which
this Prospectus forms a part (the "Effective Date"), there will be 5,864,120
shares of Common Stock outstanding, all of which are "restricted securities"
under the Securities Act. Certain stockholders of the Company are subject to
lock-up agreements providing generally that they will not offer to sell, sell,
contract to sell, grant any option to sell or otherwise dispose of any shares of
Common Stock or any securities convertible or exchangeable into Common Stock for
a period of 180 days after the date of this Prospectus (the "Lock-Up Period")
without the prior written consent of PaineWebber Incorporated which may be given
at any time, without notice, with respect to all or any portion of such shares.
Certain other stockholders of the Company are subject to lock-up agreements
providing generally that they will not offer to sell, sell, contract to sell,
grant any option to sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exchangeable for Common Stock for a period of
270 days after the date of this Prospectus (the "270-Day Lock-Up Period")
without the prior written consent of PaineWebber Incorporated which may be given
at any time, without notice, with respect to all or any portion of such shares.
Taking into account the lock-up agreements and notwithstanding possible earlier
eligibility for resale under the provisions of Rules 144 and 701, the numbers of
shares that will be available for sale in the public market will be as follows.
Beginning 90 days after the Effective Date, approximately 435,035 shares of
restricted securities will become eligible for resale in the public market
(including approximately 345,972 shares issuable upon exercise of vested
options). Upon the expiration of the Lock-Up Period, or earlier upon the consent
of PaineWebber Incorporated, approximately 4,420,367 additional shares of
restricted securities (including approximately 142,290 additional shares
issuable upon exercise of vested options) will be eligible for sale in the
public market and, as of that date, approximately 2,536,950 of such shares will
be subject to certain volume and other resale restrictions pursuant to Rule 144
and approximately 1,740,927 of such shares will be eligible for sale without
restriction under Rule 144(k). Upon the expiration of the 270-Day Lock-Up
Period, or earlier upon the consent of PaineWebber Incorporated, approximately
1,495,979 additional shares of restricted securities (including approximately
82,691 additional shares issuable upon exercise of vested options) will be
eligible for sale in the public market and, as of that date, approximately
1,413,288 of such shares will be subject to certain and other resale
restrictions pursuant to Rule 144 of which none of such shares will be eligible
for sale without restriction under Rule 144(k).
13
<PAGE>
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering. The initial public
offering price will be determined by negotiations between the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. The market price of the Company's Common
Stock could be subject to wide fluctuations in response to quarterly variations
in operating results, announcements of technological innovations or new products
by the Company or its competitors, acceptance of satellite communication
services in developing countries, and other events or factors. In addition, the
stock market has experienced extreme price and volume fluctuations, which have
affected the market price of securities of many companies in the
telecommunications and high technology industries. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. See "--Quarterly Fluctuations" and "Underwriting."
MANAGEMENT'S DISCRETION OVER APPLICATION OF PROCEEDS OF THE OFFERING
The Company has no specific plan for the net proceeds of this Offering other
than to fund capital expenditures and investments, NetSat and for general
working capital purposes. As a consequence, the Company's management will have
broad discretion over the allocation of the proceeds for the foreseeable future.
Pending any such uses, the Company plans to invest the net proceeds in
investment-grade, interest-bearing securities. See "Use of Proceeds."
POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes the Board of Directors to issue,
without stockholder approval, up to 1,000,000 shares of Preferred Stock with
voting, conversion and other rights and preferences that could adversely affect
the voting power or other rights of the holders of Common Stock. In addition,
the Company will be subject to the provisions of Section 203 of the Delaware
General Corporation Law, which will generally prohibit the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The foregoing and other provisions of the Certificate of
Incorporation and the Company's By-laws, as amended (the "By-laws") and the
application of Section 203 of the Delaware General Corporation Law could have
the effect of deterring certain takeovers or delaying or preventing certain
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. See "Description of Capital Stock--Preferred Stock" and
"--Delaware Anti-takeover Statute."
SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial public offering price. Additional dilution will
occur upon exercise of outstanding options, warrants and preemptive rights. In
addition, Thomson is entitled to receive shares of Common Stock equal to 1% of
the Company's Common Stock outstanding upon the acceptance by the Company of
each of the next four $3.0 million of orders placed by Thomson with the Company
through May 1998. See "Dilution" and "Business--Strategic Relationships--
Thomson-CSF."
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying any cash dividends in the foreseeable future, but instead
intends to retain earnings, if any, for use in the Company's operations and in
the expansion of its business. See "Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $26.9 million ($31.2 million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$11.00 per share and after deducting underwriting discounts and commissions and
estimated Offering expenses.
The Company anticipates that approximately $6.0 million of the net proceeds
from this Offering will be used to fund capital expenditures and investments in
strategic suppliers, including the exercise of certain stock purchase options.
Approximately $3.0 million of the net proceeds will be used to fund start-up
expenses and investments in potential international joint ventures associated
with NetSat. The remainder of the net proceeds will be used to fund working
capital requirements, increased selling and marketing efforts, increased
internal research and development expenses, potential acquisitions of
complementary businesses, products or technologies, although there are no
current agreements or negotiations with respect to any such transactions, and
for general corporate purposes.
Pending such uses, the net proceeds will be invested in short-term debt
instruments, certificates of deposit or direct or guaranteed obligations of the
United States.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay dividends in the foreseeable future.
The Company presently intends to retain future earnings, if any, to finance the
expansion of its business. The payment of any cash dividends in the future will
depend on the Company's earnings, financial condition, results of operations,
capital needs, and other factors deemed pertinent by the Company's Board of
Directors, subject to laws and regulations then in effect.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997: (i) on a pro forma basis to give effect to the Stock Split, the
Preferred Stock Conversion and the authorization of additional shares of Common
Stock and Preferred Stock, $.001 par value and (ii) on a pro forma as adjusted
basis to give effect to the sale by the Company of 2,750,000 shares of Common
Stock at an assumed initial public offering price of $11.00 per share, after
deducting underwriting discounts and commissions and estimated Offering
expenses, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents, including restricted cash of $1.5 million.............. $ 6,702 $ 34,394
----------- -----------
----------- -----------
Long-term debt, including current portion......................................... $ 74 $ 74
Stockholders' equity:
Preferred Stock, $.001 par value, 3,000,000 shares authorized; none issued and
outstanding on a pro forma or pro forma as adjusted basis..................... -- --
Common Stock, $.001 par value, 22,000,000 shares authorized; 5,864,120 shares
issued and outstanding on a pro forma basis; and 8,614,120 shares issued and
outstanding on a pro forma as adjusted basis(1)............................... 6 9
Additional paid-in capital........................................................ 21,968 48,898
Accumulated deficit............................................................... (5,979) (5,979)
----------- -----------
Total stockholders' equity.................................................... 15,995 42,928
----------- -----------
Total capitalization........................................................ $ 16,069 $ 43,002
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding as of June 30, 1997. Excludes
1,717,482 shares of Common Stock issuable upon the exercise of stock options
outstanding at June 30, 1997 with a weighted average exercise price of $6.04
per share. At June 30, 1997, 562,518 shares of Common Stock were available
for issuance under the Company's stock option plans. Also excludes 64,125
shares of Common Stock issuable upon exercise of warrants, all with an
exercise price of $8.07 per share. See "Capitalization," "Management--1997
Stock Incentive Plan" and Notes 6 and 8 of Notes to Consolidated Financial
Statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997 was
approximately $14.9 million or $2.54 per share of Common Stock. "Pro forma net
tangible book value per share" is equal to the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding and gives effect to the Stock Split and the Preferred Stock
Conversion. After giving effect to the sale by the Company of 2,750,000 shares
of Common Stock in this Offering (at an assumed initial public offering price of
$11.00 per share) and after deducting the estimated underwriting discounts and
Offering expenses, the pro forma net tangible book value of the Company as of
June 30, 1997 would have been $42.6 million or $4.94 per share of Common Stock.
This represents an immediate increase in pro forma net tangible book value per
share of $2.40 to existing holders and immediate dilution in pro forma net
tangible book value of $6.06 per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $ 11.00
Pro forma net tangible book value before the
Offering............................................. $ 2.54
Increase attributable to new investors................. 2.40
---------
Pro forma net tangible book value after the Offering..... 4.94
---------
Dilution per share to new investors...................... $ 6.06
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by investors purchasing shares offered by the Company hereby (at an assumed
initial public offering price of $11.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 5,864,120 68.1% $ 25,497,513 45.7% $ 4.35
New investors...................................... 2,750,000 31.9 30,250,000 54.3 $ 11.00
------------ ----- ------------- -----
Total.......................................... 8,614,120 100.0% $ 55,747,513 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The foregoing is based on the number of shares outstanding as of June 30,
1997 and assumes no exercise of any outstanding options or warrants. At June 30,
1997, there were outstanding options to purchase an aggregate of 1,717,482
shares at a weighted average exercise price of $6.04 per share. Additionally, on
June 30, 1997 there were outstanding warrants which may be exercised for up to
64,125 shares of Common Stock at a price of $8.07 per share. Additional dilution
will occur upon exercise of the outstanding warrants or options. See
"Management--1997 Stock Incentive Plan" and Notes 6 and 8 of Notes to
Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The consolidated statement
of operations data for the fiscal year ended June 30, 1997 and the balance sheet
data at June 30, 1997 have been derived from consolidated financial statements
audited by Ernst & Young LLP, independent auditors. The consolidated statement
of operations data for the period from the Company's inception on August 17,
1994 through June 30, 1995 and for the fiscal year ended June 30, 1996, and the
balance sheet data at June 30, 1996 have been derived from consolidated
financial statements audited by Price Waterhouse LLP, independent accountants.
The audited Consolidated Financial Statements and the Notes thereto are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17, 1994
(INCEPTION)
THROUGH JUNE YEAR ENDED YEAR ENDED
30, JUNE 30, JUNE 30,
1995 1996 1997
--------------- ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ $ 72 $ 13,476 $ 36,220
Costs of revenues................................................... 58 11,238 32,060
------- ------------ ------------
Gross profit.................................................. 14 2,238 4,160
------- ------------ ------------
Operating expenses:
Selling and marketing............................................. 346 1,915 3,282
Research and development.......................................... -- 712 649
General and administrative........................................ 772 1,945 3,449
------- ------------ ------------
Total operating expenses............................................ 1,118 4,572 7,380
------- ------------ ------------
Loss from operations.......................................... (1,104) (2,334) (3,220)
Interest income, net................................................ 39 89 276
------- ------------ ------------
Loss before minority interests in operations of consolidated
subsidiary........................................................ (1,065) (2,245) (2,944)
Minority interests in operations of consolidated subsidiary......... -- -- 275
------- ------------ ------------
Net loss...................................................... $ (1,065) $ (2,245) $ (2,669)
------- ------------ ------------
------- ------------ ------------
Pro forma net loss per share (unaudited)(1)......................... $ (.44)
------------
------------
Shares used in computing pro forma net loss per share
(unaudited)(1).................................................... 6,086,049
------------
------------
OTHER OPERATING DATA:
EBITDA(2)........................................................... $ (1,036) $ (2,142) $ (2,857)
Cash flows used in operating activities............................. (454) (2,510) (1,958)
Cash flows used in investing activities............................. (593) (1,714) (8,221)
Cash flows provided by financing activities......................... 4,554 4,151 11,908
Capital expenditures................................................ 437 339 6,765
Backlog at end of period(3)......................................... 7,716 11,588 40,807
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................... $ 3,435 $ 5,164
Working capital.............................................................................. 4,727 6,379
Total assets................................................................................. 9,503 33,286
Long-term debt............................................................................... 74 18
Stockholders' equity......................................................................... 5,730 15,995
</TABLE>
- ------------------------------
(1) Computed on the basis described in Note 2 of Notes to Consolidated Financial
Statements.
(2) EBITDA represents earnings before minority interests in operations of
consolidated subsidiary, interest income, net, income taxes, depreciation
and amortization expense. EBITDA does not represent cash flows as defined by
generally accepted accounting principles and does not necessarily indicate
that cash flows are sufficient to fund all the Company's cash needs. EBITDA
is a financial measure commonly used in the Company's industry and should
not be considered in isolation or as a substitute for net income, cash flows
from operating activities or other measures of liquidity determined in
accordance with generally accepted accounting principles. EBITDA may not be
comparable to other similarly titled measures of other companies.
(3) The Company records an order in backlog when it receives a firm contract or
purchase order which identifies product quantities, sales price and delivery
dates. Backlog represents the amount of unrecorded revenue on undelivered
orders and a percentage of revenues from sales of products that have been
shipped but have not been accepted by the customer. The Company's backlog at
any given time is not necessarily indicative of future period revenues. See
"Business--Backlog."
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company designs, assembles and installs satellite ground segment systems
and networks. In addition, it is currently in the early stages of expanding its
business to provide high-speed, satellite-delivered data communications
services, including Internet access, to areas of the world which lack the
terrestrial communication network infrastructure required to provide such
services on a cost-effective basis.
The Company was founded in August 1994 and was a development-stage
enterprise for the period from its inception through June 30, 1995. During this
period it was involved in various start-up activities, including raising
capital, acquiring equipment, leasing office space, recruiting and training
personnel and developing its initial marketing efforts. The Company began
generating revenue during June 1995, and has grown rapidly since that date.
Since the Company's inception, substantially all of the Company's revenue
has been generated by its satellite ground segment-related operations. Contracts
for these ground segment systems and networks have been in virtually all cases
fixed-price contracts. Profitability of such contracts is subject to inherent
uncertainties as to the cost of performance. In addition to possible errors or
omission in making initial estimates, cost overruns may be incurred as a result
of unforeseen obstacles including both physical conditions and unexpected
problems encountered in engineering design and testing. Since the Company's
business may at certain times be concentrated in a limited number of large
contracts, a significant cost overrun on any contract could have a material
adverse effect on the Company's business, financial condition and results of
operations. The period from contract award through installation of ground
segment systems and networks supplied by the Company generally requires from
three to 12 months. The Company uses the percentage of completion method of
accounting for contract revenues, upon the achievement of certain milestones.
Accordingly, most of the revenue from sales of products is typically recognized
when the product is shipped, with the balance recognized at the time of
acceptance by the customer. Revenues from providing services are recognized at
the time the service is performed. Costs of revenues are generally recorded
based on the relationship of the amount of projected final costs to the
percentage of revenue recorded for the specific contract. See Note 2 of Notes to
Consolidated Financial Statements.
The Company's role in supplying a particular system or network may range
from designing systems and acquiring and installing the components required to
meet a customer's specific design specifications to the complete design and
engineering of the ground segment of a satellite communications network. The
profitability of any particular contract is affected significantly by: (i) the
extent to which the Company is called upon to perform relatively high
value-added design activities, (ii) whether the contract is awarded on a
negotiated basis or by competitive bid, (iii) the extent to which the system or
network can be implemented by replicating previously engineered products and
(iv) competitive factors. Generally, the lowest margins are experienced for
ground segment systems and networks built to customer-engineered specifications,
installed under a contract awarded through a competitive bidding process and
requiring a minimum of engineering by the Company. The highest margins generally
are experienced for engineering-intensive, value-added ground segment systems
and networks designed by the Company.
The Company typically relies upon a small number of customers for a large
portion of its revenues. For example, approximately 29% and 13% of the Company's
revenues in fiscal 1997 were derived from
20
<PAGE>
sales to ASkyB and Hughes Network Systems, respectively. At June 30, 1997, $20.8
million, or approximately 51% of the Company's backlog, was accounted for by a
contract between the Company and Sonangol, U.E.E. and $5.0 million, or
approximately 12% of the Company's backlog, was accounted for by a contract
between the Company and ASkyB. The Company expects that in the near term a
significant portion of its revenues will continue to be derived from one or a
limited number of customers (the identity of whom may vary from year to year) as
the Company seeks to expand its business and its customer base. The reduction,
delay, or cancellation of orders from one or more of such significant customers
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Customer Concentration"
and "Business--Customers."
Costs of revenues consist primarily of the costs of purchased material,
direct labor and related overhead expenses, project-related travel, living costs
and subcontractor salaries. Selling and marketing expenses consist primarily of
salaries and travel and living costs for sales and marketing personnel. Research
and development expenses consist primarily of salaries and related overhead
expenses paid to engineers. The Company also benefits from research and
development conducted by its strategic suppliers. See "Business--Research and
Development." General and administrative expenses consist of expenses associated
with the Company's management, accounting, contract and administrative
functions. The Company anticipates that selling and marketing, research and
development and general and administrative expenses will continue to increase
during the next several years due to expected increases in personnel and
expenses related to supporting the Company's expanding customer base.
The Company and Thomson entered into an agreement in November 1995 under
which Thomson purchased 199,500 shares of Common Stock of the Company at $4.68
per share. Pursuant to this agreement, the Company is obligated to issue up to
an additional 5% of its Common Stock under the following conditions: 1% of the
then outstanding Common Stock upon acceptance of sales orders from Thomson
totalling $1.5 million, and 1% of the then outstanding Common Stock upon the
acceptance of each of four subsequent increments of $3.0 million of sales orders
from Thomson. This obligation to provide shares based on orders placed by
Thomson remains in effect until May 1998. Upon the issuance of shares under this
agreement, the Company currently recognizes sales and marketing expense based on
a price of $4.68 per share, the fair market value of the shares at the date of
issuance, which was also the date of the agreement. Such amounts are recorded
initially in the balance sheet as prepaid expenses until the related orders are
recorded as revenue, at which time such amounts are recorded in the statement of
operations. Due to potential changes in the accounting treatment of such share
issuances, there can be no assurance that the Company, if it accepts such sales
orders, will not have to recognize sales and marketing expense based on the fair
market value at the date of purchase rather than at the date of the agreement.
The Company is negotiating with Thomson alternatives to the current agreement in
the event the potential changes in accounting treatment are put into effect. No
assurance can be given that an acceptable arrangement will be reached. In
November 1995, the Company issued 37,147 shares of Common Stock to Thomson under
this arrangement after receipt of sales orders totaling $1.5 million, resulting
in the recognition of $173,743 of selling and marketing expense during the
fiscal year ended June 30, 1997. Thomson has expressed its intention to purchase
71,538 shares in this Offering. See "Dilution," "Business--Strategic
Relationships--Thomson-CSF" and Note 6 of Notes to Consolidated Financial
Statements.
The Company consolidates the operating results of NetSat subject to the
minority interests relating to Hughes Network Systems' 19% investment in NetSat.
For the fiscal year ended June 30, 1997, the minority interests in the
operations of consolidated subsidiary recorded was $275,000, the total amount of
HNS' and PolyVentures' capital contributions to NetSat. In the future (unless a
party other than the Company makes an additional capital contribution to
NetSat), the Company will consolidate 100% of NetSat's operating losses. If
NetSat's operations achieve profitability in the future, the Company would
continue to consolidate 100% of NetSat's operating results until such time as
the amount of profits otherwise attributable to Hughes Network Systems would
have fully offset their proportionate share of NetSat's losses previously
21
<PAGE>
recorded by the Company. In addition, Hughes Network Systems has the right,
until August 2001, to increase its equity interest in NetSat to 29% at nominal
cost.
The Company currently accounts for its interests in its strategic supplier
partners and other investees using the cost method of accounting. To the extent
that the Company exercises any of its options to increase its equity interest in
such investee to greater than 20% and has the ability to exercise significant
influence over the operating and financial policies of the investee, the
Company's equity in the net income or loss of such investee would be accounted
for using the equity method of accounting. In the event that the Company
increases its interest in any of its investees such that it would be required to
convert to accounting for such interest using the equity method, generally
accepted accounting principles require that the Company's historical financial
statements be adjusted retroactively in a manner consistent with the accounting
for a step-by-step acquisition with respect to the results of any such investee
for the periods prior to using the equity method. See "Business--Strategic
Relationships."
Due to the Company's development stage status prior to June 30, 1995, and
its rapid growth since that date, the comparison of its financial position and
results of operations from one period to another, as set forth below, is of
limited utility in predicting future results, and should be viewed with
considerable caution.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17, 1994
(INCEPTION)
THROUGH JUNE YEAR ENDED YEAR ENDED
30, JUNE 30, JUNE 30,
1995 1996 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues............................................................. 100.0% 100.0% 100.0%
Costs of revenues.................................................... 81.0 83.4 88.5
------- ----- -----
Gross profit................................................... 19.0 16.6 11.5
------- ----- -----
Operating expenses:
Selling and marketing.............................................. 482.4 14.2 9.1
Research and development........................................... -- 5.3 1.8
General and administrative......................................... 1,075.8 14.4 9.5
------- ----- -----
Total operating expenses............................................. 1,558.2 33.9 20.4
------- ----- -----
Loss from operations............................................. (1,539.2) (17.3) (8.9)
Interest income, net................................................. 54.7 .7 .8
------- ----- -----
Loss before minority interests in operations of consolidated
subsidiary......................................................... (1,484.5) (16.6) (8.1)
Minority interests in operations of consolidated subsidiary.......... -- -- .8
------- ----- -----
Net loss....................................................... (1,484.5)% (16.6 )% (7.3 )%
------- ----- -----
------- ----- -----
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
REVENUES. Revenues, which were derived from sales of ground segment systems
and networks, increased by $22.7 million, or 168.8%, to $36.2 million for the
fiscal year ended June 30, 1997 from $13.5 million for the fiscal year ended
June 30, 1996. The increase was primarily the result of an increase in the
number of shipments and/or completion of contracts from 22 for the fiscal year
ended June 30, 1996 to 47 for the fiscal year ended June 30, 1997.
COSTS OF REVENUES. Costs of revenues increased by $20.8 million, or 185.3%,
to $32.1 million for the fiscal year ended June 30, 1997 from $11.2 million for
the fiscal year ended June 30, 1996. The increase was primarily due to the
increase in the shipment and/or completion of ground segment systems and
networks contracts. Costs of revenues as a percentage of revenues was 88.5% for
the fiscal year ended June 30, 1997 compared to 83.4% for the fiscal year ended
June 30, 1996.
22
<PAGE>
GROSS PROFIT. Gross profit increased by $1.9 million to $4.2 million for
the fiscal year ended June 30, 1997 from $2.2 million for the fiscal year ended
June 30, 1996. The increase was primarily due to the increase in the shipment of
ground segment systems and networks. Gross profit as a percentage of revenues
was 11.5% for the fiscal year ended June 30, 1997 compared to 16.6% for the
fiscal year ended June 30, 1996. Such decrease was due primarily to an increase
in orders awarded through a competitive bidding process, which typically result
in lower gross profit margins than negotiated contracts and a contract awarded
in the previous year with an unusually high profit margin.
SELLING AND MARKETING. Selling and marketing expenses increased by $1.4
million, or 71.4%, to $3.3 million for the fiscal year ended June 30, 1997 from
$1.9 million for the fiscal year ended June 30, 1996. The increase was primarily
due to the opening of marketing offices in Hong Kong and in Atlanta, Georgia,
the hiring of selling and marketing personnel for NetSat, which accounted for
approximately $575,000, or 17.5%, of the selling and marketing expenses for the
year and the increase in the number of bids and proposals prepared by the
Company. Selling and marketing expenses as a percentage of revenues was 9.1% for
the fiscal year ended June 30, 1997 compared to 14.2% for the fiscal year ended
June 30, 1996.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased by
$63,000, or 8.9%, to $649,000 for the fiscal year ended June 30, 1997 from
$712,000 for the fiscal year ended June 30, 1996 due to a decline in development
costs associated with customizable systems. Research and development expenses as
a percentage of revenues decreased to 1.8% for the fiscal year ended June 30,
1997 from 5.3% for the fiscal year ended June 30, 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $1.5 million, or 77.3%, to $3.4 million for the fiscal year ended June 30,
1997 from $1.9 million for the fiscal year ended June 30, 1996, but decreased as
a percentage of revenues to 9.5% for the fiscal year ended June 30, 1997 from
14.4% for the fiscal year ended June 30, 1996. The increase in general and
administrative expenses resulted from personnel increases to service the
increasing customer base for the Company's ground segment business as well as
the hiring of NetSat administrative personnel, which accounted for approximately
$608,000, or 17.6%, of the general and administrative expenses for the year.
FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
REVENUES. Revenues increased to $13.5 million for the fiscal year ended
June 30, 1996 from $72,000 for the year ended June 30, 1995 as a result of the
commencement of commercial operations.
COSTS OF REVENUES. Costs of revenues increased to $11.2 million for the
fiscal year ended June 30, 1996 from $58,000 for the fiscal year ended June 30,
1995 as a result of the commencement of commercial operations.
GROSS PROFIT. Gross profit increased to $2.2 million for the fiscal year
ended June 30, 1996 from $14,000 for the fiscal year ended June 30, 1995. The
increase was primarily due to the commencement of commercial operations and the
shipment of ground segment systems and networks.
SELLING AND MARKETING. Selling and marketing expenses increased to $1.9
million for the fiscal year ended June 30, 1996 from $346,000 for the fiscal
year ended June 30, 1995 as a result of the first full year of commercial
operations.
RESEARCH AND DEVELOPMENT. Research and development expenses were $712,000
for the fiscal year ended June 30, 1996. There were no research and development
expenses for the fiscal year ended June 30, 1995. Research and development
expenses in fiscal 1996 were related primarily to development of the Company's
customizable systems.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.9 million for the fiscal year ended June 30, 1996 from $772,000 for the
fiscal year ended June 30, 1995. This increase was primarily attributable to
increases in costs of hiring additional personnel to support the Company's
expanding customer base.
23
<PAGE>
QUARTERLY RESULTS
The following tables set forth certain unaudited financial information for
each of the eight fiscal quarters in the period ended June 30, 1997. The Company
believes that this information has been presented on the same basis as the
audited Consolidated Financial Statements appearing elsewhere in the Prospectus
and in the opinion of management all necessary adjustments (consisting only of
normal recurring adjustments) have been included in the amounts stated below to
present fairly the unaudited quarterly results when read in conjunction with the
audited Consolidated Financial Statements of the Company and related Notes
thereto included elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1996 1996 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $3,009 $4,306 $3,203 $ 2,958 $4,155 $9,151 $8,226
Costs of revenues............................ 2,156 3,819 2,463 2,799 3,591 7,906 7,239
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 853 487 740 159 564 1,245 987
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Selling and marketing...................... 337 458 458 661 554 847 815
Research and development................... 175 76 237 224 92 137 122
General and administrative................. 383 481 568 515 661 755 1,118
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses..................... 895 1,015 1,263 1,400 1,307 1,739 2,055
--------- --------- --------- --------- --------- --------- ---------
Loss from operations..................... (42) (528) (523) (1,241) (743) (494) (1,068)
Interest income, net......................... 40 14 28 7 14 56 117
--------- --------- --------- --------- --------- --------- ---------
Loss before minority interests in operations
of consolidated subsidiary.................. (2) (514) (495) (1,234) (729) (438) (951)
Minority interests in operations of
consolidated subsidiary..................... -- -- -- -- 175 100 --
--------- --------- --------- --------- --------- --------- ---------
Net loss................................. $ (2) $ (514) $ (495) $(1,234) $ (554) $ (338) $ (951)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PERCENTAGE OF TOTAL REVENUES:
Revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of revenues............................ 71.7 88.7 76.9 94.6 86.4 86.4 88.0
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................. 28.3 11.3 23.1 5.4 13.6 13.6 12.0
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Selling and marketing...................... 11.2 10.6 14.3 22.3 13.3 9.3 10.0
Research and development................... 5.8 1.8 7.4 7.6 2.2 1.5 1.5
General and administrative................. 12.7 11.2 17.8 17.4 15.9 8.2 13.6
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses..................... 29.7 23.6 39.5 47.3 31.4 19.0 25.1
--------- --------- --------- --------- --------- --------- ---------
Loss from operations..................... (1.4) (12.3) (16.4) (41.9) (17.8) (5.4) (13.1)
Interest income, net......................... 1.3 .4 .9 .2 .3 .6 1.4
--------- --------- --------- --------- --------- --------- ---------
Loss before minority interests in operations
of consolidated subsidiary.................. (.1) (11.9) (15.5) (41.7) (17.5) (4.8) (11.7)
Minority interests in operations of
consolidated subsidiary..................... -- -- -- -- 4.2 1.1 --
--------- --------- --------- --------- --------- --------- ---------
Net loss................................. (.1)% (11.9)% (15.5)% (41.7)% (13.3)% (3.7)% (11.7)%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
JUNE 30,
1997
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $14,688
Costs of revenues............................ 13,324
---------
Gross profit............................... 1,364
---------
Operating expenses:
Selling and marketing...................... 1,066
Research and development................... 298
General and administrative................. 915
---------
Total operating expenses..................... 2,279
---------
Loss from operations..................... (915)
Interest income, net......................... 89
---------
Loss before minority interests in operations
of consolidated subsidiary.................. (826)
Minority interests in operations of
consolidated subsidiary..................... --
---------
Net loss................................. $ (826)
---------
---------
PERCENTAGE OF TOTAL REVENUES:
Revenues..................................... 100.0%
Costs of revenues............................ 90.7
---------
Gross profit............................. 9.3
---------
Operating expenses:
Selling and marketing...................... 7.3
Research and development................... 2.0
General and administrative................. 6.2
---------
Total operating expenses..................... 15.5
---------
Loss from operations..................... (6.2)
Interest income, net......................... .6
---------
Loss before minority interests in operations
of consolidated subsidiary.................. (5.6)
Minority interests in operations of
consolidated subsidiary..................... --
---------
Net loss................................. (5.6)%
---------
---------
</TABLE>
24
<PAGE>
The Company may in the future experience significant quarter to quarter
fluctuations in its results of operations, which may result in volatility in the
price of the Company's Common Stock. Quarterly results of operations may
fluctuate as a result of a variety of factors, including the timing of the
initiation and completion of contracts, the demand for the Company's products
and services, the introduction of new or enhanced products and services by the
Company or its competitors, market acceptance of new products and services, the
mix of revenues between custom-built satellite communications systems and
networks designed for its customers and standard installations provided to its
customers, the growth of demand for Internet infrastructure-based products and
services in developing countries, the timing of significant marketing programs,
the extent and timing of the hiring of additional personnel, competitive
conditions in the industry and general economic conditions. Due to the foregoing
factors, it is likely that in one or more future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the price of
the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily from the sale of
equity securities and, to a lesser degree, from stockholder loans. Through June
30, 1997, the Company raised approximately $20.6 million of net proceeds through
private offerings of its Common Stock and Convertible Preferred Stock. The
Company received net proceeds of $4.2 million from sales of Common Stock in
private offerings during the period from August 17, 1994 (inception) to June 30,
1995, $4.4 million from sales of Common Stock and Convertible Preferred Stock in
private offerings during the fiscal year ended June 30, 1996 and $12.6 million
from the sale of Convertible Preferred Stock in private offerings and the
exercise of warrants during the fiscal year ended June 30, 1997. In addition,
the Company's chief executive officer lent the Company $315,000 in October 1994,
which was repaid in full in January 1997, and $80,700 during fiscal 1995, of
which $60,000 was repaid during fiscal 1995 and $20,700 was repaid during fiscal
1996. See "Certain Transactions."
At June 30, 1997, the Company had working capital of $6.4 million, including
cash and cash equivalents of $5.2 million, restricted cash of $1.5 million,
accounts receivable of $14.4 million and inventories of $2.3 million, offset by
$16.1 million in accounts payable and $1.1 million in accrued expenses.
With the net proceeds from this Offering, the Company intends to use
approximately $6.0 million to fund capital expenditures and investments in
strategic suppliers, approximately $3.0 million to fund start-up expenses and
investments in potential international joint ventures associated with NetSat,
and approximately $17.9 million to fund working capital requirements, increased
selling and marketing efforts, increased internal research and development
expenses, potential acquisitions of complementary businesses, products or
technologies and for general corporate purposes.
The Company has experienced negative cash flow from operations since its
inception. Net cash used in operating activities for the periods from inception
to June 30, 1995 and the fiscal years ended June 30, 1996 and 1997 was $454,000,
$2.5 million and $2.0 million, respectively. The principal factor contributing
to the negative operating cash flow during the period from inception to June 30,
1995 was the net loss from operations for this period of $1.1 million. This loss
was offset in part by an excess of approximately $387,000 of accounts payable
over the value of inventory at the end of the period. This excess reflects the
fact that the Company normally acquires inventory only against specific customer
contracts. As a result, a portion of such inventory is delivered and revenue
accrued more quickly than payment for such inventory is required by normal
commercial terms. For the fiscal year ended June 30, 1996, the principal
contributor to the negative cash flow, in addition to the net loss of $2.2
million, was an increase in accounts receivable of approximately $1.9 million as
deliveries were made against the underlying contracts. This negative cash flow
was offset in part by reductions in inventory of approximately $664,000,
increases in operating liabilities (reflecting a continued expansion of
operations) and the use of stock to pay certain compensation expenses.
Management anticipates that NetSat will experience negative cash flow for at
least the next several years as a result of capital investment required for
construction of its hub facility in Hauppauge, New York, development of its
planned initial operations in Russia and Eastern Europe and initial losses from
operations. In order to limit the capital requirements for startup of operations
in Eastern Europe, NetSat
25
<PAGE>
uses the services of a hub facility located in Germany and owned by Hughes
Olivetti Telecom Limited, an affiliate of Hughes Network Systems.
Several factors had a major effect on the Company's liquidity during the
fiscal year ended June 30, 1997. First, revenues increased substantially as a
result of a significant increase in contract deliveries. The higher revenues
increased the Company's working capital needs, as accounts receivable increased
by approximately $12.4 million during the fiscal year ended June 30, 1997.
Offsetting the increased accounts receivable were an increase in accounts
payable of approximately $13.3 million and accrued expenses of approximately
$560,000 reflecting costs incurred in performing the contracts. Because the
Company records progress payments as an offset to inventory, the approximately
$916,000 increase in net inventory during the fiscal year is lower than might be
expected based on the increased level of activity and receipt of substantial
progress payments against contracts not yet completed (an increase of
approximately $3.9 million from June 30, 1996 to June 30, 1997). Inventory
levels may be expected to increase as work proceeds on these contracts.
The second factor affecting liquidity during the fiscal year ended June 30,
1997 was the Company's investment activities. The Company increased its
investment in its strategic suppliers by approximately $885,000 during the
fiscal year and purchased approximately $735,000 in additional computer and test
equipment. In addition, the Company purchased a new office and assembly facility
for approximately $2.6 million in cash and has spent an additional $3.4 million
on improvements. The Company expects the office and assembly-facility will
require an additional expenditure of approximately $500,000 for improvements.
The Company intends to seek financing for the facility and improvements through
third parties.
The third major factor affecting liquidity was the completion of a private
offering of Convertible Preferred Stock and the exercise of warrants during the
fiscal year ended June 30, 1997. Net proceeds of these transactions were
approximately $12.6 million leaving the Company with cash and cash equivalents
at the end of the fiscal year of approximately $5.2 million, which does not
include $1.5 million of restricted cash.
The Company has incurred losses since its inception and therefore has not
been subject to federal income taxes. Through June 30, 1997, the Company, for
income tax purposes, has generated net operating loss carryforwards of
approximately $5.1 million which may be available to reduce future taxable
income and future tax liabilities. These carryforwards begin to expire in the
years 2010 through 2012. The Tax Reform Act of 1986 provides for an annual
limitation on the use of net operating loss carryforwards (following certain
ownership changes) that could significantly limit the Company's ability to
utilize these carryforwards. Upon the completion of this Offering, the exercise
of the over-allotment option or the subsequent exercise of options or warrants
or in connection with other future sales of equity, the Company's ability to
utilize the aforementioned carryforwards to reduce future taxable income and tax
liabilities may be limited. Additionally, because the United States tax laws
limit the time during which these carryforwards may be applied against future
taxes, the Company may not be able to take full advantage of these attributes
for federal income tax purposes.
The Company has a $5.0 million credit facility consisting of (1) a $2.5
million secured domestic line of credit and (2) a $2.5 million secured
export-import guaranteed line of credit. Each line of credit bears interest at
the prime rate plus 1/2% per annum and is collateralized by a first security
interest on all assets.
The Company's future capital requirements will depend upon many factors,
including the extent to which it is able to locate additional strategic
suppliers in whose technology it wishes to invest, the success of the Company's
marketing efforts in both the satellite ground segment and Internet services
fields, the nature and timing of customer orders and the extent to which it must
conduct research and development efforts internally. Based on current plans, the
Company believes that its existing capital resources together with the net
proceeds of this Offering will be sufficient to meet its capital requirements
for at least the next 12 to 18 months.
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BUSINESS
OVERVIEW
The Company designs, assembles and installs satellite ground segment systems
and networks which support a wide range of satellite communications
applications, including fixed, mobile and direct broadcast services as well as
certain military applications. The Company's customers include prime
communications infrastructure contractors, government-owned PTTs, other
telecommunications carriers, producers and distributors of news and
entertainment content and other corporations. The Company's ground segment
systems typically consist of an earth station, which is an integrated system
designed to transmit and receive signals to and from satellites, together with
ancillary subsystems. The Company's ground segment networks are typically
comprised of two or more ground segment systems communicating with a satellite
and interconnected with a terrestrial network. Since the Company commenced
operations in August 1994, it has completed, or is in the process of completing,
the installation of 77 ground segment systems and networks in 31 countries.
The Company's revenue grew from $72,000 at the end of its first fiscal year
to $13.5 million for the fiscal year ended June 30, 1996 and to $36.2 million
for the fiscal year ended June 30, 1997. During the fiscal year ended June 30,
1997, the Company booked $65.4 million in contract orders and, at June 30, 1997,
had a backlog of $40.8 million of contract orders. The Company believes that its
revenue growth and its ability to compete are based on its unique combination of
competitive advantages which include: (i) an experienced management group with
extensive technological and engineering expertise, (ii) the proven ability to
meet the complex satellite ground segment requirements of its customers in
diverse political, economic and regulatory environments in various locations
around the world and (iii) its ability to identify, develop and maintain
strategic relationships with developers and suppliers of leading-edge
technologies which enhance performance, reduce costs and broaden the
applications of the Company's ground segment systems and networks. An industry
source has recently reported that the Company ranks among the world's seven
major manufacturers-suppliers of large ground segment systems for fixed
telecommunications and currently ranks second behind the industry leader, which
has 50% of this market.
The Company has recently established a subsidiary, NetSat, to develop
service revenues by providing high-speed, satellite-delivered data
communications to developing markets worldwide. In order to accomplish this
objective, NetSat intends to leverage: (i) the Company's expertise in satellite
ground segment system and network implementation, (ii) extensive management
experience in providing satellite-delivered communications services, (iii) the
knowledge and capabilities of local market strategic partners and (iv) DirecPC
and Personal Earth Station technology developed and owned by Hughes Network
Systems. Each project for which NetSat uses HNS' DirecPC technology will require
the grant of a license from HNS to NetSat. NetSat currently is pursuing a joint
venture with local partners in Russia to market low-cost, high-speed satellite
Internet access services, as well as intranet services, to corporate,
educational and government customers who have limited or no access to
terrestrial network infrastructure capable of supporting the economical delivery
of such services. To date, NetSat has generated only limited revenues.
INDUSTRY BACKGROUND
SATELLITE COMMUNICATIONS
MARKET STRUCTURE
Satellite communications systems are comprised of satellites (the "space
segment") and ground-based transmission and reception systems (the "ground
segment"). The space segment consists of one or more
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satellites in earth orbit which typically provide continuous communications
coverage over a wide geographic area. Satellites typically contain multiple
transponders, each capable of independently receiving and transmitting one or
more signals to or from multiple users simultaneously. The ground segment
consists principally of one or more earth stations, which provide a
communications link to the end user either directly or through a terrestrial
network. An earth station is an integrated system consisting of antennas, radio
signal transmitting and receiving equipment, modulation/demodulation equipment,
monitor and control systems and voice, data and video network interface
equipment.
Satellite communications industry participants include: (i) designers,
manufacturers and integrators of ground segment products, systems and networks,
(ii) communications service providers, which may or may not own the actual
satellites used for transmission and (iii) designers, manufacturers and
operators of satellites. The Company has participated principally in the ground
segment systems and networks portion of the market and has recently expanded
into the satellite-delivered data communications services market through its
NetSat subsidiary.
MARKET SIZE
According to FCC estimates, providers of commercial satellite-delivered
communications services generated approximately $13.8 billion in revenues in
1995 and this amount is expected to grow at a compound annual rate of
approximately 21% through the year 2000 to approximately $37.0 billion. The
Company believes that the historic and expected growth in its addressable ground
segment markets has been and will continue to be driven by, among other things,
the growth of satellite-delivered communications services.
SATELLITE GROUND SEGMENT. Based on industry sources, the markets for ground
segment systems and networks in which the Company competes had aggregated
revenues of approximately $1.6 billion in 1996 and are projected to grow at a
compound annual rate of approximately 11% to revenues of approximately $2.5
billion by the year 2000. These data do not include estimates for revenues of
military-tactical systems, custom networks, ground segment management systems
and dedicated Internet access products, each of which is a market to which the
Company targets its ground segment systems and networks.
SATELLITE-DELIVERED DATA COMMUNICATIONS SERVICES. Through NetSat, the
Company participates in the satellite-delivered data communications segment of
the overall satellite-delivered communications services market. Although there
are currently no reliable data available on the market for satellite-delivered
Internet and intranet applications in developing countries, the Company believes
such market has potential for rapid growth. The Company bases this belief on the
increasing use of Internet and intranet applications in developing markets,
together with the relatively undeveloped terrestrial infrastructure in such
markets. The FCC has estimated that the worldwide satellite-delivered data
communications market (including Internet and intranet applications) accounted
for revenues of approximately $1.3 billion in 1995 and projects that such
worldwide market will grow at a compound annual growth rate of 26% to revenues
of approximately $4.2 billion in the year 2000.
SATELLITE SERVICE APPLICATIONS
Satellites provide a number of advantages over terrestrial facilities for
many high-speed communications service applications. First, satellites enable
high-speed communications service where there is no suitable terrestrial
alternative available or where the terrestrial alternative is inadequate.
Second, unlike the cost of terrestrial networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations. Finally, in contrast to the installation of fiber optic cable which is
expensive, time consuming and requires obtaining rights-of-way, satellite
networks can be rapidly installed, upgraded and reconfigured. The three
principal categories of satellite communications service applications are: (i)
fixed satellite services, (ii) mobile satellite services and (iii) direct
broadcast services.
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FIXED SATELLITE SERVICES. Fixed satellite services provide point-to-point
and point-to-multipoint satellite communication of voice, data and video between
fixed land-based earth stations. The introduction of high-power satellites has
created additional growth within the fixed satellite services segment by
enabling the use of smaller, less costly earth stations, such as very small
aperture terminals ("VSATs"), for applications such as corporate data networks,
Internet access and rural telephony. The Company believes that the fixed
satellite services segment will continue to experience rapid growth due to the
expansion of VSAT applications and the planned implementation of new
high-capacity, high-power Ka-band (20-30 GHz) systems within the next several
years. The future Ka-band services are expected to expand the number of
applications provided directly to the home and are expected to reduce
significantly the cost of such services. These systems offer the additional
bandwidth needed for emerging multimedia services that combine voice and video
transmissions, as well as Internet access, expanded telephony services, and
computer networking.
MOBILE SATELLITE SERVICES. Mobile satellite services, which operate between
fixed gateway earth stations and mobile user earth stations (terminals), provide
mobile voice and data transmission capability on land, sea and air. New mobile
satellite services are being developed using low, medium and geostationary
orbiting satellite systems that are designed to bring more extensive coverage
and circuit reliability for mobile telephone and data services to underserved
populations throughout the world.
DIRECT BROADCAST SERVICES. Direct broadcast satellite services provide a
direct transmission link from high-power satellites to customers over a wide
geographic area. Technology which has been successfully deployed by Thomson,
Hughes Network Systems and others for direct-to-home television services is now
being applied to direct broadcast data services, including Internet and intranet
access.
DATA COMMUNICATIONS AND THE INTERNET
The data communications services market is comprised currently of common
carrier data network services, corporate business networks and emerging
applications such as Internet and intranet services. The Company believes that
Internet and intranet services will comprise a significant portion of data
communications services used in developing countries, and that the growth of
data communications services in these regions will rely on satellite
communications to a significant extent.
THE INTERNET
The Internet is a global network of millions of interconnected computers and
computer networks that allow businesses, other organizations and individuals to
communicate electronically, distribute and receive information and conduct
commerce. Advances in technology, low-cost Internet access and an increasing
corporate reliance on distributed information environments has fueled the rapid
growth of the Internet. Much of the recent growth in Internet use by businesses
and individuals has been driven by the emergence of the World Wide Web (the
"Web"), a network of servers and information available on the Internet. The Web
enables users to find and retrieve vast and diverse quantities of information on
the Internet in a consistent, easy-to-use manner that makes the underlying
complexities transparent to the user.
The utility of the Internet as a global communications network enabling
millions of users worldwide to access information in real-time is dependent upon
the existence of a communications infrastructure which can accommodate the rapid
and reliable transmission of such information. Today, much of the world lacks
not only the sophisticated optical fiber and digital switching infrastructure
required for the high-speed transmission of data over the Internet, but also the
basic telephone networks to accommodate low-speed data communication over
traditional analog facilities. Due to the high costs associated with the
installation of wireline infrastructures capable of the reliable transmission of
data at higher speeds and with better quality, the Company believes that the
development of a communications infrastructure in much of the world, and the use
of the Internet both by individuals and as a viable commercial tool, will in
large part depend upon the rapid installation of wireless and satellite
communications systems.
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CORPORATE INTRANETS
The low-cost client/server tools which have been developed for the Internet
offer compelling support for the creation of corporate "intranets," which are
private data networks that provide employees with easy access to corporate
databases. The benefits of applying Internet technology to private corporate
data networks include the lower cost of implementation, standardized user
interfaces, lower training and support costs, platform independence, and the
ease of interfacing to "legacy" mainframe databases. The benefits associated
with corporate migration to these Internet tools have created a rapidly growing
market in the United States and other developed markets where relatively
inexpensive data communications have been available. An industry source
estimates that revenues from the corporate intranet market will exceed the
revenues attained from the Internet market by a ratio of 2:1 by the year 1999.
The Company believes that the use of satellite communications technology
which may be used to bring both the Internet and corporate intranets to nations
that are developing their telecommunications infrastructure will help those
nations rapidly improve their education, access to medical information, commerce
and overall communications.
GROWTH DRIVERS
The Company believes that the growth projected by third parties in the
satellite communications industry will be driven principally by the following
major factors: (i) global deregulation and privatization of government-owned
monopoly telecommunications carriers, (ii) rapidly growing worldwide demand for
communications services in general, including data communications services over
the Internet and corporate intranets, (iii) the relative cost-effectiveness of
satellite communications for many applications and (iv) technological
advancements which broaden applications for and increase the capacity in both
satellite and terrestrial networks. The Company believes that growth in its
addressable ground segment markets has been and will continue to be driven by,
among other things, the growth of satellite-delivered communications services.
DEREGULATION AND PRIVATIZATION. Rapid deregulation and privatization, and
the implementation of governmental policies aimed at developing modern
telecommunications infrastructure, are occurring globally, as countries seek the
economic benefits of enhanced and expanded telecommunications services. Through
deregulation and privatization, governments are stimulating the development of
competitive telecommunications services in the private sector. These actions
have placed communications carriers under increasing pressure to achieve greater
efficiencies and to offer their services to broader customer bases at more
competitive prices, leading to an increase in capital investment. In addition,
the Company believes that the recent World Trade Organization proposal which
will provide U.S. and foreign companies with market access to a variety of
telecommunications services and allow foreign ownership of telecommunication
companies will lead to additional increased capital investment in the worldwide
telecommunications market.
GROWING WORLDWIDE DEMAND FOR COMMUNICATIONS SERVICES. Factors contributing
to the growing demand for communications services include worldwide economic
development, governmental policies aimed at improving the telecommunications
infrastructure in developing countries and the increasing globalization of
commerce. In addition to the growth in developing markets, the terrestrial
infrastructure in developed countries is evolving to support the growing demand
for higher bandwidth services in response to the needs of businesses to
communicate with customers and employees located around the world and to the
growing acceptance of the Internet and multimedia applications as both
productivity-enhancing tools and consumer products. The Company expects demand
for these kinds of higher bandwidth services to grow in developing countries as
well. The International Telecommunications Union forecasts that the number of
telephone lines in developing countries will grow at a compound annual growth
rate of 17% per year through the year 2000, compared to 5% per year in the same
period for developed nations. The Company believes that global network
infrastructure development will require
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significant reliance upon satellite communications because satellite-delivered
communications services can be implemented quickly and deliver flexible
high-speed transmission capacity at relatively low cost over large geographic
areas.
RELATIVE COST-EFFECTIVENESS OF SATELLITE COMMUNICATIONS. The relative
cost-effectiveness of satellite communications compared to terrestrial solutions
for many applications is a major factor driving the growth of satellite
communications in areas with rapidly growing telecommunications infrastructures
such as the Asia-Pacific region and the former Soviet Union. The vast geographic
areas to be covered, where population concentrations are separated by large
distances, require a technology whose cost and speed of implementation is
relatively insensitive to distance. Unlike the cost of terrestrial networks, the
cost to provide services via satellite does not increase with the distance
between sending and receiving stations. A single satellite can be configured to
deliver both broad beams that cover entire regions and narrow spot beams that
cover only areas of high population or traffic density.
TECHNOLOGICAL ADVANCES. Technological advances which increase the capacity
of a single satellite and/ or increase the number of potential applications of
its available bandwidth reduce the overall cost of a system or the service it
delivers. This increases the number of potential end users for the services and
expands the available market. Recent technological developments which make
satellite solutions increasingly competitive in cost and performance with
terrestrial-based networks, or as a viable alternative solution where
terrestrial services are not feasible, include:
- BANDWIDTH ON DEMAND -- allows the satellite transponder bandwidth to be
allocated dynamically as user needs require. Excess bandwidth capacity is
returned to a "pool" of bandwidth that can then be accessed by other
users.
- DIGITAL TECHNOLOGY -- allows compression of data to communicate more
information at lower costs using less bandwidth. Digital compression
technology, when applied to international voice, data and video
transmission by satellite, increases several fold the capacity of
satellite transponders.
- HIGH-POWER SATELLITES -- provide a signal powerful enough to deliver
reception over a large geographic area and reduce the size, and
consequently cost, of the ground-based receiving and transmitting
antennas. High-power satellites, coupled with advanced digital processing
receivers, allow transmission of high-quality television programming and
high-speed data to the home with antennas of less than 21 inches in
diameter.
- SPOT-BEAM TECHNOLOGY -- narrowly focuses a satellite-delivered signal on
the receiving antenna and reduces the total power requirements in the
satellite, enabling an increase in a satellite's circuit capacity without
a corresponding increase in weight, associated equipment and launch costs.
Spot-beam technology, combined with an antenna for wide area coverage, may
be used to provide local and national television programming
simultaneously from a single geostationary satellite.
- ONBOARD PROCESSING -- provides the ability to switch circuits on the
satellite rather than on the ground. By building a "switch in the sky,"
the cost of implementing telecommunications infrastructure may be reduced,
facilitating the implementation of applications such as mobile telephony
via satellite and future direct-to-home data, video and voice services.
GSI COMPETITIVE ADVANTAGES
The Company believes that it is well positioned to capitalize on the
increasing demand for satellite ground segment systems and networks and
satellite-delivered data communications services and that its future success in
these markets will be based upon its ability to leverage its unique combination
of competitive advantages that have led to its historical achievements and its
favorable industry reputation. These competitive advantages include: (i) an
experienced management group with extensive technological and engineering
expertise, (ii) the proven ability to meet the complex satellite ground segment
requirements of its customers in diverse political, economic and regulatory
environments in various
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locations around the world and (iii) the ability to identify, develop and
maintain strategic relationships with developers and suppliers of leading-edge
technologies which enhance the performance, reduce costs and broaden the
applications of the Company's ground segment systems and networks.
GSI BUSINESS STRATEGY
The Company's business strategy is to expand its market share in its ground
segment systems and networks business, improve its profitability, and create
opportunities to capture recurring service revenues. The Company intends to
execute this strategy by: (i) targeting communication infrastructure development
opportunities worldwide, (ii) focusing on high margin engineering-intensive
system and network projects, (iii) developing strategic customer relationships,
(iv) developing strategic supplier relationships and (v) entering the data
communications services business through NetSat.
TARGET INFRASTRUCTURE DEVELOPMENT OPPORTUNITIES
The Company primarily targets developing markets which it believes will
account for a significant portion of the growing demand for ground segment
systems and networks because these markets typically lack terrestrial
infrastructure adequate to support increasing demand for domestic and
international communications services. In addition, in developed countries the
Company targets ground segment infrastructure development projects for emerging
satellite communications applications such as direct broadcast and future
Ka-band systems. The Company has developed an international sales and marketing
organization focused on identifying opportunities for the Company and on
developing key sourcing relationships. In order to increase its access to
project opportunities and limit its exposure to the political and commercial
complexities of doing business in foreign countries, the Company intends to
continue to pursue international opportunities primarily in partnership with
strong local companies or as a subcontractor to larger communications services
and infrastructure providers. Most of the Company's revenues are derived from
sales to customers outside the United States. Revenues from foreign sales
accounted for 22% and 40% of total revenues in fiscal years 1996 and 1997,
respectively.
FOCUS ON ENGINEERING-INTENSIVE SYSTEM AND NETWORK PROJECTS
The Company seeks to focus its technological expertise on high value-added
system and network projects which require engineering-intensive design and
implementation. This emphasis positions the Company to earn higher gross margins
through the delivery of innovative, cost-effective solutions to customer
performance requirements that are typically priced on a negotiated basis, as
opposed to typically lower-margin competitive bid projects. In addition, the
Company often benefits from the research and design phase of its more complex
projects through the development of proprietary products, systems and
technologies that can be applied cost-effectively to future projects and which
provide the Company with a competitive advantage.
DEVELOP STRATEGIC CUSTOMER RELATIONSHIPS
The Company seeks to build close relationships with customers for whom it
can provide complementary engineering skills by working as part of their system
development teams. A key objective of this strategy is to obtain this business
on a negotiated basis, rather than through the competitive bidding process,
which is likely to carry a lower margin. To date, the Company has developed
strategic relationships with two of its customers: Hughes Network Systems and
Thomson. The Company sought the establishment of these relationships based on
these customers' abilities to: (i) generate significant potential revenues for
the Company, (ii) provide access to a large number of potential business
opportunities as a result of their size and global operations and (iii) provide
access to complementary technologies and expertise that could serve as
competitive advantages for the Company. At June 30, 1997, Hughes Network Systems
and Thomson owned equity interests in the Company of 3.7% and 6.3%,
respectively. In addition, Hughes Network Systems owns a 19.0% equity stake in
NetSat, with an option to increase this position to 29.0%.
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DEVELOP STRATEGIC SUPPLIER RELATIONSHIPS
The Company seeks to establish strategic relationships with suppliers that
it believes are in a unique position to supply products or services which will
improve the Company's competitive position in one or more of the markets which
it serves. In certain cases, the Company seeks to strengthen such relationships
by investing in such suppliers, and has, through June 30, 1997, made equity
investments of an aggregate of approximately $1.0 million for minority equity
stakes of approximately 19.0%, 6.6% and 17.0% in Shiron Satellite Communications
(1996) Ltd. ("Shiron"), C-Grams Unlimited, Inc. ("C-Grams") and Armer
Communications Engineering Services, Inc. ("Armer"), respectively. The strategic
supplier relationships with Shiron and C-Grams enable the Company to outsource a
significant portion of its research and development costs and gain access to
advanced technology while preserving the independence to select the best
products and technologies to deliver to its customers on any particular project.
The relationship with Armer allows the Company preferred access to quality field
engineering and installation resources. The Company intends to continue to
pursue additional strategic supplier relationships on a selective basis.
CREATE RECURRING SERVICE REVENUE OPPORTUNITIES
The Company seeks to capture recurring revenues by providing data
communications services. The initial application of this strategy is the
Company's NetSat subsidiary, formed in alliance with Hughes Network Systems, to
provide satellite-delivered data communications services such as Internet
access, intranet applications and business data applications in developing
countries, using HNS' low-cost, high-speed Personal Earth Station and DirecPC
Terminal technology. The Company's strategy for implementing this objective
through NetSat includes the following major elements:
MARKET THROUGH JOINT VENTURES AND STRATEGIC RELATIONSHIPS. NetSat intends
to form joint ventures with strategic partners located in local markets around
the world which are expected typically to handle marketing, distribution and
support of the NetSat Direct and DirecPC products and would typically provide
transmission, content delivery, billing and customer service functions. The
Company anticipates selecting local market partners based upon their in-region
marketing experience, knowledge of the local regulatory environment, operating
licenses, existing customers, established business organizations and other
important elements that the Company believes will help support the success of
the venture. The Company is currently providing services in certain Eastern
European countries pursuant to a value-added reseller agreement with Hughes
Olivetti Telecom Limited ("HOT"), a joint venture between Ing. C. Olivetti & C.,
S.p.A. and an affiliate of Hughes Network Systems, and is pursuing a joint
venture with local partners in Russia.
SEEK MULTIPLE REVENUE SOURCES. Through NetSat and its potential joint
venture affiliates, the Company intends to generate revenue from multiple
sources, including the sales of terminal equipment to potential subscribers, the
transmission of data via satellite, the provision of Internet connections and
incidental services such as domain name service, and the development and
delivery of custom content for specific customer groups.
TARGET MULTINATIONAL CUSTOMER BASE. NetSat intends to establish a diverse,
multinational customer base by designing innovative Internet, intranet and
business data service solutions for corporations, governments and educational
institutions in countries with rapidly growing telecommunications infrastructure
requirements. NetSat plans to apply the same satellite-delivered technology
which it uses for Internet access to meet the communication needs of corporate
users in such countries in support of their intranet requirements.
GSI GROUND SEGMENT SYSTEMS AND NETWORKS
The Company designs, assembles and installs ground segment system and
network solutions for the complex and changing communications requirements of
its customers. The Company's ground segment systems typically consist of an
earth station and ancillary subsystems such as microwave links for back-haul
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of traffic to a central office or generators for emergency power restoral. An
earth station is an integrated system consisting of antennas, transmitting and
receiving equipment, modulation/demodulation equipment, monitor and control
systems and voice, data and video network interface equipment. The Company's
ground segment networks are typically comprised of two or more ground segment
systems interconnected with a satellite and/or terrestrial communications
network. The Company's customizable systems may be sold separately as
stand-alone ground segment systems or may be used as modular building blocks to
be integrated into a complete ground segment system or network. The Company
believes that this modular approach allows it to engineer its ground segment
systems and networks to serve client-specific traffic and service requirements
rapidly, cost-effectively and efficiently.
CUSTOMIZABLE SYSTEMS
CURRENTLY AVAILABLE CUSTOMIZABLE SYSTEMS
FAMILY OF STANDARD INTELSAT EARTH STATIONS. This family of earth stations,
which is used primarily for international voice, data and video circuit trunking
and as gateways for domestic networks using the International Telecommunications
Satellite Organization ("Intelsat") system, is targeted principally at PTTs and
other common carriers. The family consists of earth stations of varying sizes
and capacities, all of which conform to Intelsat specifications. The Intelsat
Standard A earth stations, which have the highest capacity, feature antennas
ranging from 13 to 21 meters in diameter, high-power amplifiers from 700 to
3,000 watts, radio frequency converters and related electronics, modems and a
UNIX or Microsoft Windows NT based monitoring and control system. Available
options include power monitor systems, de-icing equipment, uninterruptible power
system/backup generators and equipment shelters. The Company has designed and
installed Intelsat Standard A earth stations in China, Korea, Kuwait, Malaysia,
the United Kingdom and the United States. The Company typically sells these
Intelsat Standard A earth stations at prices ranging from approximately $1.0
million (13-meter antenna) to approximately $2.0 million (21-meter antenna). The
Company is able to provide smaller, lower capacity earth stations that conform
to Intelsat specifications by customizing its modular building block or
commercial terminal families of earth stations described below.
MODULAR BUILDING BLOCK (MBB) EARTH STATION. These earth stations are
incorporated in point-to-point data links and hubs for VSAT and Demand Assigned
Multiple Access ("DAMA") networks, and are typically used as gateways for
corporate, common carrier and government networks. These earth stations can also
be configured to conform to the applicable standards of Intelsat and other
satellite systems. Earth stations constructed using MBBs require minimal site
preparation and can be installed rapidly and cost-effectively due to their
modular construction. Antenna sizes range from 4.5 to 9 meters, with high-power
amplifiers ranging from 50 to 700 watts. Generally, all electronics are housed
in a single building mounted rack. Available options include de-icing equipment,
tracking equipment, uninterruptible power system/ backup generators and
equipment shelters. To date, the Company has designed and installed MBB earth
stations in Brazil, India, Indonesia, Pakistan, Russia, Thailand and the United
States. The Company typically sells these earth stations at prices ranging from
approximately $250,000 to $600,000.
COMMERCIAL TERMINAL FAMILY (CTF). This family of earth stations, which
encompasses a range of general purpose, low-cost antenna-mounted earth stations,
is used primarily for data, voice or video transmissions from commercial or
government premises, and are principally targeted at corporate, common carrier
and government networks. These earth stations can also be configured to conform
to the applicable standards of Intelsat and other satellite systems. Antenna
sizes range from 1.2 to 9.3 meters, with high-power amplifiers ranging from 16
to 400 watts. Generally, all radio frequency electronics are housed in
weatherproof enclosures mounted on the antenna. To date, the Company has
designed and installed CTF earth stations in India, Korea, Russia and the United
States. The Company typically sells these earth stations at prices ranging from
approximately $100,000 to $300,000.
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MILITARIZED TRIBAND FLY-AWAY EARTH STATION FAMILY. This family of triband
tactical earth stations is used for military communications applications and is
targeted principally at major defense contractors. These earth stations
typically use a 2.4 meter antenna, are highly transportable, and are designed to
be mounted on a pallet on military vehicles or air-dropped into a combat
environment. The pallet-mounted earth station features an automatic antenna
pointing and multichannel capability. These militarized earth stations are able
to perform under extreme conditions in the military tactical environment and
offer multiband capability: C-band (4-6 GHz), X-band (7-8 GHz) or K-band (12-17
GHz). The Company has sold one of each configuration of this earth station to
Thomson to be used as demonstration models incorporated into military
communications systems currently marketed by Thomson. Prices for these systems
range from approximately $250,000 to $1.0 million, depending on the
configuration.
DIGITAL FLY-AWAY EARTH STATIONS. This group of earth stations is primarily
used for emergency communications and news gathering and is comprised of highly
transportable, modular earth stations designed to be quickly deployed and
installed anywhere in the world. Antenna sizes range from 1.2 to 2.4 meters,
with high-power amplifiers up to 350 watts. All components are mounted in
separate cases which are small enough to be easily transported by commercial
carrier. Additional system availability can be achieved through the addition of
redundant modules for critical components. Since these units may be operated in
a variety of harsh environments, the Company conducts environmental stress
screening tests on these components for enhanced reliability. To date, the
Company has sold one digital fly-away earth station to a customer in Portugal.
The Company markets these earth stations at prices ranging from approximately
$150,000 to $600,000.
EARTH STATION MANAGEMENT SYSTEMS. The Company's earth station systems
typically employ monitor and control software for system maintenance developed
either by the Company or by its strategic supplier, C-Grams. This software
permits the station operator to monitor and control the status of each
electronic equipment component at the station from a remote location and to
receive immediate failure reports and analysis. The Company also offers database
applications to integrate maintenance and operational functions, thereby
reducing operating costs. The price of this software varies substantially and is
typically included in the price of the system or network provided by the
Company.
CUSTOMIZABLE SYSTEMS UNDER DEVELOPMENT
COMPACT DIGITAL EARTH STATION FAMILY. This family of earth stations is
designed to be used principally to provide limited capacity (up to T1/E1 data
rates) to areas with limited or no telecommunications infrastructure. These
digital earth stations will integrate radio frequency and baseband components
into one antenna-mounted package. These earth stations feature a multiband
capability and a proprietary L-band (1 to 1.5 GHz) interface being developed
with Shiron which can support a series of modems for a range of applications,
including rural telephony and digital video. These earth stations may be
operated on either preassigned channels or channels assigned on demand, allowing
efficient transponder utilization. Antenna sizes range from 1.2 to 3.7 meters.
These earth stations are expected to be marketed for less than $20,000.
MOBILE SATELLITE SYSTEM RADIO FREQUENCY TERMINALS. These terminals are a
component of the mobile satellite system gateways expected to be used to
interface between terrestrial telephone networks and satellites that communicate
with mobile land-, air- and sea-based terminals. The Company has designed one
version of this terminal in concert with Hughes Network Systems and another
version in concert with Thomson. Both versions incorporate innovative
proprietary designs which provide L-band interfaces between an earth station's
radio frequency equipment and baseband equipment. Antenna sizes range from 4.5
to 16 meters. These terminals are expected to be marketed primarily to prime
contractors at prices ranging from approximately $500,000 to $2.0 million.
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GROUND SEGMENT SYSTEM INSTALLATIONS
The following are examples of ground segment systems sold or currently being
installed by the Company:
BRITISH TELECOMMUNICATIONS PLC ("BT") INTELSAT STANDARD A SYSTEM
UPGRADE. The Company has designed and installed an Intelsat Standard A ground
segment system upgrade for BT in the United Kingdom for international voice and
digital video transmission. The implementation of this system required the
supply of a new tracking system for an existing BT antenna, an electronics
shelter built to stringent standards, high-power amplifiers, radio frequency
high-power multiplex equipment, up and down converters, and advanced monitor and
control software.
VSAT HUB SYSTEMS. The Company has designed and installed a 9-meter C-band
hub earth station for Hughes Network Systems as part of a VSAT network in
Brazil. The Company utilized its modular building block (MBB) family of
customizable products to meet an accelerated delivery schedule. The Company has
also entered into a contract to provide a 9-meter C-band hub earth station for
AT&T Corporation as part of a VSAT network in Russia, where the Company is
utilizing its commercial terminal family (CTF) of customizable products to
provide a low-cost solution and meet an accelerated delivery schedule.
TELEPORT TP EUROPEAN TELECOMMUNICATIONS SATELLITE ORGANIZATION ("EUTELSAT")
TDMA EARTH STATION SYSTEM. The Company has provided Hughes Network Systems with
an earth station for use in the Eutelsat telephony/data network. This earth
station required sophisticated engineering and implementation due to the high
data rates used by Eutelsat's network. The Company incorporated the C-Grams
earth station management systems into its design to simplify operation of the
earth station by the end user, Teleport TP in Moscow.
ASKYB DIRECT-TO-HOME TRANSMIT SYSTEMS. The Company has entered into a
contract to supply uplink facilities for ASkyB consisting of four 13-meter
antennas with transmit/receive capabilities in the broadcast satellite services
band. The transmit facilities will include eight operational and two backup
uplinks for each of the four antennas. This configuration will provide extremely
high availability of service as well as ease of operation. The Company is
developing customizable designs for future application in other direct broadcast
system uplinks.
GROUND SEGMENT NETWORK INSTALLATIONS
The following are examples of ground segment networks sold or currently
being installed by the Company:
SONANGOL TELECOMMUNICATIONS NETWORK. The Company was awarded a contract to
provide a satellite and cellular telecommunications network comprised of a hub
earth station and 15 remote earth stations for Sonangol, U.E.E., a large oil
supply consortium with operations in remote areas in Africa not served by
terrestrial communications services. The network will also provide
cost-effective cellular coverage at some of the remote oil company locations by
linking those sites back to the central office mobile subscriber switch via
satellite, as well as trunks from remote areas to the company headquarters and
interconnectivity to the local telephone company at the capital city.
THAILAND MINISTRY OF HEALTH TELEMEDICINE NETWORK. The Company has been
awarded a subcontract by Loxley Public Company Limited ("Loxley"), a
telecommunications infrastructure provider in Thailand, to design, assemble and
install, together with Loxley, a telemedicine network comprised of 20 earth
stations in Thailand for the Ministry of Health. This network will provide video
conferencing and bandwidth on demand for transferring images and data from
diverse types of electronic medical diagnostic tools such as X-ray, CAT scan,
and electrocardiogram machines to and from medical personnel situated in remote
locations.
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HYUNDAI NETWORKS. The Company was recently awarded a contract to provide a
corporate network for restoral of terrestrial circuits and for video
broadcasting for Hyundai Electronics Industries Co. Ltd. ("Hyundai") in Korea.
This proposed network is to be comprised of a hub earth station and 12 remote
earth stations with high-speed data capability and an additional 60 locations
with digital video receive-only capability. In addition, the Company and Hyundai
recently designed, assembled and installed, on an accelerated schedule, a
demonstration private corporate network comprised of five earth stations in
Korea. This network provides interconnection between up to five Hyundai
locations for a broad range of purposes, including voice, data and video
conferencing. The Company is working with Hyundai to market similar networks to
other customers in Korea.
NETSAT DATA COMMUNICATIONS SERVICES
The Company's NetSat services are designed to provide broadband access to
data communications media such as the Internet, corporate intranet applications
and business data applications by integrating end-user terminals, satellite
communications equipment and international networks. NetSat provides data
communications services through either a one-way satellite downlink using HNS'
DirecPC Terminal linked to existing terrestrial communications infrastructure,
or through a two-way satellite uplink/downlink using a NetSat Direct Terminal,
which consists of an HNS DirecPC Terminal integrated with an HNS Personal Earth
Station. Each project for which NetSat uses HNS's DirecPC technology will
require the grant of a license from HNS to NetSat. HNS is under no obligation to
grant such licenses and no assurance can be given that NetSat will be able to
obtain licenses from HNS on acceptable terms, or at all. See "Risk
Factors--Reliance on Strategic Relationships." NetSat currently has entered into
a value-added reseller agreement with HOT for sales of DirecPC and Personal
Earth Station 5000 products in certain Eastern European countries. The
value-added reseller arrangement is not contingent upon the grant of any license
from HNS to NetSat.
In the future, NetSat intends to offer a range of options and accessories to
permit value-added resellers to deliver reliable, cost-effective turnkey
solutions to their customers. These options are expected to include multimedia
PCs, alternative antenna configurations, local area network ("LAN") servers and
custom system configurations. NetSat's Network Operations Center ("NOC"), when
functional, will provide 24-hour technical support, as well as a customer and
billing database and certain other functions such as a domain name service, a
mail server and a Web server. NetSat also expects to offer its customers the
ability to access customized interactive multimedia program content developed
for specific user groups.
NETSAT INFRASTRUCTURE
The DirecPC Terminal is a two-way Internet access terminal with a satellite
downlink of 400 Kbps from the Internet, approximately three times as fast as a
terrestrial ISDN line, and a standard dial-up modem to access and send requests
to the Internet. This Internet connection can be routed through either a local
Internet service provider or one of the proposed regional NetSat satellite
gateways. In locations where terrestrial connections do not exist or are not
economically or practically feasible, the DirecPC Terminal downlink can be
integrated with an HNS Personal Earth Station uplink to form the NetSat Direct
Terminal, a small satellite earth station system that can provide the user with
two-way direct satellite access to the Internet and other data communications
services. With a NetSat Direct Terminal, the customer request channel is
uplinked at 19.2 Kbps and is designed to be connected via the NetSat regional
satellite gateway to NetSat's planned NOC in Hauppauge, New York, and then into
the Internet. Responses from the Internet to either a DirecPC unit or a NetSat
Direct Terminal will pass through NetSat's NOC to the regional gateway, and will
be transmitted to the terminal units via satellite link at 400 Kbps.
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The following diagram illustrates how information will flow through the
NetSat system once the NOC is operational.
Artwork: Two graphics each depicting the flow of information through the NetSat
system. One such graphic represents the NetSat DirectPC Terminal (One-Way). The
second such graphic represents the NetSat Direct Terminal (Two-Way).
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<PAGE>
STRATEGIC RELATIONSHIPS
A key element of the Company's strategy is to establish strategic customer
and supplier relationships. The Company selects its strategic customers and
suppliers based on many factors, including technical capability, geographic
location and market presence. The Company has found that making an equity
investment in a supplier, or allowing a customer to acquire an equity interest
in it, strengthens the relationship and results in greater awareness of the
Company's capabilities by potential customers as well as referrals of potential
projects to the Company by its strategic customers.
The following table sets forth certain information regarding the Company's
strategic relationships as of June 30, 1997:
<TABLE>
<CAPTION>
PRO FORMA
OWNERSHIP OWNERSHIP %
COMPANY % OF GSI(1) HELD BY GSI(2) STATUS RELEVANT BUSINESS
- --------------------------------- --------------- ----------------- -------------- ---------------------------------
<S> <C> <C> <C> <C>
Hughes Network Systems 2.5% -- Customer Satellite networks
Thomson 5.1%(3) -- Customer Military communications systems
Shiron -- 19.0% Supplier Low-cost satellite modems
C-Grams -- 6.6% Supplier Earth station management systems
Armer -- 17.0% Supplier Site engineering services
Applied Theory -- -- Customer/ Commercial Internet service
Supplier
</TABLE>
- ------------------------------
(1) Pro forma for the sale of 2,750,000 shares in this Offering.
(2) Does not include the Company's options and warrants to purchase additional
capital stock of such companies.
(3) Does not include Thomson's right to receive 1% of the Company's then
outstanding share capital (measured at the time of issuance) for each of its
next four consummated orders with the Company of at least $3.0 million
through May 1998.
HUGHES NETWORK SYSTEMS
Hughes Network Systems is a division of Hughes Electronics Corp., a leading
supplier of satellites and satellite-delivered communications infrastructure
solutions and a subsidiary of General Motors Corporation. Hughes Network Systems
provides the Company with opportunities to act as a subcontractor, supplying
earth stations to complement HNS' system and network offerings. After giving pro
forma effect to the issuance of the shares in this Offering, Hughes Network
Systems will own approximately 2.5% of the Company's Common Stock, which
interest was acquired in August 1994 in exchange for a commitment by Hughes
Network Systems to purchase certain systems from the Company. Hughes purchased
such systems and has no current contractual commitment to purchase any
additional systems from the Company.
In August 1996, Hughes Network Systems invested $250,800 in convertible
preferred stock of NetSat, convertible into 19.0% of NetSat's Common Stock and
received a five-year option to purchase up to an additional 10.0% of NetSat's
Common Stock under specified circumstances. NetSat uses the HNS DirecPC Terminal
and Personal Earth Station products in its data communications systems. Each
project for which NetSat uses HNS' DirecPC technology will require the grant of
a license from HNS to NetSat. Hughes Network Systems is under no obligation to
grant such licenses, and no assurance can be given that NetSat will be able to
obtain licenses from Hughes Network Systems on acceptable terms, or at all. See
"Risk Factors--Reliance on Strategic Relationships."
NetSat entered into an agreement in January 1997 with HOT pursuant to which
NetSat will act as a nonexclusive value-added reseller of HOT satellite
telecommunications services and sales of HOT's DirecPC and Personal Earth
Station 5000 products in certain European countries.
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<PAGE>
THOMSON-CSF
Thomson is a leading supplier of professional electronics for civil and
military markets. In connection with its purchase in 1995 of 199,500 shares of
Common Stock for $933,100, Thomson agreed to provide the Company with business
and marketing assistance in the satellite communications field and the Company
agreed to provide Thomson with satellite communications systems to complement
its radar and communication switching technology. Through June 30, 1997, the
Company had issued 37,147 shares of Common Stock to Thomson in exchange for
receipt of the first $1.5 million of purchase orders placed by Thomson. In
addition, under the agreement with Thomson, upon acceptance by the Company of
each of the next four $3.0 million of orders placed by Thomson through May 1998,
Thomson will receive shares of Common Stock equal to 1.0% of the Company's
Common Stock outstanding at such time. Upon the issuance of shares under this
agreement, the Company currently recognizes sales and marketing expense based on
a price of $4.68 per share, the fair market value of the shares at the date of
issuance, which was also the date of the agreement. Such amounts are recorded
initially in the balance sheet as prepaid expenses until the related orders are
recorded as revenue, at which time such amounts are recorded in the statement of
operations. Due to potential changes in the accounting treatment of such share
issuances, there can be no assurance that the Company, if it accepts such sales
orders, will not have to recognize sales and marketing expense based on the fair
market value at the date of purchase rather than at the date of the agreement.
The Company is negotiating with Thomson alternatives to the current agreement in
the event the potential changes in accounting treatment are put into effect. No
assurance can be given that an acceptable arrangement will be reached. Thomson
also has expressed its intention to purchase 71,538 shares in this Offering.
Thomson is currently marketing two versions of the Company's militarized triband
fly-away earth station products. See "Certain Transactions" for further
information regarding certain rights granted by the Company to Thomson including
preemptive rights, rights of first refusal and the right to appoint a member to
the Company's Board of Directors, all of which rights survive for so long as
Thomson's stock ownership does not fall below 5% of the outstanding share
capital of the Company as a result of Thomson selling or otherwise disposing of
a portion of its Shares.
SHIRON ADVANCED COMMUNICATIONS LTD.
In January 1996, the Company and Shiron Advanced Communications Ltd. formed
Shiron to develop a low-cost satellite modem to be incorporated into earth
station products targeted at bringing communications infrastructure to rural or
remote regions of developing countries. The Company plans to use the modem in
its digital earth station product line and in connection with the data
communications services, including Internet access, it will offer through
NetSat. The modem is being developed under a grant from the Israel-United States
Binational Industrial Research and Development Foundation (the "BIRD
Foundation") and the BIRD Foundation will receive a royalty from the proceeds of
sales of the modem. The Company holds 19.0% of Shiron's capital stock and has
options to purchase additional shares if the Company purchases certain
quantities of products from Shiron.
C-GRAMS UNLIMITED INC.
In August 1996, pursuant to agreements with C-Grams, a supplier of advanced
network and earth station management software, the Company purchased a 5.0%
equity interest in C-Grams for $400,278 and agreed to use C-Gram's earth station
monitor and control systems when appropriate. In May 1997, the Company purchased
an additional 1.6% interest in C-Grams for $150,000. The Company retains an
option to purchase up to an additional 13.4% in C-Grams. The Company believes
its investment in C-Grams will provide it with research and development in new
software products aimed at the Company's needs and access to customers who need
to develop optimized solutions for their network management requirements. See
"--GSI Ground Segment Systems and Networks" and "--Research and Development."
40
<PAGE>
ARMER COMMUNICATIONS ENGINEERING SERVICES, INC.
In November 1996, the Company purchased for $150,000 a 15.0% interest in
Armer, a field engineering company focused on the satellite communications
business. In March 1997, the Company purchased for $50,000 an additional 2.0%
interest in Armer. The Company retains an option to purchase up to an additional
8.0% interest in Armer. Armer complements the Company's satellite communications
engineering capability by providing qualified field installation/test personnel
for the implementation and test phase of turnkey projects.
APPLIED THEORY COMMUNICATIONS, INC.
In December 1996, NetSat and Applied Theory Communications, Inc. ("Applied
Theory"), a successor to a portion of a business conducted by NYSERNet, Inc., a
New York-based Internet and intranet service provider, entered into a Memorandum
of Understanding pursuant to which the companies agreed to work together to form
a joint venture in which Applied Theory would provide its Internet engineering
and operations capabilities to support the development and operation of the
planned NetSat NOC. The parties have agreed to jointly market their capabilities
to their existing and potential customers and to submit joint bids for
contracts, where appropriate. Further, the parties have agreed to form a joint
development team which will develop processes to help ensure the compatibility
of the partners and the success of the proposed venture. The parties have
reserved the right to independently pursue projects within the scope of their
individual expertise.
SALES AND MARKETING
The Company markets its products and services to prime communications
infrastructure contractors, PTTs, other telecommunications carriers, producers
and distributors of news and entertainment content and other corporations
through sales representatives in foreign countries as well as its sales and
marketing offices in Hauppauge, New York, Atlanta, Georgia, and Hong Kong. The
Company presently employs 25 persons with marketing responsibility, of which 13
are engaged in marketing on a full-time basis.
The Company applies a "project team" approach to identifying, obtaining and
maintaining customer accounts by grouping sales representatives, marketing
executives, business execution teams and account managers together to develop
close and continuing relationships with its customers. The Company's sales
representatives in foreign countries provide local presence and identify
prospective customers for the Company's marketing executives. The marketing
executives and associated business execution teams work together to develop
relationships with these customers, and ultimately obtain orders for the
Company's products or services. The business execution teams manage the accounts
on a day-to-day basis and long-term customers are assigned to an account manager
who usually also functions as a project engineer for that account. The Company
believes that this account management focus provides continuity and loyalty
between the Company and its customers and fosters long-term relationships that
lead to follow-up work and referrals to new customers.
In addition to obtaining business through its project team approach, the
Company obtains sales leads for new customers through referrals from existing
customers, industry suppliers, and other sources such as participation in trade
shows. The Company also directs its marketing efforts to its strategic allies,
primarily through the Company's senior management. In some cases a strategic
ally may be the prime contractor for a system or network installation and will
subcontract the ground segment of the project to the Company. In other cases,
the strategic ally may recommend the Company as prime contractor for the design
and supply of a system.
The Company's marketing strategy for NetSat's Internet access and data
communications services is at an early stage of development. The Company
anticipates that such strategy will be carried out primarily through local joint
ventures and value added resellers in each of the countries in which it markets
its
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<PAGE>
services, depending on the capabilities of such partners and resellers, the
nature and location of prospective customers in such countries and the
particular communications infrastructure requirements and regulatory structure
of each potential market. The Company expects that members of senior management
will play a role in developing and maintaining relationships with local value
added resellers, joint venture partners and local partners.
CUSTOMERS
The Company's customers include prime communications infrastructure
contractors, PTTs and other telecommunications carriers, producers and
distributors of news and entertainment content and corporations. A partial list
of customers for whom the Company has designed ground segment system or network
solutions, the types of solutions, and the geographic location of the projects
are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
CUSTOMER SOLUTION LOCATION
<CAPTION>
<S> <C> <C>
Hughes Network Systems, Inc. VSAT Hubs/MBB Various
Intelsat Standard A Kuwait
TDMA Earth Station Moscow
AT&T Corporation CTF Russia
EDS Corp. MBB Thailand
AO Rustel MBB Russia
CTF Russia
British Telecommunications plc Digital Video Broadcast Uplink Germany
Digital Video Broadcast Uplink United Kingdom
Orion Electronics Corp. of America Intelsat Standard A United States
Ministry of Posts and Telecommunications Intelsat Standard A China
(China)
Bezeq The Israel Telecommunication Corp. Digital Video Broadcast Uplink and Israel
Ltd. Receive-Only Earth Station
Satellite Technology Management, Inc. Intelsat Standard A Malaysia
C.P.R.M. (Marconi) of Portugal Digital Fly-Away Earth Station Portugal
CTF and Overall Network Africa
United Nations Digital Transportable Earth Station Croatia
Thomson-CSF Tactical Military Terminals France
Thailand Ministry of Health CTF and Overall Network Thailand
Hyundai Corp. CTF and Overall Network Korea
Transworld Communications, Inc. MBB Russia
American Sky Broadcasting LLC Direct Broadcast Uplinks/Video Reception United States
Systems/ TT&C
Tele-TV Video Reception System United States
Bell Atlantic Corp. Video Reception System United States
Sonangol, U.E.E. Cellular/Satellite Network Africa
Nilesat Direct Broadcast Uplinks/Video Egypt
Hong Kong Tel C-Band Earth Station Hong Kong
C.S. Communications Direct Broadcast Uplinks/Video Thailand
Plessey Telecommunications Ltd. Intelsat Standard C South Africa
Soros Foundation Affiliates in Eastern Internet access through NetSat Serbia, Bulgaria,
Europe Slovenia
</TABLE>
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<PAGE>
The Company typically relies upon a small number of customers for a large
portion of its revenues. For example, approximately 29% and 13% of the Company's
revenues in fiscal 1997 were derived from sales to ASkyB and Hughes Network
Systems, respectively. At June 30, 1997, $20.8 million, or approximately 51% of
the Company's backlog, was accounted for by a contract between the Company and
Sonangol, U.E.E. and $5.0 million, or approximately 12% of the Company's
backlog, was accounted for by a contract between the Company and ASkyB. The
Company expects that in the near term a significant portion of its revenues will
continue to be derived from one or a limited number of customers (the identity
of whom may vary from year to year) as the Company seeks to expand its business
and its customer base. The reduction, delay, or cancellation of orders from one
or more of such significant customers would have a material adverse effect on
the Company's business, financial condition and results of operations.
BACKLOG
At June 30, 1997, the Company's backlog was approximately $40.8 million
(approximately 69% of which is expected to be delivered during fiscal 1998)
compared with approximately $11.6 million at June 30, 1996. The Company records
an order in backlog when it receives a firm contract or purchase order which
identifies product quantities, sales price and delivery dates. Backlog
represents the amount of unrecorded revenue on undelivered orders and a
percentage of revenues from sales of products that have been shipped but have
not been accepted by the customer. The Company's backlog at any given time is
not necessarily indicative of future period revenues. While from time to time a
substantial portion of the Company's backlog has been comprised of large orders,
the cancellation of any of which could have a material adverse effect on the
Company's operating results, the Company to date has not experienced significant
changes in its backlog from cancellations or revisions of orders. See "Risk
Factors--Customer Concentration."
PRODUCT DESIGN, ASSEMBLY AND TESTING
The Company assigns a project team to each contract into which it enters.
The project team is led by a project engineer who is responsible for execution
of the project process, which includes engineering and design, assembly and
testing, installation and customer acceptance. Project teams generally consist
of between two and 10 employees and include engineers, integration specialists,
buyer-planners and an operations team. The Company's proprietary products and
system designs are utilized in the engineering and design phases of a project.
Once a system is designed, the integration specialist works with the buyer-
planner and the operations team to assure a smooth transfer from the engineering
phase to the integration phase. The integration phase consists mainly of
integration of purchased equipment, components and subsystems into a complete
functioning system. Assembly, integration and test operations are conducted on
both an automated and manual basis, depending primarily on production volume.
The Company provides facilities for complete in-plant testing of all its systems
before delivery in order to assure all performance specifications will be met
during installation at the customer's site.
The Company employs formal Total Quality Management programs and other
training programs, and has entered the International Organization of Standards
quality certification process for ISO 9001, a standard sometimes imposed by
foreign buyers, that enumerates certain requirements an organization must follow
in order to assure consistent quality in the supply of products and services.
The certification process qualifies the Company for access to virtually all
international projects, and the Company believes that this represents a
competitive advantage. The Company has designed its processes and procedures
based on ISO 9001 requirements and believes, although there can be no
assurances, that certification will be completed in a timely manner.
The Company currently procures most of the critical components and services
for its products from single or limited sources in connection with specific
contracts and does not otherwise carry significant inventories or have long-term
or exclusive supply contracts with its source vendors. The Company has from time
to time experienced delays in receiving products from certain of its vendors due
to quality control or
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<PAGE>
manufacturing problems, shortages of materials or components or product design
difficulties. There can be no assurance that similar problems will not recur or
that replacement products will be available when needed at commercially
reasonable rates, or at all. If the Company were to change certain of its
vendors, the Company would be required to perform additional testing procedures
upon the components supplied by such new vendors, which could prevent or delay
product shipments. Additionally, prices could increase significantly in
connection with changes of vendors. Any inability of the Company to obtain
timely deliveries of materials of acceptable quality or timely services, or any
significant increase in the prices of materials or services, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Risks of Fixed-Price Contracts,"
"--Quarterly Fluctuations" and "--Dependence upon Suppliers; Sole and Limited
Sources of Supply."
RESEARCH AND DEVELOPMENT
The Company outsources much of its research and development by making
strategic investments in certain suppliers who perform research and development
for the Company. This provides the Company with a cost-effective way to develop
new technology, while minimizing its direct expenditures. The Company believes
that outsourcing research and development, where the costs are funded partially
by the investments made in its strategic suppliers, allows the Company to retain
its flexibility in developing solutions for its customers, while at the same
time leaving open the opportunity to develop proprietary products through its
strategic supplier relationships.
The Company's internal research and development efforts generally focus on
the development of products not available from other suppliers to the industry.
Current efforts are focused on developing a compact digital earth station and
other customizable systems. Through June 30, 1997, the Company has incurred $1.4
million in internal research and development expenses.
COMPETITION
The markets for both ground segment systems and networks and
satellite-delivered data communications services are highly competitive. Many of
the Company's competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than those available to the Company. As a result, such competitors may be able
to develop and expand their products and services more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products and services than
can the Company. In addition, there are limited barriers to entry in the
Company's markets and certain of the Company's strategic suppliers and customers
have technologies and capabilities in the Company's product areas and could
choose to compete with the Company or to replace the Company's products or
services with their own. The entry of new competitors, the decision by a
strategic ally to compete with the Company or the decision by a customer to
develop and employ in-house capability to satisfy its satellite communications
needs could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company believes that its ability to compete successfully in the
satellite ground segment market is based primarily on its ability to provide a
solution which fits the customer's requirements, as well as on price,
performance, reputation of its management, on-time delivery, reliability and
customer support. The Company believes its success in the satellite-delivered
data communications services market will depend primarily on its ability to
provide prompt delivery and installation, competitive pricing, consistent and
reliable connections, and customer support.
The Company's primary competitors in the satellite ground segment market
generally fall into the following groups: (i) vertically integrated satellite
systems providers such as Nippon Electric Corporation ("NEC"), California
Microwave, Inc. ("CMI"), Scientific-Atlanta, Inc. and ComSat RSI and (ii) system
integrators such as Engineering & Technical Services and IDB Systems, a division
of LDDS Worldcom Inc.
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In the satellite-delivered data communications (including Internet) services
market, while the Company expects to cooperate with many local providers, the
Company may compete with other satellite communication companies as they develop
technology in this area as well as conventional Internet services providers,
such as Uunet Technology, Inc., NETCOM On-Line Communication Services, Inc. and
PSINet Inc. In addition, the Company may compete with local governmental PTTs
and other local access providers which often have monopoly rights for certain
services including telephony.
The Company anticipates that its competitors may develop or acquire products
that provide functionality that is similar to that provided by the Company's
products and that such products may be offered at a significantly lower price or
bundled with other products. In addition, current and potential competitors in
both markets have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products and
services to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which would have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current or future competitors or that competitive pressures will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
INTELLECTUAL PROPERTY
The Company relies heavily on the technological and creative skills of its
personnel, new product developments, computer programs and designs, frequent
product enhancements, reliable product support and proprietary technological
expertise in maintaining its competitive position, and lacks patent protection
for its products and services. There can be no assurance that others will not
independently develop or acquire substantially equivalent techniques or
otherwise gain access to the Company's proprietary and confidential
technological expertise or disclose such technologies or that the Company can
ultimately protect its rights to such proprietary technological expertise.
The Company generally relies on confidentiality agreements with its
consultants, key employees and sales representatives to protect its proprietary
technological expertise, and generally controls access to and distribution of
its technology, software and other proprietary information. Despite these
precautions, there can be no assurance that such agreements will not be
breached, that the Company will have adequate remedies for any such breach or
that a third party will not copy or otherwise obtain and use the Company's
products or technology without authorization or develop similar products or
technology independently. Failure by the Company to maintain protection of its
proprietary technological expertise for any reason could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors--Proprietary Technology; Risk of Infringement."
The Company is subject to the risk of alleged infringement of intellectual
property rights of others. Most of the Company's officers and employees were
formerly officers or employees of other companies in the industry. The Company
believes that neither it nor its officers or employees have violated any
agreements with, or obligations to, prior employers. Although the Company is not
aware of any pending or threatened infringement claims with respect to the
Company's current or future products, there can be no assurance that third
parties, including previous employers, will not assert such claims or that any
such claims will not require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims. No assurance can be given that any necessary licenses will be available
or that, if available, such licenses can be obtained on commercially reasonable
terms. Furthermore, litigation may be necessary to enforce or protect the
Company's intellectual property rights, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and
45
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company currently has two patent applications pending in the United
States and a PCT application, corresponding to one of the United States
applications, is pending in a number of foreign jurisdictions. The Company also
intends to seek further patents on its technology, if appropriate. There can be
no assurance that patents will issue from any of the Company's pending or any
future applications or that any claims allowed from such applications will be of
sufficient scope or strength, or be issued in all countries where the Company's
products can be sold, to provide meaningful protection or any commercial
advantage to the Company. Also, competitors of the Company may be able to design
around the Company's patents. The laws of certain foreign countries in which the
Company's products are or may be developed, manufactured or sold may not protect
the Company's products or intellectual property rights to the same extent as do
the laws of the United States and thus make the possibility of piracy of the
Company's technology and products more likely.
The Company has filed applications for trademark registration of Globecomm
Systems Inc. in the United States and of NetSat in the United States, Singapore,
the European Union, the Russian Federation and Brazil, and intends to seek
registration of other trademarks in the future. There can be no assurance that
registrations will be granted from any of the Company's pending or future
applications, or that any registrations that are granted to the Company will
prevent others from using similar trademarks in connection with related goods
and services.
GOVERNMENT REGULATION
The Company is subject to various federal laws and regulations which may
have negative effects on the Company. The operation of the teleport (a group of
transmit earth stations) that the Company intends to construct in Hauppauge, New
York, will be subject to regulation by the FCC for domestic and international
carriage and by government agencies in other countries. The Company's
transmission of voice and data for its data communications business through the
teleport must be licensed by the FCC for domestic and international service.
Additionally, a Certificate of Public Convenience and Necessity ("CPCN") must be
obtained and a tariff filed for the provision of international service.
To receive the license for domestic service, the Company must submit an
application which contains technical information about the proposed teleport and
a demonstration of the public interest aspects of the teleport, including a
shareholder list and a statement that the Company's ownership complies with the
FCC's foreign ownership restrictions for licensees. Under the FCC Rules and
Regulations, non-U.S. citizens or their representatives, foreign governments, or
corporations otherwise subject to control by non-U.S. citizens, may not own more
than 20% of a licensee directly, or, if the FCC finds it consistent with the
public interest, may not own more than 25% of the parent of a licensee. Non-U.S.
citizens may not serve as officers of a licensee or as members of a licensee's
board of directors, although the FCC may waive this requirement in whole or in
part. Failure to comply with these requirements may result in the FCC issuing an
order to the entity requiring divestiture of alien ownership to bring the entity
into compliance with the FCC Rules and Regulations. In addition, fines, a denial
of renewal or revocation of the license are possible. The Company has no
knowledge of any present foreign ownership which would result in a violation of
the FCC Rules and Regulations, but there can be no assurance that foreign
holders will not in the future hold more than 20% or 25% of the Common Stock of
the Company.
The application, if accepted for filing, is placed on public notice for 30
days. After the notice period, the FCC determines whether the application should
be granted. If the license is granted, the teleport must be constructed and made
operational within twelve months from the date of the license grant. The Company
will have to file annual reports with the FCC indicating modifications, project
status and changes in foreign ownership. The Company is in the process of
preparing the application and there can be no assurance that the FCC will grant
a license for the teleport.
46
<PAGE>
With respect to international service, the Company must submit an
application to the FCC for a CPCN which is placed on public notice and, if no
comments are received, automatically granted on the 36th day following
publication. The Company will also be required to file and maintain tariffs
containing the specific rates, terms and conditions applicable to its services.
The tariffs can become effective one day after public notice of grant of the
CPCN. No assurance can be given that the Company will receive a CPCN or
successfully file and maintain its tariff.
Regulatory schemes in countries in which the Company may seek to provide its
satellite-delivered data communications services may impose impediments on the
Company's operations. Certain countries in which the Company intends to operate
have telecommunications laws and regulations that do not currently contemplate
technical advances in broadcast technology such as Internet/intranet
transmission by satellite. There can be no assurance that the present regulatory
environment in any such country will not be changed in a manner which may have a
material adverse impact on the Company's business. The Company or its local
partners typically must obtain authorization for each country in which the
Company provides its satellite-delivered data communications services. Although
the Company believes that it or its local partners will be able to obtain the
requisite licenses and approvals from the countries in which the Company intends
to provide service, the regulatory schemes in each country are different and
thus there may be instances of noncompliance of which the Company is not aware.
Although the Company believes these regulatory schemes will not prevent the
Company from pursuing its business plan, there can be no assurance such licenses
and approvals are or will remain sufficient in the view of foreign regulatory
authorities, or that necessary licenses and approvals will be granted on a
timely basis in all jurisdictions in which the Company wishes to offer its
services or that restrictions applicable thereto will not be unduly burdensome.
The Company's Internet operations (other than the operation of a teleport)
are not currently subject to direct government regulation in most countries, and
there are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, it is likely that a number of laws and regulations may be adopted
at the local, national or international levels with respect to the Internet,
covering issues such as user privacy and expression, pricing of products and
services, taxation, advertising, intellectual property rights, information
security or the convergence of traditional communication services with Internet
communications. For example, the Telecommunications Act of 1996 (the
constitutionality of certain portions of which is currently under challenge) was
recently enacted in the United States, and imposes criminal penalties via the
Communications Decency Act (or "CDA") on anyone who distributes obscene,
lascivious or indecent communications over the Internet. It is anticipated that
a substantial portion of the Company's Internet operations will be carried out
in countries which may impose greater regulation of the content of information
coming into the country than that which is generally applicable in the United
States. To the extent that the Company provides content as a part of its
Internet services, it will be subject to any such laws regulating content.
Moreover, the adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the demand for the Company's
Internet services or increase the Company's cost of doing business or in some
other manner have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel and personal privacy is
uncertain. The vast majority of such laws were adopted prior to the advent of
the Internet and related technologies and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Changes to
such laws intended to address these issues, including some recently proposed
changes, could create uncertainty in the marketplace which could reduce demand
for the Company's services, could increase the Company's cost of doing business
as a result of costs of litigation or increased product development costs, or
could in some other manner have a material adverse effect on the Company's
business, financial condition and results of operations.
47
<PAGE>
The sale of the Company's ground segment systems and networks outside the
United States is subject to compliance with the regulations of the United States
Export Administration Regulations. The absence of comparable restrictions on
competitors in other countries may adversely affect the Company's competitive
position. In addition, in order to ship its products into European Union
countries, the Company must satisfy certain technical requirements. If the
Company were unable to comply with such requirements with respect to a
significant quantity of the Company's products, the Company's sales in Europe
could be restricted, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
EMPLOYEES
As of June 30, 1997, the Company had 88 full-time employees, including 45 in
engineering and program management, 15 in the manufacturing and manufacturing
support group, 13 in sales and marketing, and 15 in management and
administration. The Company's employees are not covered by any
collective-bargaining agreements. The Company believes that its relations with
its employees are good.
FACILITIES
The Company recently purchased approximately 121,830 square feet of space in
a facility on 7.2 acres located at 45 Oser Avenue, Hauppauge, New York. These
premises have the principal offices and production facilities of the Company and
NetSat. Prior to the purchase of these facilities, the Company leased 20,000
square feet of space in an industrial facility located at 375 Oser Avenue,
Hauppauge, New York under an agreement which terminates on July 31, 1997 The
Company has a one-year lease on office space in Hong Kong at a monthly rental
fee (including maintenance fees) of approximately $3,000. The Company also
leases office space in the Atlanta, Georgia, area under a three-year lease at an
initial base monthly rent of $1,750, which rental amount increases in years two
and three of the lease and is currently $1,820 per month.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The directors, executive officers and other key employees of the Company are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David E. Hershberg................................... 60 Chief Executive Officer and Chairman of the Board of
Directors
Kenneth A. Miller.................................... 52 President and Director
Thomas A. DiCicco.................................... 46 Vice President--Government Systems, Corporate
Secretary and Director
Donald G. Woodring................................... 50 Vice President--Network and Systems Analysis and
Director
Stephen C. Yablonski................................. 50 Vice President--Commercial Systems and Director
Ray Stuart........................................... 59 Vice President--International Marketing
Paul J. Johnson...................................... 41 Vice President--Contracts
Andrew C. Melfi...................................... 44 Chief Financial Officer
Gerald A. Gutman..................................... 54 President--NetSat Express
Gary C. Gomes........................................ 52 Executive Vice President--NetSat Express
Herman Fialkov(1).................................... 75 Director
Shelley A. Harrison.................................. 54 Director
Benjamin Duhov....................................... 69 Director
C.J. Waylan(1)....................................... 55 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee and the Compensation Committee.
DAVID E. HERSHBERG founded the Company in 1994 and has served as Chief
Executive Officer and Chairman of the Board of Directors since its inception.
From 1976 to 1994, Mr. Hershberg was the President of Satellite Transmission
Systems, Inc. ("STS"), a provider of satellite ground segment systems and
networks, which he founded and which became a subsidiary of CMI. From 1990 to
1994, Mr. Hershberg also served as Group President of the Satellite
Communications Group of CMI, where he also had responsibility for EFData, Inc.,
a manufacturer of satellite communications modems and for Viasat Technology
Corp. ("Viasat"), a manufacturer of communications systems which specialized in
portable and mobile satellite communications equipment. Mr. Hershberg headed the
Space Communications division of ITT Corporation from 1968 to 1972, and the
Systems Division of Comtech Systems, Inc. ("Comtech") from 1972 to 1976. Mr.
Hershberg is a Director of Primus Telecommunications Group, Incorporated
("Primus"), a telecommunications company providing long distance services. He
holds a B.S.E.E. from Rensselaer Polytechnic Institute, an M.S.E.E. from
Columbia University and an M.S. in Management Science from Stevens Institute of
Technology.
KENNETH A. MILLER has served as President and a Director since joining the
Company in November 1994. From 1978 to 1994, he held various positions with STS,
and succeeded Mr. Hershberg as President of that company in 1994. During his
tenure at STS, Mr. Miller developed and implemented satellite communications
systems and networks for customers in the United States and overseas. Prior to
his employment at
49
<PAGE>
STS, Mr. Miller was Manager of Satellite Systems at Comtech and a Satellite
Communications Staff Officer with the United States Army. Mr. Miller holds an
M.B.A. from Hofstra University and a B.S.E.E. from the University of Michigan.
THOMAS A. DICICCO has served as Vice President--Government Systems,
Corporate Secretary and a Director since joining the Company in October 1994.
From 1988 to 1994, he was employed by STS, most recently as Senior Director. He
was Vice President of Engineering at Comtech from 1979 to 1988 and was employed
by the AIL Division of Cutler Hammer from 1970 to 1979. Mr. DiCicco holds a
B.S.E.E. from Hofstra University and an A.S. in Engineering Science from SUNY at
Farmingdale.
DONALD G. WOODRING has served as Vice President--Network and Systems
Analysis and a Director since joining the Company in October 1994. From 1982 to
1994, he was Assistant Vice President for System Analysis at STS. From 1980 to
1982, he was employed by the SHAPE Technical Center and from 1972 to 1980 was
employed by the U.S. Department of Defense. Mr. Woodring holds a B.S. from Penn
State University and an M.S.E.E. from Catholic University.
STEPHEN C. YABLONSKI has served as Vice President--Commercial Systems and a
Director since joining the Company in April 1995. From 1988 to 1995, he was
employed by STS, most recently as Vice President and General Manager of the
Commercial Systems and Networks Division. Prior to that he was Vice President of
Engineering at Argo Communications, a telecommunications services provider. Mr.
Yablonski holds a B.S.E.E. from Brown University and an M.S.E.E. from the
University of Pennsylvania.
RAY STUART has served as Vice President--International Marketing since
joining the Company in July 1995. From 1989 to 1995, he was employed by Comsat
RSI, a satellite communications equipment supplier, most recently as Vice
President of Business Development. Mr. Stuart holds a B.S.E.E. from Mississippi
State University.
PAUL J. JOHNSON has served as Vice President--Contracts since joining the
Company in October 1996. From 1991 to 1996, he was Director of Contracts for
STS. He holds a B.B.A. from St. Bonaventure University.
ANDREW C. MELFI has served as Chief Financial Officer since joining the
Company in January 1996. From 1982 to 1995 he was the Controller of STS. From
1980 to 1982, he was the Assistant Controller of Dorne and Margolin, Inc., a
designer and manufacturer of antennas. Mr. Melfi holds an M.B.A. and a B.B.A. in
accounting from Dowling College.
GERALD A. GUTMAN has served as President of NetSat since July 1996. From
February 1996 to June 1996, he served as a consultant to the Company. In 1987,
he founded Viasat, where he served as Chief Executive Officer from 1987 to 1995.
From 1977 to 1987, Mr. Gutman served as President and Chief Executive Officer of
Nav-Com Incorporated, a satellite communications company providing
communications services to the maritime industry. Mr. Gutman has served as
Chairman of the COMSAT Manufacturer's Advisory Committee to Inmarsat, Vice
Chairman of the Mobile Satellite User's Association and as President of the
National Marine Electronics Association. He holds a B.B.A. in Marketing from
Hofstra University.
GARY C. GOMES has served as Executive Vice President of NetSat since January
1997 and he served as Vice President of the Company from September 1995 to
December 1996. From October 1994 to September 1995, Mr. Gomes served as a
consultant to the Company. Prior to that, he was Senior Vice President of
Marketing at STS, where he was employed from March 1983 to September 1995. From
1971 to 1981, he was employed by Fairchild Industries, Inc., a provider of
services to the aerospace industry. Mr. Gomes holds a B.A. in Mathematics and
Economics from California Western University, an M.S.I.A. from Carnegie Mellon's
Graduate School of Industrial Administration and a J.D. from the Law School of
the University of Pennsylvania.
HERMAN FIALKOV has served as a Director of the Company since January 1995.
In 1968, Mr. Fialkov started the venture capital firm of Geiger & Fialkov and
has been involved in venture investments since
50
<PAGE>
that time. He has been a General Partner of PolyVentures Associates I, L.P., a
high technology venture capital fund since 1987. From 1972 to 1983, he was
President and later Chairman of Standard Microsystems Corporation, a
manufacturer and provider of large-scale integrated circuits and local area
network products, and is currently a Director of that company. He also is a
Director of Primus and a Trustee of Polytechnic University. Mr. Fialkov holds a
B.Ad.E. from New York University.
SHELLEY A. HARRISON has been a Director of the Company since July 1995.
Since 1987, Dr. Harrison has been a Managing General Partner of PolyVentures
Associates II, L.P. ("PolyVentures"). He currently serves as Chairman and Chief
Executive Officer of Spacehab, Inc., which develops, owns and operates habitable
modules that provide space-based laboratory research facilities and logistics
aboard the United States space shuttle fleet. In 1973, Dr. Harrison co-founded
Symbol Technologies Inc., a leading provider of bar code laser scanners and
portable terminals, where he served as Chairman and Chief Executive Officer
until 1982. As President of Harrison Enterprise, from 1982 to 1986, he managed
venture financing and technology start-ups. Dr. Harrison also is a Director of
NetManage, Inc., a software company specializing in personal information
management and Internet applications, and several privately held high technology
portfolio companies in the information, software, and telecommunications
industries. He is Chairman of the Board of Trustees of the New York State Center
for Advanced Technology in Telecommunications and a Trustee of Polytechnic
University. He holds a B.S.E.E. from New York University and an M.S. and a Ph.D.
in Electrophysics from Polytechnic University.
BENJAMIN DUHOV has been a Director of the Company since January 1996. He is
a Consultant and the President of Stamford Consulting Group which provides
consulting services to the aerospace industry. He worked for Thomson-CSF S.A.
from June 1975 to October 1993, and for CBS Laboratories, which was devoted to
technical developments in the television and defense industries, from 1972 to
1975. Mr. Duhov holds a B.S.E.E. from Washington University.
C. J. WAYLAN has been a Director of the Company since January 1997. He
currently serves as Executive Vice President of NextWave Telecom Inc.
("NextWave"), a provider of wireless personal telecommunications services. Prior
to joining NextWave in 1996, Dr. Waylan worked for GTE Corporation from February
1981 to April 1996, where he served as Executive Vice President for GTE Mobilnet
and President of GTE Spacenet Corporation. Dr. Waylan also is a Director of
Stanford Telecommunications, Inc., a communications technology company. Dr.
Waylan holds a B.S. from the University of Kansas and an M.S.E.E. and a Ph.D.
from the Naval Post Graduate School.
Messrs. Hershberg, DiCicco and Woodring were elected to the Board of
Directors pursuant to a voting agreement among certain stockholders of the
Company. This agreement will terminate upon the consummation of this Offering.
Mr. Duhov was elected to the Board of Directors pursuant to an agreement
between Thomson and the Company which grants Thomson the right to designate one
nominee for election to the Company's Board of Directors. This right terminates
if Thomson's stock ownership falls below 5% of the outstanding share capital of
the Company as a result of Thomson selling or otherwise disposing of a portion
of its shares.
Dr. Harrison was elected to the Board of Directors pursuant to an agreement
between PolyVentures and the Company. This agreement will terminate upon the
consummation of this Offering.
All directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. All officers of the
Company are elected to serve in such capacities at the pleasure of the Board of
Directors. There are no family relationships among any of the directors and
executive officers of the Company.
The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors,
51
<PAGE>
the scope of the annual audits, fees to be paid to the auditors, the performance
of the Company's independent auditors and the accounting practices of the
Company.
The Compensation Committee of the Board of Directors determines the salaries
and incentive compensation of the officers of the Company and provides
recommendations for the salaries and incentive compensation of the other
employees and the consultants of the Company. The Compensation Committee also
administers various incentive compensation, stock and benefit plans.
DIRECTORS' COMPENSATION
Each of Messrs. Fialkov and Waylan receives a director's fee of $500 per
month. Other directors do not receive any cash compensation for their service as
members of the Board of Directors, although they are reimbursed for certain
expenses incurred in connection with attendance at Board and Committee meetings.
Currently, PolyVentures, with whom Dr. Harrison is affiliated, and Mr. Fialkov
have each been granted options to purchase 42,750 shares of Common Stock at an
exercise price of $3.51 per share. Mr. Waylan has been granted an option to
purchase 42,750 shares of Common Stock at an exercise price of $8.07 per share.
In addition, in February 1997, the Company adopted the 1997 Stock Incentive Plan
pursuant to which options will be granted to new non-employee directors of the
Company. See "1997 Stock Incentive Plan."
52
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company for services rendered during the fiscal year ended June 30, 1997
to: (i) the Company's Chief Executive Officer and (ii) all of the other
executive officers whose base salary during fiscal 1997 was at least $100,000
(together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION SECURITIES
------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY OPTIONS COMPENSATION(2)
- ------------------------------------------------------------------ ------------- ------------- -----------------
<S> <C> <C> <C>
David E. Hershberg,
Chairman and Chief Executive Officer............................ $ 165,000 -- $ 6,000
Kenneth A. Miller,
President....................................................... 160,000 85,500 6,000
Stephen A. Yablonski,
Vice President--Commercial Systems.............................. 120,000 149,250 --
Ray Stuart,
Vice President--International Marketing......................... 126,000 69,469 5,040
Thomas A. DiCicco,
Vice President--Government Systems.............................. 100,000 71,250 4,000
Donald G. Woodring,
Vice President--Network and Systems Analysis.................... 100,000 71,250 4,000
Gerald A. Gutman,
President--NetSat Express....................................... 100,000 114,000 2,769
</TABLE>
- ------------------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted as the aggregate amount of such perquisites and other
personal benefits constituted the lesser of $50,000 or 10% of the total
annual salary and bonus of the Named Executive Officer for such year. The
Company did not award a bonus to any of its executive officers during fiscal
1997.
(2) Includes annual registrant contributions to the Company's 401(k) plan.
STOCK OPTION GRANTS
The following table sets forth certain information regarding the option
grants made pursuant to the Company's Incentive Stock Option Plan during fiscal
1997 to each of the Named Executive Officers. The Company has never granted any
stock appreciation rights.
53
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
NUMBER OF APPRECIATION FOR
SECURITIES PERCENTAGE OF OPTION TERM(3)
UNDERLYING OPTIONS TOTAL OPTIONS EXERCISE EXPIRATION ------------------------
NAME GRANTED GRANTED(2) PRICE DATE 5% 10%
- ------------------------ ------------------ --------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Hershberg...... -- -- -- -- -- --
Kenneth A. Miller....... 17,100 2.3% $ 8.07 11/21/06 $ 86,786 $ 219,932
Stephen A. Yablonski.... 8,550 1.2 8.07 11/21/06 43,393 109,966
Ray Stuart.............. 14,250 1.9 8.07 11/21/06 72,321 183,276
Thomas A. DiCicco....... 14,250 1.9 8.07 11/21/06 72,321 183,276
Donald G. Woodring...... 14,250 1.9 8.07 11/21/06 72,321 183,276
Gerald A. Gutman........ 114,000 15.5 8.07 11/21/06 578,573 1,466,211
</TABLE>
- ------------------------
(1) All option grants to employees of the Company vest in four equal annual
installments commencing one year after the date of the option grant.
(2) Based on an aggregate of 733,448 options granted to employees in fiscal
1997, including options granted to the Named Executive Officers.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the Securities
and Exchange Commission and do not represent the Company's estimate of the
future market price of the Common Stock.
No options were exercised by the Named Executive Officers in 1997. The
following table sets forth, for each of the Named Executive Officers, certain
information concerning the value of unexercised options at the end of fiscal
1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED NET VALUES OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS(1)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- ------------- ----------- -------------
David E. Hershberg..................................... -- -- -- --
Kenneth A. Miller...................................... 17,100 68,400 $ 108,072 $ 374,319
Stephen A. Yablonski................................... 64,696 84,644 408,879 505,966
Ray Stuart............................................. 13,805 55,664 87,254 303,490
Thomas A. DiCicco...................................... 14,250 57,000 90,060 311,933
Donald G. Woodring..................................... 14,250 57,000 90,060 311,933
Gerald A. Gutman....................................... -- 114,000 -- 334,020
</TABLE>
- ------------------------
(1) Based on the estimated fair value of the Company's Common Stock at the end
of fiscal year 1997 valued at $11.00 per share (the assumed initial offering
price) less the exercise price payable for such shares.
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to
serve as the successor equity incentive program to the Company's Incentive Stock
Option Plan and Director Stock Option Plan (the "Predecessor Plans"). The 1997
Plan was adopted by the Board of Directors on February 26, 1997 and subsequently
approved by the stockholders. 2,280,000 shares of Common Stock have been
initially authorized for issuance under the 1997 Plan. This share reserve is
comprised of (i) the shares which remained available for issuance under the
Predecessor Plans, including the shares subject to outstanding options
thereunder, plus (ii) an additional increase of 285,000 shares. This initial
share reserve will increase on the first trading day of each calendar year
beginning with the 1998 calendar year by one
54
<PAGE>
percent (1%) of the aggregate shares of Common Stock outstanding on the last
business day of the preceding calendar year. However, in no event may any one
participant in the 1997 Plan receive option grants or direct stock issuances for
more than 1,425,000 shares in the aggregate per calendar year.
Outstanding options under the Predecessor Plans will be incorporated into
the 1997 Plan upon the date of this Offering, and no further option grants will
be made under the Predecessor Plans. The incorporated options will continue to
be governed by their existing terms, unless the Plan Administrator elects to
extend one or more features of the 1997 Plan to those options. However, except
as otherwise noted below, the outstanding options under the Predecessor Plans
contain substantially the same terms and conditions summarized below for the
Discretionary Option Grant Program in effect under the 1997 Plan.
The 1997 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program, (ii) the Salary Investment Option Grant
Program, (iii) the Stock Issuance Program, (iv) the Automatic Option Grant
Program and (v) the Director Fee Option Grant Program.
The Discretionary Option Grant, Salary Investment Option Grant and Stock
Issuance Programs will be administered by the Compensation Committee. The
Compensation Committee as Plan Administrator will have complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the status
of any granted option as either an incentive stock option or a non-statutory
stock option under the Federal tax laws, the vesting schedule to be in effect
for the option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding.
Under the Discretionary Option Grant Program, eligible individuals may, at
the discretion of the Plan Administrator, be granted options to purchase shares
of Common Stock at an exercise price not less than 85% of their fair market
value on the grant date.
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the Predecessor Plans) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
Under the Stock Issuance Program, eligible individuals may, in the Plan
Administrator's discretion, be issued shares of Common Stock directly, through
the purchase of such shares at a price not less than 85% of their fair market
value at the time of issuance or as a bonus tied to the performance of services.
In the event that there is a change in control of the Company (including the
acquisition of more than 35% of the outstanding voting stock), each outstanding
option under the Discretionary Option Grant Program will automatically
accelerate in full, and all unvested shares under the Stock Issuance Program
will immediately vest. Options currently outstanding under the Incentive Stock
Option Plan will accelerate upon an acquisition of the Company by merger or
asset sale, but such options are not subject to acceleration upon a hostile
change in control of the Company. Options currently outstanding under the
Director Stock Option Plan accelerate upon the optionee's retirement, disability
or death, or if the Company executes an agreement pursuant to which the Company
is acquired by merger or asset sale or an acquisition (or increase in ownership)
by any person to more than 20% of the outstanding voting stock.
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Under the Salary Investment Option Grant Program, selected executive
officers and other highly compensated employees may elect to have a portion of
their base salary invested each year in special option grants. The Plan
Administrator will have the discretion to determine the calendar years for which
the program is to be in effect and to select the individuals eligible to
participate in the program. For each year the Plan Administrator elects to
activate the Salary Investment Option Grant Program, each individual selected
for participation may elect, prior to the start of the calendar year, to reduce
his base salary for that calendar year by a specified dollar amount not less
than $5,000 nor more than $50,000. In return, the officer will automatically be
granted, on or before the last trading day in January of the calendar year for
which the salary reduction is to be in effect, a non-statutory option to
purchase that number of shares of Common Stock determined by dividing the salary
reduction amount by two-thirds of the fair market value per share of Common
Stock on the grant date. The option will be exercisable at a price per share
equal to one-third of the fair market value of the option shares on the grant
date. As a result, the built-in gain on the option at the time of grant will be
equal to the salary reduction amount. The option will vest in a series of 12
equal monthly installments over the calendar year for which the salary reduction
is in effect and will be subject to full and immediate vesting upon certain
changes in the ownership or control of the Company.
Under the Automatic Option Grant Program, each individual who first becomes
a nonemployee Board member on or after the date the Underwriting Agreement for
this Offering is executed will receive an option grant on such date for 15,000
shares of Common Stock, provided such individual has not otherwise been in the
prior employ of the Company and provided he is not serving as a member of the
Board pursuant to contractual rights granted to certain groups of stockholders
in connection with their purchase of stock in the Company.
Each automatic grant will have a term of 10 years, subject to earlier
termination following the optionee's cessation of Board service. Each option
will be exercisable for those option shares which have vested. During the period
of service as a member of the Board, each 15,000-share grant will vest to the
extent of one-third of the number of shares granted thereby (5,000 shares), on
the first anniversary of the date of grant, and cumulatively to the extent of an
additional one-third, on each of the next two succeeding anniversaries, so that
on the third anniversary of the date of grant (provided service as a Board
member has continued throughout the period), the options granted to any Eligible
Director will be fully vested. However, each outstanding option will immediately
vest upon: (i) certain changes in the ownership or control of the Company or
(ii) the death or disability of the optionee while serving as a Board member.
Under the Director Fee Option Grant Program, nonemployee Board members may
elect to have all or any portion of any annual retainer fee otherwise payable in
cash applied to a special option grant. Each member who elects, prior to the
start of a calendar year, to apply all or any portion of his retainer fee for
that calendar year to the acquisition of an option will automatically be
granted, on the first trading day in the calendar year for which the salary
reduction is to be in effect, a non-statutory option to purchase that number of
shares of Common Stock determined by dividing the amount of the retainer fee
subject to the election by two-thirds of the fair market value per share of
Common Stock on the grant date. The option will be exercisable at a price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the built-in gain on the option at the time of grant
will be equal to the amount of the retainer fee subject to the election. The
option becomes exercisable for 50% of the option shares upon completion of six
(6) months of Board service in the calendar year for which the election is in
effect and the balance of the shares will become exercisable in a series of six
(6) equal monthly installments upon completion of each additional month of Board
service during that calendar year. The option will be subject to full and
immediate vesting upon certain changes in the ownership or control of the
Company.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on February 25, 2007, unless sooner terminated by the Board.
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<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into three-year employment agreements with each of
Messrs. Hershberg and Miller as of January 27, 1997 (the "Executive
Agreements"). Messrs. Hershberg and Miller are required to devote their
full-time efforts to the Company as Chairman of the Board and Chief Executive
Officer, and as President, respectively. The Company is required to compensate
Messrs. Hershberg and Miller at annual rates of $165,000 and $160,000,
respectively (which amounts are reviewed annually by the Board of Directors and
are subject to increase at their discretion). Messrs. Hershberg and Miller are
entitled to all employee benefits generally made available to executive
officers. If the Company terminates the Executive Agreements other than for
disability or cause, the Company will have the following obligations: (i) if the
termination is after the end of the initial three-year term, the Company must
pay the terminated executive one-twelfth of his then applicable base salary as
severance pay and (ii) if the termination is before the end of the initial
three-year term, the Company must pay to the terminated executive, as they
become due, all amounts otherwise payable if he had remained employed by the
Company until the end of the third year of the Executive Agreements. If their
employment is terminated other than for cause following a change of control of
the Company, each of Messrs. Hershberg and Miller will be entitled to receive:
(i) a cash payment equal to three times his respective annual base salary plus
fringe benefits and bonus, (ii) a cash payment equal to three times the
Company's 401(k) contribution for such executive and (iii) medical benefits for
one year for the executive and his dependents. In addition, all stock options
will become immediately exercisable upon a change of control. The definition of
"change in control" in the Executive Agreements is the same as in the 1997 Plan.
The Compensation Committee as Plan Administrator of the 1997 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by any executive officer or the shares
of Common Stock subject to direct issuances held by any such individual, in
connection with certain changes in control of the Company or the subsequent
termination of the executive officer's employment following the change in
control.
401(k) PLAN
The Company participates in a tax-qualified employee savings and retirement
plan (the "401(k) Plan") which covers all of the Company's employees with one
(1) month of service before the end of the preceding quarter who are at least 21
years of age. Pursuant to the 401(k) Plan, employees may elect to reduce their
current compensation by up to 20% and have the amount of such reduction
contributed to the 401(k) Plan. The Company matches 100% of the first 4% of such
contributions. In addition, the 401(k) Plan provides for discretionary
profit-sharing contributions in an amount determined each year by the Board of
Directors. The Company has not made any such discretionary profit-sharing
contributions under the Plan to date. The 401(k) Plan further provides for
additional voluntary contributions (which are made on an after-tax basis) by
Plan participants. The 401(k) Plan is intended to qualify under Section 401 of
the Internal Revenue Code of 1996, as amended, so that salary reduction
contributions by employees, matching or profit-sharing contributions by the
Company, and income earned on plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by the Company
will be deductible by the Company when made. The Trustees under the 401(k) Plan,
at the direction of each participant, invest the assets of the 401(k) Plan in
one or more of several investment options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of the date of this Prospectus, the Company's Compensation Committee
consists of Mr. Fialkov and Dr. Waylan. Prior to this time, effective September
19, 1996, the Board elected a Compensation Committee consisting of Messrs.
Hershberg and Fialkov and Dr. Harrison. From February 21, 1995 to September 18,
1996, the Compensation Committee consisted of Mr. Fialkov and Andrew B. Krieger
(who is no longer a Director of the Company). Prior to that time, decisions
concerning the compensation of
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executive officers were made by the entire Board of Directors. Certain members
of the Company's Board of Directors are parties to transactions with the
Company. See "Certain Transactions."
KEY-PERSON LIFE INSURANCE
The Company maintains key-person life insurance policies on the life of Mr.
Hershberg in the amount of $1.0 million and on the lives of Messrs. Miller,
DiCicco, Woodring, Yablonski and Melfi in the amount of $500,000 for each.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the Delaware General Corporation Law (the "Delaware Law"),
its directors shall not be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty as directors of the
Company. Under Delaware law, the directors have a fiduciary duty to the Company
which is not eliminated by this provision of the Certificate of Incorporation
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of nonmonetary relief will remain available. In addition, each
director will continue to be subject to liability under Delaware law for breach
of the director's duty of loyalty to the Company, for acts or omissions which
are found by a court of competent jurisdiction to be not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. The Company has obtained liability
insurance for its officers and directors.
Section 145 of the Delaware Law empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided that
this provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the Delaware Law or (iv) for any transaction from which the
director derived an improper personal benefit. The Delaware Law provides further
that the indemnification permitted thereunder shall not be deemed exclusive of
any other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of stockholders or otherwise. The
Company's Certificate of Incorporation eliminates the personal liability of
directors to the fullest extent permitted by Section 102(b)(7) of the Delaware
Law and provides that to the fullest extent permitted by law, the Corporation
shall fully indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate of Incorporation. The Company is not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
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<PAGE>
CERTAIN TRANSACTIONS
In October 1994, the Company's Chief Executive Officer lent the Company
$315,000, evidenced by a note bearing interest at 6% per annum. The principal
plus accrued interest in the aggregate amount of $354,423 was repaid in January
1997. During fiscal year 1995, the Chief Executive Officer lent the Company
$80,700 in noninterest-bearing working capital advances of which $60,000 was
repaid during fiscal 1995 and the remaining $20,700 balance was repaid during
fiscal 1996.
In December 1995, the Company lent Donald Woodring, an executive officer of
the Company, $150,000 to cover relocation expenses, repayable June 30, 1997 with
an annual interest rate of 5% per annum. Mr. Woodring paid all interest on the
loan as it came due. Mr. Woodring repaid the principal plus any accrued interest
in the aggregate amount of $153,437 on June 13, 1997.
In June 1995, the Company issued an aggregate of 1,218,982 shares of Common
Stock to various investors at a purchase price of $4.68 per share, including
106,901 shares to PolyVentures, a venture capital firm affiliated with Shelley
A. Harrison, a Director of the Company. In connection with the June 1995
offering, the Company sold to PolyVentures for a purchase price of $3,751 a
five-year warrant to purchase an additional 106,901 shares of the Company's
Common Stock at an exercise price of $5.26 per share. In January 1997,
PolyVentures exercised its warrant and the Company issued to PolyVentures
106,901 shares of its Common Stock.
In May 1996, the Company issued an aggregate of 156,250 shares of Class A
Convertible Preferred Stock (the "Class A Stock") at an aggregate purchase price
of $2.5 million to three investors, including 31,250 shares to PolyVentures,
convertible automatically upon the closing of this Offering into an aggregate of
445,313 shares of Common Stock.
In December 1996, the Company issued an aggregate of 432,142 shares of Class
B Convertible Preferred Stock (the "Class B Stock") at an aggregate purchase
price of $12.1 million to 77 investors, convertible automatically upon the
closing of this Offering into an aggregate of 1,231,605 shares of Common Stock.
In connection with the June 1995 and December 1996 private placements, the
Company engaged Northeast Securities, Inc. ("NSI") to serve as the placement
agent. Andrew B. Krieger, a former director of the Company, served as a
broker-dealer in the private placements through an affiliation with NSI. In
connection with these offerings, the Company paid Krieger Associates, of which
Mr. Krieger is the President and Chief Executive Officer, cash commissions
totaling an aggregate of $1,330,428. In addition, in connection with these
transactions, the Company has agreed to pay Krieger Associates further cash
commissions totaling an aggregate of $432,000, to be paid in monthly
installments over a 36-month period, of which the Company has paid $72,000 to
date. The Company also has retained Krieger Associates to perform certain
financial and other consulting services and to date has paid a total of
approximately $151,000 for the performance of such services since February 1995.
In addition, in connection with these private placements, the Company issued an
aggregate of 156,488 shares of Common Stock and 52,438 shares of Class B Stock,
convertible automatically upon the closing of this Offering into an aggregate of
149,448 shares of Common Stock, to Mr. Krieger, Krieger Associates, NSI and
certain individuals and entities designated by NSI or Mr. Krieger.
The shares of Common Stock issued in the June 1995 private placement and the
shares of Common Stock issued upon conversion of the Class A and Class B
Convertible Preferred Stock are entitled to certain registration rights. See
"Registration Rights of Certain Holders" and "Shares Eligible for Future Sale."
In November 1995, Thomson purchased 199,500 shares of the Company's Common
Stock at a price of $4.68 per share. Under the agreement with Thomson, Thomson
was granted certain preemptive and other rights regarding future issuances of
securities of the Company including (i) a preemptive right to purchase up to 15%
of the total number of securities offered in any public offering undertaken by
the Company and
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(ii) the right to participate in any private offering to the extent required to
maintain its percentage ownership in the Company as well as the right to
nominate a director to the Board of Directors. These rights survive for so long
as Thomson's stock ownership does not fall below 5% of the outstanding share
capital of the Company as a result of Thomson selling or otherwise disposing of
a portion of its shares. In connection with its preemptive right, Thomson has
expressed its intention to purchase 71,538 shares being offered in this Offering
which will enable it to maintain its percentage ownership of the Company.
Additionally, until May 1998, Thomson is to receive additional shares of Common
Stock based on orders placed with the Company. Pursuant to this agreement, in
November 1995, for its first $1.5 million of orders, the Company issued Thomson
37,147 shares of the Company's Common Stock which was equal to 1% of the
Company's Common Stock then outstanding. For each of its next four orders of at
least $3.0 million, Thomson is to receive an additional 1% of the Company's then
outstanding share capital (measured at the time of issuance). In August 1996,
the Company issued Thomson 16,054 shares of the Company's Class A Preferred
Stock, at a purchase price of $16.00 per share, convertible automatically upon
the closing of this Offering into an aggregate of 45,754 shares of Common Stock,
pursuant to its preemptive right granted by the Company to Thomson. In March
1997, the Company issued Thomson 29,420 shares of the Company's Class B
Preferred Stock at a purchase price of $28.00 per share, convertible
automatically upon the closing of this Offering into an aggregate of 83,847
shares of Common Stock, pursuant to the preemptive rights granted by the Company
to Thomson.
On July 1, 1996, the Company hired Donald Gutman, the brother of an
executive officer of the Company, as the Company's Director of Engineering at an
annual salary of $80,000 plus a standard benefit package.
In October 1996, PolyVentures purchased 18,939 shares of NetSat's Class A
Preferred Stock which, in April 1997, the Company converted to 30,082 shares of
the Company's Common Stock.
From August 17, 1994 through June 30, 1997, the Company granted executive
officers and directors of the Company and employees, some of whom are immediate
family members of the Company's executive officers, a total of 909,079 stock
options for the purchase of the Company's Common Stock with exercise prices
ranging from $4.68 to $8.07 per share. See "Management--1997 Stock Incentive
Plan."
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 1997, certain information
with respect to the beneficial ownership of shares of Common Stock of: (i) all
stockholders known by the Company to be the beneficial owners of more than 5% of
its outstanding Common Stock, (ii) each director of the Company and each Named
Executive Officer and (iii) all directors and executive officers of the Company
as a group. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and includes voting and investment power
with respect to shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO OFFERING(2) AFTER OFFERING(2)
NAME AND ADDRESS OF -------------------------- ------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
----------------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
David E. Hershberg........................................... 1,282,500(3) 21.9% 1,282,500 14.9%
Kenneth A. Miller............................................ 273,600(4) 4.7 273,600 3.2
Stephen C. Yablonski......................................... 66,121(5) 1.1 66,121 *
Ray Stuart................................................... 24,048(6) * 24,048 *
Thomas A. DiCicco............................................ 142,500(7) 2.4 142,500 1.7
Donald G. Woodring........................................... 141,078(8) 2.4 141,078 1.6
Gerald A. Gutman............................................. -- -- -- --
Herman Fialkov............................................... 28,500(9) * 28,500 *
Shelley A. Harrison.......................................... 361,446 (10 6.1 361,446 4.2
Benjamin Duhov............................................... 5,700 * 5,700 *
C.J. Waylan.................................................. -- -- -- --
Thomson Corp. of America..................................... 366,248 (11 6.3 437,786 5.1
99 Canal Center Plaza
Suite 450
Alexandria, VA 22314
Vertex Investment (II) Ltd................................... 356,250 (12 6.1 356,250 4.1
c/o Vertex Management (II) Pte Ltd.
77 Science Park Drive
#02-15 Cintech III
Singapore Science Park
Singapore U511
PolyVentures II, Limited Partnership......................... 332,946 5.7 332,946 3.9
c/o Polytechnic University
901 Route 110
Farmingdale, NY 11735
All current directors and executive officers as a group (14
persons)................................................... 2,352,571 (13 38.7 2,352,571 26.7
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Except as otherwise indicated, (i) the stockholders named in the table have
sole voting and investment power with respect to all shares beneficially
owned by them and (ii) the address of all stockholders listed in the table
is: c/o GSI, 45 Oser Avenue, Hauppauge, New York 11788.
(2) The number of shares of Common Stock deemed outstanding prior to this
Offering includes (i) 3,906,119 shares of Common Stock and (ii) 1,958,001
shares of Common Stock issuable upon the conversion of all outstanding
shares of Convertible Preferred Stock. Amounts shown for each stockholder
include (i) all shares of Common Stock issuable upon conversion of Preferred
Stock at the closing of this Offering and (ii) shares of Common Stock
underlying options, warrants and rights of first refusal exercisable within
60 days of June 30, 1997.
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(3) Includes 342,000 shares of Common Stock held by certain members of Mr.
Hershberg's family, for which such shares Mr. Hershberg has power of
attorney to dispose of and invest and 171,000 shares of Common Stock held by
Deerhill Associates, a family partnership of which Mr. Hershberg is General
Managing Partner. Mr. Hershberg disclaims beneficial ownership of the shares
held by his family members and those held by Deerhill Associates except to
the extent of his proportionate pecuniary interest therein.
(4) Includes 54,150 shares of Common Stock held by certain members of Mr.
Miller's family of which Mr. Miller disclaims beneficial ownership and
17,100 shares of Common Stock issuable upon exercise of stock options.
(5) Consists of 1,425 shares of Common Stock held by Mr. Yablonski's wife and
64,696 shares of Common Stock issuable upon exercise of stock options.
(6) Consists of 24,048 shares of Common Stock issuable upon exercise of stock
options.
(7) Includes 14,250 shares of Common Stock issuable upon exercise of stock
options.
(8) Includes 19,950 shares of Common Stock held by certain members of Mr.
Woodring's family of which Mr. Woodring disclaims beneficial ownership and
14,250 shares of Common Stock issuable upon exercise of stock options.
(9) Consists of 28,500 shares of Common Stock issuable upon exercise of stock
options.
(10) Consists of 332,946 shares of Common Stock held by PolyVentures of which
Dr. Harrison is the Managing General Partner, and 28,500 shares of Common
Stock issuable upon exercise of stock options. Dr. Harrison disclaims
beneficial ownership of the shares held by PolyVentures except to the extent
of his proportionate pecuniary interest therein.
(11) Does not include Thomson's right to receive 1% of the Company's outstanding
share capital (measured at the time of issuance) for each of its next four
consummated orders with the Company of at least $3.0 million.
(12) Consists of 285,000 shares of Common Stock held by Vertex Investment (II)
Ltd. ("Vertex") and 71,250 shares of Common Stock held by HWH Investment
Pte. Ltd. ("HWH"). Vertex manages HWH, which is an investment fund owned by
an entity affiliated with the Government of Singapore. Vertex disclaims
beneficial ownership of the shares held by HWH.
(13) See Notes (3) through (10) above.
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DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this Offering, the authorized capital stock of the
Company will consist of 22,000,000 shares of Common Stock, $0.001 par value, and
3,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Following this Offering, the holders of Common Stock, voting as a single class,
will be entitled to elect all of the directors of the Company. In all matters
other than the election of directors, when a quorum is present at any
stockholders' meeting, the affirmative vote of the majority of shares present in
person or represented by proxy shall decide any question before such meeting.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at a stockholders' meeting. The holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
would be entitled to share in the Company's assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of Preferred Stock. A stockholder, holding in
the aggregate 282,401 shares of Common Stock, has the right to participate in
any private offering of the Company to the extent required to maintain its
percentage ownership in the Company. No other holders of Common Stock have any
preemptive or other subscription rights. The shares of Common Stock are not
convertible into any other security. The outstanding shares of Common Stock are,
and the shares being offered hereby will be, upon issuance and sale, fully paid
and nonassessable.
At June 30, 1997, there were 5,864,120 shares of Common Stock outstanding
(after giving effect to the Preferred Stock Conversion and the Stock Split) and
held of record by 295 stockholders, and options to purchase an aggregate of
1,717,482 shares of Common Stock were also outstanding. See "Management-- 1997
Stock Incentive Plan."
PREFERRED STOCK
Upon the consummation of this Offering, the Company will be authorized to
issue 3,000,000 shares of Preferred Stock with such voting rights, designations,
preferences and rights and such qualifications, limitations or restrictions
thereof, as may be determined by the Board of Directors providing for such
series. Although the Company has no current plans to issue any shares of
Preferred Stock, the issuance of Preferred Stock or of rights to purchase
Preferred Stock could be used to discourage an unsolicited acquisition proposal.
In addition, the possible issuance of Preferred Stock could discourage a proxy
contest, make more difficult the acquisition of a substantial block of the
Company's Common Stock or limit the price that investors might be willing to pay
in the future for shares of the Company's Common Stock.
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financing and acquisitions,
and in meeting other corporate needs that might arise. Having such authorized
shares available for issuance will allow the Company to issue shares of
Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by stockholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed.
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COMMON STOCK WARRANTS
As of June 30, 1997, warrants to purchase an aggregate of 64,125 shares of
the Company's Common Stock, all of which will expire on November 21, 2006 and
have an exercise price of $8.07 per share, were outstanding.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After this Offering, the holders of 2,316,446 shares of Common Stock (the
"Registrable Securities") will be entitled to certain demand rights with respect
to the registration of the Registrable Securities under the Securities Act.
Under the terms of the agreement between the Company and the holders of the
Registrable Securities, subject to certain restrictions, at any time twelve (12)
months after this Offering is complete, holders holding more than 25% of the
Registrable Securities are entitled to demand that the Company register not less
than 25% of the Registrable Securities under the Securities Act in an
underwritten public offering, the expected aggregate price to the public of
which exceeds $3,000,000 (net of underwriting discounts and commissions).
Additionally, the Company shall not, subject to certain provisions, be obligated
to effect a registration pursuant to such a demand right during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on a date four (4) months following the effective date of,
a registration statement pertaining to an underwritten public offering of
securities for the account of the Company. The Company is not required to effect
more than one such registration pursuant to such demand registration rights.
Additionally, after this Offering, the holders of 2,507,769 shares of Common
Stock (the "Additional Registrable Securities"), pursuant to the terms of the
July 1995 private placement, will be permitted by the Company to undertake one
demand registration right. Thereafter, the holders of the Additional Registrable
Securities will have piggyback registration rights. Such demand and piggyback
rights are subject to certain restrictions.
Under an additional agreement with respect to the holders of 45,754 shares
of Common Stock (the "Class A Registrable Securities"), the holders of the Class
A Registrable Securities will be entitled to certain demand rights with respect
to the registration of the Class A Registrable Securities under the Securities
Act. Under the terms of the agreement between the Company and the holders of the
Class A Registrable Securities, subject to certain restrictions, at any time
after this Offering is complete, holders holding more than 25% of the Class A
Registrable Securities are entitled to demand that the Company register not less
than 25% of the Class A Registrable Securities under the Securities Act in an
underwritten public offering, the expected aggregate price to the public of
which exceeds $3,000,000 (net of underwriting discounts and commissions). The
Company is not required to effect more than one such registration pursuant to
such demand registration rights.
In addition, under an additional agreement with respect to the holders of
678,833 shares of Common Stock (the "Class B Registrable Securities"), after
this Offering, if the Company proposes to register any of its securities under
the Securities Act, either for its own account or for the account of other
security holders exercising registration rights, subject to certain
restrictions, the holders of the Registrable Securities, the Class A Registrable
Securities and the Class B Registrable Securities are entitled to notice of such
registration and are entitled to request inclusion of their Registrable
Securities, Class A Registrable Securities and Class B Registrable Securities
therein. The Company is required to include any Registrable Securities and Class
A Registrable Securities in an unlimited number of such registrations, and any
Class B Registrable Securities in not more than two such registrations. In
addition, at any time fifty-four (54) weeks after the Offering is complete, the
holders of the Class B Registrable Securities, subject to certain restrictions,
are entitled to demand that the Company register the Class B Registrable
Securities under the Securities Act in an underwritten public offering. The
Company is generally required to bear the expenses of any registrations pursuant
to the exercise of the registration rights described herein.
64
<PAGE>
Registration of the Registrable Securities, the Additional Registrable
Securities, the Class A Registrable Securities or Class B Registrable Securities
pursuant to such rights would result in such shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of such registration.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (iii) on or subsequent to
such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company will act as transfer agent and
registrar for the Company's Common Stock.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this Offering, the Company will have 8,614,120 shares of
Common Stock outstanding, assuming no exercise of the over-allotment option or
of warrants and options to acquire an aggregate of 1,781,607 shares outstanding
at June 30, 1997. Of these shares, the 2,750,000 shares registered in this
Offering will be freely tradable without restriction under the Securities Act,
unless they are purchased by "affiliates" of the Company, as that term is used
under the Securities Act. The remaining 5,864,120 shares will be "restricted
securities," as defined in Rule 144 under the Securities Act (the "Restricted
Shares").
Beginning 90 days after the Effective Date, 435,035 Restricted Shares not
subject to lock-up agreements (including approximately 345,972 shares issuable
upon exercise of vested options) and not being sold in this Offering will be
eligible for sale in the public market without restriction in reliance on Rule
144(k) under the Securities Act. All officers and directors of the Company and
certain other stockholders, holding an aggregate of 4,307,959 shares of Common
Stock, have agreed with PaineWebber Incorporated not to offer to sell, sell,
contract to sell, grant any option to sell or otherwise dispose of any shares of
Common Stock convertible into or exchangeable for Common Stock owned by them for
a period ending 180 days after the date of this Prospectus (the "Lock-Up
Period") without the prior written consent of PaineWebber Incorporated. Certain
other stockholders, holding an aggregate of 1,149,473 shares of Common Stock,
have agreed with PaineWebber Incorporated not to offer to sell, sell, contract
to sell, grant any option to sell or otherwise dispose of any shares of Common
Stock convertible into or exchangeable for Common Stock owned by them for a
period ending 270 days after the date of this Prospectus (the "270-Day Lock-Up
Period") without the prior written consent of PaineWebber Incorporated. Upon the
expiration of the Lock-Up Period, or earlier upon the consent of PaineWebber
Incorporated, approximately 4,420,367 additional shares of restricted securities
(including approximately 142,290 additional shares issuable upon 2,536,950 of
such shares will be subject to certain volume and other resale restrictions
pursuant to Rule 144 and approximately 1,740,927 of such shares will be eligible
for sale without restriction under Rule 144(k). Upon the expiration of the
270-day Lock-Up Period, or earlier upon the consent of PaineWebber Incorporated,
approximately 1,495,979 additional shares of restricted securities (including
approximately 82,691 additional shares issuable upon exercise of vested options)
will be eligible for sale in the public market and, as of that date,
approximately 1,413,288 of such shares will be subject to certain and other
resale restrictions pursuant to Rule 144 of which none of such shares will be
eligible for sale without restriction under Rule 144(k).
In general, under Rule 144, any person (or persons whose shares are
aggregated) who has beneficially owned his or her restricted securities (as that
term is defined in Rule 144) for at least one year is entitled to sell, within
any three-month period, a number of such securities that does not exceed the
greater of 1% of the then outstanding shares of the Company's Common Stock
(approximately 86,141 shares immediately after this Offering) or the average
weekly trading volume during the four calendar weeks preceding the date on which
notice of such sale was filed under Rule 144, provided certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. A person who is not an affiliate, has not been an affiliate
within three months prior to the sale and has beneficially owned the restricted
securities for at least two years is entitled to sell such shares under Rule
144(k) without regard to any of the limitations described above. In meeting the
one- and two-year holding periods described above, a holder of Restricted Shares
may include under certain circumstances the holding period of a prior owner.
Any employee or director of or consultant to the Company who has been
granted options to purchase shares or who has purchased shares pursuant to a
written compensatory plan or written contract prior to the effective date of
this Offering pursuant to Rule 701 will be entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding-period,
volume-limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus.
66
<PAGE>
The Company intends to file, on or about the date of the Prospectus, a
registration statement on Form S-8 under the Securities Act to register shares
of Common Stock reserved for issuance under the Predecessor Plans and the 1997
Plan, including, in some cases, shares for which an exemption under Rule 144 or
Rule 701 would also be available, thus permitting the resale of shares issued
under those plans, options or warrants by nonaffiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing. An aggregate of 1,717,482 shares of
Common Stock are issuable pursuant to outstanding options and options under the
1997 Plan. An additional 562,518 shares of Common Stock are available for future
grants under the Company's 1997 Plan.
Following this Offering, the holders of 5,548,802 Restricted Shares will
have the right to cause the Company to register the sale of such shares under
the Securities Act. If such registration rights are exercised, the shares can be
sold without any holding period or sales volume limitation. See "Description of
Capital Stock--Registration Rights of Certain Holders."
Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely effect the market price of the Common Stock.
67
<PAGE>
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated and
Unterberg Harris (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company and the Representatives (the "Underwriting Agreement"), to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the number
of shares of Common Stock set forth opposite the name of such Underwriters
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------- ----------
<S> <C>
PaineWebber Incorporated.....................................................
Unterberg Harris.............................................................
----------
Total................................................................. 2,750,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Shares listed above are subject to certain conditions. The
Underwriting Agreement also provides that the Underwriters are committed to
purchase, and the Company is obligated to sell, all of the Shares offered by
this Prospectus, if any of the Shares being sold pursuant to the Underwriting
Agreement are purchased (without consideration of any shares that may be
purchased through the exercise of the Underwriters' over-allotment option).
The Representatives have advised the Company that the Underwriters propose
to offer the Shares to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession to other dealers not in excess
of $ per share. After the initial public offering of the Shares, the
public offering price, the concessions to selected dealers and the reallowance
to other dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 412,500 shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise such option only to cover
over-allotments, if any, incurred in the sale of Shares. To the extent the
Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase such percentage of such
additional shares of Common Stock as is approximately equal to the percentage of
Shares that it is obligated to purchase as shown in the table set forth above.
Pursuant to Thomson's preemptive right to purchase up to 15% of the total
number of shares of Common Stock offered in this Offering, Thomson has expressed
an intention to purchase 71,538 shares being offered in this Offering which will
enable it to maintain its percentage ownership of the Company. There can be no
assurance that Thomson will make such purchase.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Certain officers of Unterberg Harris own in the aggregate 10,177 shares of
Common Stock of the Company.
The Representatives have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
The Company and each of its executive officers, directors and certain other
stockholders holding an aggregate of 4,307,959 shares of Common Stock, for a
period ending 180 days from the date of this Prospectus, and certain other
stockholders holding in the aggregate 1,149,473 shares of Common Stock, for a
period ending 270 days from the date of this Prospectus, have agreed not to
offer to sell, sell, contract to
68
<PAGE>
sell, or grant any option to purchase or otherwise dispose of, directly or
indirectly, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for any capital stock or
warrants or other rights to purchase shares of capital stock of the Company
owned by any of them prior to the expiration of 180 days or 270 days from the
date of this Prospectus, as the case may be, except: (i) for the Shares offered
hereby, (ii) with the prior written consent of PaineWebber Incorporated and
(iii) in the case of the Company, for the issuance of shares of Common Stock
upon the exercise of options, or the grant of options to purchase shares of
Common Stock or restricted stock awards under the Stock Plans.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 137,500 shares of Common Stock,
representing 5% of the shares of Common Stock to be sold in the Offering, for
sale to officers, employees, business associates, and related persons of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined pursuant to
negotiations between the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price, in addition to
prevailing market conditions, will be certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future revenues of the
Company, the present state of the Company's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to the Company. The initial public offering price
set forth on the cover page of this Prospectus should not, however, be
considered an indication of the actual value of the Common Stock. Such price is
subject to change as a result of market conditions and other factors. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to the
Offering at or above the initial public offering price.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 412,500 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. In
addition, PaineWebber Incorporated, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased for
the account of the Underwriters in the open market. Any transactions described
in this paragraph may result in the maintenance of the price of the Common Stock
at a level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York, and for the
Underwriters by Shearman & Sterling, New York, New York.
69
<PAGE>
EXPERTS
The Consolidated Financial Statements of the Company at June 30, 1997, and
for the year then ended, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, and at
June 30, 1996, and for the year ended June 30, 1996 and the period from August
17, 1994 (inception) through June 30, 1995, by Price Waterhouse LLP, independent
accountants, as set forth in their respective reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the Consolidated Financial Statements and related Notes filed as a
part thereof. Statements made in this Prospectus concerning the contents of any
document referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved.
As a result of this Offering, the Company will become subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended. As long as the Company is subject to such
periodic reporting and informational requirements, it will file with the
Commission all reports, proxy statements and other information required thereby.
The Registration Statement, as well as such reports and other information filed
by the Company with the Commission, may be inspected at the public reference
facilities maintained by the Commission at its principal office located at 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, 13th Floor, New York New York 10048. Copies of such material may
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains material
regarding issuers that file electronically with the Commission. The Registration
Statement, of which the Prospectus forms a part, has been so filed and may be
obtained at such site.
CHANGE IN INDEPENDENT ACCOUNTANTS
On November 27, 1996, the Company dismissed Price Waterhouse LLP as its
independent accountants. The reports of Price Waterhouse LLP on the Company's
financial statements for the past two fiscal years contained no adverse opinion
or disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audits for the year
ended June 30, 1996 and for the period from August 17, 1994 (inception) through
June 30, 1995, and through November 27, 1996, there have been no disagreements
with Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Price Waterhouse LLP would
have caused them to make reference thereto in their report on the financial
statements for such years. The decision to change firms was approved by the
Company's Board of Directors. The Company has requested that Price Waterhouse
LLP furnish it with a letter addressed to the Commission stating whether or not
it agrees with the above statements. A copy of such letter, dated February 27,
1997, is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
The Company engaged Ernst & Young LLP as its new independent auditors as of
November 27, 1996.
During the two most recent fiscal years and through November 27, 1996, the
Company did not consult with Ernst & Young LLP on items which (i) were or should
have been subject to Statement on Auditing Standards No. 50 or (ii) concerned
the subject matter of a disagreement or reportable event with Price Waterhouse
LLP.
70
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors--Ernst & Young LLP..................................... F-2
Report of Independent Accountants--Price Waterhouse LLP............................... F-3
Consolidated Balance Sheets as of June 30, 1996 and 1997.............................. F-4
Consolidated Statements of Operations for the period from August 17, 1994 (inception)
through June 30, 1995, and the years ended June 30, 1996 and 1997................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the period from August
17, 1994 (inception) through June 30, 1995, and the years ended June 30, 1996 and
1997................................................................................ F-6
Consolidated Statements of Cash Flows for the period from August 17, 1994 (inception)
through June 30, 1995, and the years ended June 30, 1996 and 1997................... F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Globecomm Systems Inc.
We have audited the accompanying consolidated balance sheet of Globecomm
Systems Inc. at June 30, 1997 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Globecomm
Systems Inc. at June 30, 1997, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Melville, New York
July 25, 1997, except for
Note 1 as to which the date
is , 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of the
split of outstanding shares of common stock and amendment to the certificate of
incorporation as described in Note 1 to the consolidated financial statements.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Melville, New York
July 28, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of Globecomm Systems Inc.
The stock split described in Note 1 to the financial statements has not been
consummated at July 29, 1997. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Globecomm Systems Inc. and its subsidiary at June 30, 1996, and
the results of their operations and their cash flows for the period from
August 17, 1994 (inception) through June 30, 1995 and the year ended June
30, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
August 23, 1996, except as to Note 1,
which is as of , 1997
F-3
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 3,434,910 $ 5,164,253
Restricted cash............................................................................... 1,231,850 1,537,261
Accounts receivable........................................................................... 1,998,846 14,350,274
Inventories, net.............................................................................. 1,377,083 2,292,824
Note receivable from stockholder.............................................................. 150,000 --
Prepaid expenses and other current assets..................................................... 233,612 306,981
------------- -------------
Total current assets............................................................................ 8,426,301 23,651,593
Fixed assets, net............................................................................... 719,657 7,150,800
Investments..................................................................................... 238,418 1,307,798
Other assets.................................................................................... 118,419 1,175,690
------------- -------------
Total assets.................................................................................... $ 9,502,795 $ 33,285,881
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................................. $ 2,766,790 $ 16,088,859
Accrued payroll and related fringe benefits................................................... 217,000 438,303
Accrued commissions........................................................................... -- 360,000
Other accrued expenses........................................................................ 350,213 329,350
Note payable to stockholder................................................................... 315,000 --
Capital lease obligations..................................................................... 50,083 56,192
------------- -------------
Total current liabilities....................................................................... 3,699,086 17,272,704
Capital lease obligations....................................................................... 73,945 17,753
------------- -------------
Total liabilities............................................................................... 3,773,031 17,290,457
------------- -------------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares authorized:
Class A Convertible--shares authorized, issued and outstanding: 156,250 at June 30, 1996 and
172,304 at June 30, 1997 (liquidation preference $2,756,864).............................. 156 172
Class B Convertible--shares authorized, issued and outstanding: none at June 30, 1996 and
514,714 at June 30, 1997 (liquidation preference $14,411,992)............................. -- 514
Common stock, $.001 par value; 22,000,000 shares authorized, shares issued and outstanding:
3,769,136 at June 30, 1996 and 3,906,119 at June 30, 1997 (5,864,120 after giving pro forma
effect to the conversion of preferred stock into common stock).............................. 3,769 3,906
Additional paid-in capital.................................................................... 9,036,298 21,970,004
Accumulated deficit........................................................................... (3,310,459) (5,979,172)
------------- -------------
Total stockholders' equity...................................................................... 5,729,764 15,995,424
------------- -------------
Total liabilities and stockholders' equity...................................................... $ 9,502,795 $ 33,285,881
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994
(INCEPTION)
THROUGH YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................................................ $ 71,756 $ 13,476,276 $ 36,220,355
Costs of revenues................................................... 58,089 11,237,977 32,059,999
------------- ------------- -------------
Gross profit........................................................ 13,667 2,238,299 4,160,356
------------- ------------- -------------
Operating expenses:
Selling and marketing............................................. 346,141 1,915,037 3,281,912
Research and development.......................................... -- 711,906 648,851
General and administrative........................................ 771,974 1,945,623 3,448,812
------------- ------------- -------------
Total operating expenses............................................ 1,118,115 4,572,566 7,379,575
------------- ------------- -------------
Loss from operations................................................ (1,104,448) (2,334,267) (3,219,219)
Interest income, net of interest expense of $14,797, $32,293, and
$22,018 in 1995, 1996 and 1997, respectively...................... 39,265 88,991 275,506
------------- ------------- -------------
Loss before minority interests in operations of consolidated
subsidiary........................................................ (1,065,183) (2,245,276) (2,943,713)
Minority interests in operations of consolidated subsidiary......... -- -- 275,000
------------- ------------- -------------
Net loss............................................................ $ (1,065,183) $ (2,245,276) $ (2,668,713)
------------- ------------- -------------
------------- ------------- -------------
Pro forma net loss per share (unaudited)............................ $ (.44)
-------------
-------------
Shares used in computing pro forma net loss per share (unaudited)... 6,086,049
-------------
-------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------------------
CLASS A CLASS B COMMON STOCK ADDITIONAL STOCK
---------------------- ---------------------- ---------------------- PAID-IN SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange of loan payable and
payment of cash for common
stock to chief executive
officer..................... 1,305,158 $ 1,305 $ 47,818
Issuance of common stock to
customer.................... 213,750 214 8,036
Issuance of common stock to
consultants................. 59,710 60 2,245
Sale of common stock to
employees................... 541,500 541 20,359
Sale of common stock to
investors................... 10,687 11 38,982 $ (34,493)
Issuance of common stock under
private placement offering
to investors, net of
issuance costs of
$1,401,606; paid in cash of
$669,682 and 156,488 shares
of stock.................... 1,375,470 1,375 5,034,342 (865,151)
Options granted to employees
and directors............... -- -- 16,318 --
Net loss...................... -- -- -- --
--------- ----------- ---------- ------------
Balance at June 30, 1995...... 3,506,275 3,506 5,168,100 (899,644)
Proceeds from stock
subscriptions receivable.... -- -- -- 899,644
Sale of common stock to
investor, net of issuance
costs of $17,495............ 199,500 199 915,406 --
Issuance of common stock as
sales commissions........... 37,147 37 173,706 --
Sale of common stock to
investors................... 10,687 11 49,977 --
Issuance of common stock to
consultants................. 15,527 16 52,250 --
Sale of convertible preferred
stock to investors, net of
issuance costs of $15,000... 156,250 $ 156 -- -- 2,484,844 --
Options granted to employees
and directors............... -- -- -- -- 192,015 --
Net loss...................... -- -- -- -- -- --
--------- ----------- --------- ----------- ---------- ------------
Balance at June 30, 1996...... 156,250 156 3,769,136 3,769 9,036,298 --
Sale of convertible preferred
stock to investors, net of
issuance costs of
$2,623,264; paid in cash of
$1,135,000 and 53,152 shares
of stock.................... -- -- 485,294 $ 485 -- -- 10,964,515 --
Sale of convertible preferred
stock to investor........... 16,054 16 -- -- -- -- 256,847 --
Exercise of warrants.......... -- -- -- 106,901 107 562,528 --
Sale of convertible preferred
stock to investor........... -- 29,420 29 -- -- 823,731 --
Issuance of common stock in
exchange for minority shares
in subsidiary............... -- -- -- -- 30,082 30 242,732 --
Options granted to employees
and directors............... -- -- -- -- -- 83,353 --
Net loss...................... -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
Balance at June 30, 1997...... 172,304 $ 172 514,714 $ 514 3,906,119 $ 3,906 $21,970,004 $ --
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ ------------
<S> <C> <C>
Exchange of loan payable and
payment of cash for common
stock to chief executive
officer..................... $ 49,123
Issuance of common stock to
customer.................... 8,250
Issuance of common stock to
consultants................. 2,305
Sale of common stock to
employees................... 20,900
Sale of common stock to
investors................... 4,500
Issuance of common stock under
private placement offering
to investors, net of
issuance costs of
$1,401,606; paid in cash of
$669,682 and 156,488 shares
of stock.................... 4,170,566
Options granted to employees
and directors............... 16,318
Net loss...................... $(1,065,183) (1,065,183)
------------ ------------
Balance at June 30, 1995...... (1,065,183) 3,206,779
Proceeds from stock
subscriptions receivable.... -- 899,644
Sale of common stock to
investor, net of issuance
costs of $17,495............ -- 915,605
Issuance of common stock as
sales commissions........... -- 173,743
Sale of common stock to
investors................... -- 49,988
Issuance of common stock to
consultants................. -- 52,266
Sale of convertible preferred
stock to investors, net of
issuance costs of $15,000... -- 2,485,000
Options granted to employees
and directors............... -- 192,015
Net loss...................... (2,245,276) (2,245,276)
------------ ------------
Balance at June 30, 1996...... (3,310,459) 5,729,764
Sale of convertible preferred
stock to investors, net of
issuance costs of
$2,623,264; paid in cash of
$1,135,000 and 53,152 shares
of stock.................... -- 10,965,000
Sale of convertible preferred
stock to investor........... -- 256,863
Exercise of warrants.......... -- 562,635
Sale of convertible preferred
stock to investor........... -- 823,760
Issuance of common stock in
exchange for minority shares
in subsidiary............... -- 242,762
Options granted to employees
and directors............... -- 83,353
Net loss...................... (2,668,713) (2,668,713)
------------ ------------
Balance at June 30, 1997...... $(5,979,172) $15,995,424
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994
(INCEPTION) YEAR ENDED YEAR ENDED
THROUGH JUNE JUNE 30, JUNE 30,
30, 1995 1996 1997
------------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................................. $(1,065,183) $(2,245,276) $(2,668,713)
Adjustments to reconcile net loss to cash used in operating activities:
Stock issued to investor as commission............................... -- 173,743 --
Stock issued to customer............................................. 8,250 -- --
Stock issued to consultants for services............................. 2,305 46,270
Depreciation and amortization........................................ 61,163 180,634 333,692
Amortization of organization costs................................... 7,020 12,034 28,268
Stock compensation expense........................................... 16,318 192,015 83,353
Minority interests in operations of consolidated subsidiary.......... -- -- (275,000)
Changes in operating assets and liabilities:
Accounts receivable................................................ (68,515) (1,930,331) (12,351,428)
Inventories........................................................ (2,041,303) 664,220 (915,741)
Prepaid expenses and other current assets.......................... (9,875) (223,737) (73,369)
Other assets....................................................... (38,505) (38,795) (1,140)
Accounts payable................................................... 2,428,596 338,194 13,322,069
Accrued payroll and related fringe benefits........................ 102,720 114,280 221,303
Accrued commissions and other accrued expenses..................... 143,015 207,198 339,137
------------- ---------- ----------
Net cash used in operating activities.................................... (453,994) (2,509,551) (1,957,569)
------------- ---------- ----------
INVESTING ACTIVITIES
Purchases of investments................................................. -- (238,418) (1,069,380)
Purchases of fixed assets................................................ (437,210) (339,410) (6,764,835)
Payment of organization costs............................................ (60,173) -- (81,158)
Restricted cash.......................................................... (96,000) (1,135,850) (305,411)
------------- ---------- ----------
Net cash used in investing activities.................................... (593,383) (1,713,678) (8,220,784)
------------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from sales of common stock, net................................. 4,195,966 1,871,233 --
Proceeds from sales of preferred stock, net.............................. -- 2,485,000 12,045,623
Proceeds from exercise of warrants....................................... -- -- 562,635
Proceeds from stockholder loans.......................................... 444,823 -- --
Investment from minority stockholders.................................... -- -- 275,000
Loan to stockholder...................................................... -- (150,000) --
Repayment of loan to stockholder......................................... -- -- 150,000
Repayment of loans payable to stockholder................................ (60,000) (20,700) (315,000)
Payment of deferred offering costs....................................... -- -- (760,479)
Payments under capital leases............................................ (26,304) (34,502) (50,083)
------------- ---------- ----------
Net cash provided by financing activities................................ 4,554,485 4,151,031 11,907,696
------------- ---------- ----------
Net (decrease) increase in cash and cash equivalents..................... 3,507,108 (72,198) 1,729,343
Cash and cash equivalents at beginning of period......................... -- 3,507,108 3,434,910
------------- ---------- ----------
Cash and cash equivalents at end of period............................... $ 3,507,108 $3,434,910 $5,164,253
------------- ---------- ----------
------------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................................... $ 1,882 $ 13,341 $ 51,102
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
See accompanying notes.
F-7
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globecomm Systems Inc., formerly known as Worldcomm Systems Inc. (the
"Company"), was incorporated in the State of Delaware on August 17, 1994. The
Company designs, assembles and installs satellite ground segment systems and
networks which support a wide range of satellite communications applications
including fixed, mobile and direct broadcast services as well as certain
military applications. The Company was a development stage enterprise for the
period from August 17, 1994 (inception) through June 30, 1995.
On July 18, 1997, the Board of Directors authorized and, on , 1997
the stockholders approved a 2.85-for-one stock split of the outstanding shares
of common stock, and amended and restated the Company's certificate of
incorporation increasing the number of authorized shares of common stock to
22,000,000 and preferred stock to 3,000,000, and changing the par value of its
common and preferred stock to $.001, to be effective prior to the closing of the
planned initial public offering ("IPO"). Effect has been given to this stock
split as if it occurred on August 17, 1994 (inception). All common share, option
and warrant data has been restated to reflect the stock split. In addition, on
February 26, 1997, the Board of Directors authorized, and the stockholders
subsequently approved, the 1997 Stock Incentive Plan ("1997 Plan"), which will
serve as a successor plan to the stock option plans discussed in Note 8. The
1997 Plan provides for an increase of 285,000 shares to the previously existing
stock option plans, among other matters.
The Company has incurred operating losses since its inception and had an
accumulated deficit at June 30, 1997 of $5,979,172. Such losses have resulted
principally from general and administrative and selling and marketing expenses
associated with the Company's operations. The Company expects that its cash and
working capital requirements will continue to increase in connection with the
Company's plans to continue to expand operations. In order to fund these
efforts, the Company completed a private placement of preferred stock in
December 1996, whereby it received net proceeds of $10,965,000. Management
believes that sufficient funding has been obtained to enable the Company to meet
its working capital needs through June 30, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its majority-owned subsidiary, NetSat Express, Inc. ("NetSat").
All significant intercompany balances and transactions have been eliminated in
consolidation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements and accompanying notes. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Company uses the percentage-of-completion method of accounting for
contract revenues, upon the achievement of certain milestones. Accordingly,
revenue from long-term, fixed-price contracts, are generally recorded based on
the relationship of total costs incurred to date to total projected final costs.
Contract costs generally include purchased material, direct labor, overhead and
other indirect costs. Anticipated contracted losses are recognized as they
become known.
F-8
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues from sales of products and services are generally recognized when
the product is shipped or the service is performed.
INVENTORIES
Inventories, which consists primarily of costs incurred in connection with
specific customer contracts, are stated at the lower of cost or market value.
CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid instruments
with a maturity of three months or less at the time of purchase.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation
of fixed assets is provided on a straight-line basis over their estimated useful
lives of three to five years. Certain leased office equipment has been
capitalized. These amounts are included in fixed assets within the accompanying
consolidated balance sheet and are being amortized over the estimated useful
lives of the equipment.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred.
INCOME TAXES
The financial statements have been prepared in conformity with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires recognition of deferred income taxes under the liability
method.
PRO FORMA LOSS PER SHARE (UNAUDITED)
Pro forma loss per share is based on the weighted average number of shares
of common stock outstanding assuming the conversion of the Class A and Class B
Convertible Preferred Stock into common stock, which will occur upon the
consummation of the Company's planned IPO. However, in accordance with Staff
Accounting Bulletin 83 of the Securities and Exchange Commission, common stock
and common stock equivalents that were issued during the 12 months preceding the
planned IPO at prices below the estimated IPO price (assumed to be $11.00 per
share) have been included in the Company's pro forma loss per share computation
using the treasury stock method and the estimated IPO price, and treated as if
they had been issued at the Company's inception even though they were
antidilutive. Historical losses per share have not been presented because such
amounts are not deemed meaningful due to the significant change in the Company's
capital structure which will occur in connection with the planned IPO.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash and cash equivalents, accounts receivable, note
receivable from stockholder, accounts payable, and accrued liabilities
approximate their fair values principally because of the short-term maturities
of these instruments. The fair value of the Company's note payable to
stockholder is estimated based on the current rates offered to the Company for
debt of similar terms and maturities. Under this method, the Company's fair
value of note payable to stockholder was not significantly different than the
stated value at June 30, 1996.
F-9
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement
121"), which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company has adopted Statement
121 during the year ended June 30, 1997, and there was no effect on the
financial statements related to the adoption.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Raw materials................................................... $ 32,850 $ 50,808
Work-in-progress................................................ 3,106,125 7,876,842
------------- -------------
3,138,975 7,927,650
Less progress payments.......................................... 1,761,892 5,634,826
------------- -------------
$ 1,377,083 $ 2,292,824
------------- -------------
------------- -------------
</TABLE>
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1996 1997
---------- ------------
<S> <C> <C>
Construction in progress............................................ $ -- $ 5,995,218
Computer equipment.................................................. 408,586 880,827
Leasehold improvements.............................................. 119,822 149,055
Machinery and equipment............................................. 135,485 398,474
Furniture and fixtures.............................................. 112,727 143,581
Equipment under capital leases...................................... 184,834 159,134
---------- ------------
961,454 7,726,289
Less accumulated depreciation and amortization...................... 241,797 575,489
---------- ------------
$ 719,657 $ 7,150,800
---------- ------------
---------- ------------
</TABLE>
F-10
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS
Investments consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Shiron Satellite Communications (1996), Ltd. ("Shiron") (a)......................... $ 150,000 $ 285,000
Euro Broadcasting Corporation ("Euro") (b).......................................... -- 240,000
C-Grams Unlimited Inc. ("C-Grams")(c)............................................... -- 550,278
Armer Communications Engineering Services, Inc. ("Armer") (d)....................... -- 200,000
Other............................................................................... 88,418 32,520
------------- -------------
$ 238,418 $ 1,307,798
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(a) On February 12, 1996, the Company purchased 10% of the common stock of
Shiron, an Israeli company, for $150,000 and, during October 1996, exercised
an option to purchase an additional 9% for $135,000. The Company has an
option to purchase up to an additional 11% of Shiron in accordance with the
terms of the purchase agreement.
(b) During August 1996, the Company purchased 19% of the common stock of Euro, a
Delaware corporation, for $240,000 with a one year option to purchase an
additional 10% at a price ranging from $125,000 to $200,000 depending upon
the exercise date.
(c) On August 30, 1996, the Company purchased 5% of the common stock of C-Grams,
a New Hampshire corporation, for $400,278. In May 1997, the Company
purchased an additional 1.6% for $150,000. The Company has an option to
purchase an additional 13.4% at a price in accordance with the terms of the
agreement.
(d) On November 18, 1996, the Company purchased 15% of the common stock of
Armer, an Arizona corporation, for $150,000 and in March 1997 purchased an
additional 2% for $50,000. The Company has an option to purchase up to an
additional 8% at a price of $25,000 for each additional 1% through December
31, 1997.
The above investments have been accounted for at cost, since the Company
does not have the ability to exercise significant influence over operating and
financial policies of the investee.
6. COMMON STOCK
SALES OF COMMON STOCK
In June 1995, the Company completed a private placement offering in which
the Company issued 1,218,982 shares of common stock to various investors.
Proceeds from the issuance of these shares totaled $5,031,966, including
$861,400 of stock subscriptions received in July 1995, and net of related
expenses of $1,401,606. In satisfaction of these related expenses, the Company
paid $669,682 in cash and issued 156,488 shares of its common stock valued at
$731,924. Additionally, in connection with this offering, the Company sold to
one of its investors for $3,751, a five-year warrant to purchase 106,901 shares
of the Company's common stock at a price of $5.26 per share. The warrant
contains certain antidilution provisions as specified in the warrant agreement.
On January 24, 1997, the investor exercised the outstanding warrant.
F-11
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK (CONTINUED)
During the year ended June 30, 1996, the Company sold 210,187 shares of its
common stock to various investors. Proceeds from the sale of these shares
totaled $965,593, net of related expenses of $17,495.
During November 1996, a minority shareholder in the Company's subsidiary
NetSat, agreed to exchange its 19,000 shares (representing approximately 2%) of
NetSat for 30,082 shares in the Company. The shares in the Company were valued
at $8.07 per share at the date of the agreement. The transaction was completed
during April 1997 and, accordingly, the Company recorded goodwill of $242,762.
STOCK ISSUED TO CONSULTANTS
During the year ended June 30, 1996, the Company issued 9,975 shares of its
common stock to a consultant in payment for his efforts in assisting in various
Company matters. These shares were purchased by the consultant at a price of
$.04 per share. Consulting expense recorded as a result of this transaction
amounted to $46,270, which represents the difference between the fair market
value of the shares at the date of issuance and the purchase price.
During November 1996, the Company issued a ten-year warrant to five
consultants for future services to purchase an aggregate of 64,125 shares of
common stock at a price per share of $8.07, equal to the fair market value of
the shares at the date of issuance.
ISSUANCE OF COMMON STOCK AS COMMISSION
On November 9, 1995, and in connection with the Company's sale of 199,500
shares of its common stock to an investor also during the year ended June 30,
1996, the Company entered into a commitment to issue up to 5% of its share
capital as follows: (i) 1% of the then outstanding share capital of the Company
upon receipt of sales orders from this stockholder totalling $1,500,000 and (ii)
an additional 1% of the then outstanding share capital of the Company upon the
receipt of each of four subsequent increments of $3,000,000 in sales orders from
this stockholder. This agreement is in effect for two and a half years.
In November 1995, the Company issued 37,147 shares of its common stock to
this investor, or 1% of the then outstanding share capital. This issuance
resulted in $173,743 of commission expense based on the fair market value of the
shares at the date of issuance, which was also the date of the agreement. As of
June 30, 1996, this entire amount is included in prepaid expenses within the
accompanying consolidated balance sheet as the related orders were not recorded
as revenue during the year ended June 30, 1996. Such amount was included in
selling and marketing expense in the accompanying consolidated statement of
operations during the year ended June 30, 1997, the period in which the related
revenue was recognized.
In addition, the investor was granted certain preemptive and other rights
regarding future issuances of securities of the Company including (i) a
preemptive right to purchase up to 15% of the total number of securities offered
in any public offering undertaken by the Company and (ii) the right to
participate in any private offering to the extent required to maintain its
percentage ownership in the Company as well as the right to nominate a director
to the Board of Directors. These rights survive for so long as the investor's
stock ownership does not fall below 5% of the outstanding share capital of the
Company as a result of the investor selling or otherwise disposing of a portion
of its shares.
F-12
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CONVERTIBLE PREFERRED STOCK
In December 1996, the Company issued 485,294 shares (including 53,152 shares
issued as commission) of its Class B convertible preferred stock ("Class B
Convertible") at $28.00 per share to investors. Proceeds from the sales of these
shares totaled $10,965,000, net of related cash expenses of $1,135,000. In March
1997, and in connection with certain antidilution provisions related to a sale
of common stock to an investor during the year ended June 30, 1996, the Company
issued 29,420 shares of Class B Convertible at $28.00 per share.
On May 30, 1996, the Company issued 156,250 shares of its Class A
convertible preferred stock ("Class A Convertible") at $16.00 per share to
investors. Proceeds from the sale of these shares totaled $2,485,000, net of
related expenses of $15,000. In addition, during August 1996, the Company issued
16,054 shares of Class A Convertible at $16.00 per share to an investor.
The principal terms of the Class A Convertible and Class B Convertible
(collectively, the "Preferred Stock") are as follows:
- - LIQUIDATION PREFERENCE
In the event of a liquidation of the Company and before any distribution of
assets is made to holders of common stock, the holders of the Preferred
Stock are entitled to receive: Class A Convertible, $16.00 per share, or
$2,756,864, and Class B Convertible, $28.00 per share or $14,411,992.
- - CONVERSION
The holders of the Preferred Stock have the right, at any time, to convert
such shares into common stock on a 2.85-for-1 basis, subject to certain
anti-dilution provisions as described in the agreement. The Preferred Stock
shall automatically convert into 1,958,001 shares of common stock upon
notice of and prior to the consummation of a public offering of the
Company's common stock, where gross proceeds from the offering are at least
$7,500,000, subject to certain adjustment provisions as described in the
Company's Certificate of Incorporation, as amended.
The Company has reserved 1,958,001 shares of common stock for issuance upon
conversion of the Preferred Stock at June 30, 1997.
- - DIVIDENDS
The holders of the Preferred Stock shall be entitled to receive dividends
when and as declared by the Company's Board of Directors. If the Company
declares dividends on the common stock, the holders of the Preferred Stock
shall be entitled to receive the same dividend based on the number of shares
of common stock into which the Preferred Stock would convert at that time.
No dividends have been declared on the Preferred Stock or the common stock
as of June 30, 1997.
- - VOTING RIGHTS
The holders of the Preferred Stock shall be entitled to vote at any election
of directors or any other matter upon which holders of common stock have the
right to vote.
F-13
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based-Compensation" ("Statement 123"),
requires the use of option valuation models that were not developed for use in
valuing employee and director stock options.
EMPLOYEE PLAN
In February 1995, the Company adopted a stock option plan (the "Employee
Stock Option Plan"), which provides that the Company may grant employees options
to acquire up to an aggregate of 285,000 shares of the Company's common stock.
During December 1996, the Company increased the number of shares it may grant to
1,710,000 and during February 1997 increased such shares to 1,995,000. The
options generally vest in equal installments over a four-year period and expire
on the tenth anniversary of the date of grant.
The following table summarizes activity in employee stock options:
<TABLE>
<CAPTION>
PERIOD FROM AUGUST
17, 1994
(INCEPTION)
THROUGH YEAR ENDED
JUNE 30, 1995 JUNE 30, 1996
------------------ --------------------
WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of period.............. 209,475 $3.51
Grants.................................... 209,475 $3.51 730,384 $4.57
Canceled.................................. -- -- (119,700) $3.51
------- ---------
Balance, end of period.................... 209,475 $3.51 820,159 $4.46
------- ---------
------- ---------
Weighted-average fair value of options
granted during the period............... $2.26
<CAPTION>
YEAR ENDED
JUNE 30, 1997
--------------------
WEIGHTED-
SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE
--------- ---------
<S> <C> <C>
Balance, beginning of period.............. 820,159 $4.46
Grants.................................... 733,448 $8.15
Canceled.................................. (7,125) $7.39
---------
Balance, end of period.................... 1,546,482 $6.19
---------
---------
Weighted-average fair value of options
granted during the period............... $3.56
</TABLE>
As a result of stock options granted during the years ended June 30, 1995,
1996 and 1997, the Company recorded compensation expense of $14,237, $99,053 and
$43,809 during the years ended June 30, 1995, 1996 and 1997, respectively, based
on the difference between the fair market value of the shares and the option
exercise prices at the dates of grant. As of June 30, 1997, remaining
compensation expense to be recorded through the year ended June 30, 2001 was
approximately $365,000.
DIRECTOR PLAN
In June 1995, the Company adopted a stock option plan (the "Director Stock
Option Plan"), which provides that the Company may grant outside directors
options to acquire up to an aggregate of 285,000 shares of the Company's common
stock. The options vest annually in equal installments over a three-year period
commencing on the date of grant. The options expire the earlier of five years
from the date of grant or three years from concluding service as director of the
Company.
Pursuant to the Director Stock Option Plan, in June 1995, the Company
granted certain outside directors options to purchase 128,250 shares of the
Company's common stock at $3.51 per share. As a result of these grants, the
Company recorded compensation expense during the years ended June 30, 1995,
F-14
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
1996 and 1997, of $2,081, $92,962 and $39,544, respectively, based on the fair
market value of the shares at the date of grant. As of June 30, 1997, remaining
compensation expense to be recorded through the year ended June 30, 1998 was
approximately $15,000. During January 1997, an additional outside director was
granted 42,750 options at $8.07 per share, the estimated fair value of such
shares on the date of grant. As of June 30, 1997, 85,500 options were
exercisable and none were exercised.
STATEMENT 123
Pro forma information regarding net loss and net loss per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for its stock options granted subsequent to July 1,
1995 under the fair value method of that Statement. The fair value for these
options was estimated using a Black-Scholes option pricing model with the
following weighted-average assumptions for the years ended June 30, 1996 and
1997: risk-free interest rate of 6.5%, volatility factor of the expected market
price of the Company's common stock of .40, a weighted-average expected life of
the option of six years and no dividend yields.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
-------------
<S> <C>
Pro forma net loss............................................................. $ (3,432,904)
Pro forma net loss per share................................................... $ (.56)
</TABLE>
Because Statement 123 is applicable to options granted subsequent to July 1,
1995, its pro forma effect will not be fully reflected until the year ending
June 30, 1998.
F-15
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTION PLANS (CONTINUED)
The following tables summarize information about employee stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
EXERCISE OPTIONS OPTIONS CONTRACTUAL
PRICES OUTSTANDING EXERCISABLE LIFE
- -------------- ----------- ----------- -----------
<C> <C> <C> <S>
$3.51 151,050 65,000 7.9 years
$4.67 733,234 194,000 8.5
$8.07 537,368 -- 9.4
$9.82 104,880 -- 9.7
$12.98 19,950 -- 9.9
----------- ----------- -----------
1,546,482 259,000 8.9
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company has reserved 2,344.125 shares of common stock for issuance upon
exercise of all outstanding options and warrants at June 30, 1997.
9. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE FROM STOCKHOLDER
On December 8, 1995, the Company loaned $150,000 to an employee, who is also
a stockholder of the Company. Interest was receivable at an annual rate of 5%.
The note was due on June 30, 1996 and was extended until June 30, 1997. On June
13, 1997, the full amount of principal plus accrued interest in the aggregate
amount of approximately $153,000 was repaid.
NOTE AND LOAN PAYABLE TO STOCKHOLDER
On October 28, 1994, the Company received $315,000 in exchange for a note
payable to the Company's chief executive officer, who is also a stockholder of
the Company. Interest is payable at an annual rate of 6%. Principal and any
unpaid interest are payable in full upon demand at any time on or after October
28, 1995. Interest expense related to this note was $12,915, $18,952 and $9,450,
during the years ended June 30, 1995, 1996 and 1997, respectively. As of June
30, 1996, $29,266 of accrued interest was included in accrued expenses in the
accompanying consolidated balance sheet. The note payable and accrued interest
was paid in full on January 14, 1997.
During the period ended June 30, 1995, the Company also received noninterest
bearing working capital loan advances of $80,700 from the Company's chief
executive officer, of which $60,000 was repaid during the period ended June 30,
1995 and $20,700 was repaid during the year ended June 30, 1996.
10. PENSION PLAN
During the period ended June 30, 1995, the Company established a 401(k) plan
which covers substantially all employees of the Company. Participants may elect
to contribute from 1% to 20% of their pre-tax compensation. Participant
contributions up to 4% of pre-tax compensation were fully matched by the Company
during the years ended June 30, 1995, 1996 and 1997. The plan also provides for
discretionary contributions by the Company. The Company contributed $8,967,
$41,883 and $117,228 to the plan
F-16
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PENSION PLAN (CONTINUED)
during the years ended June 30, 1995, 1996 and 1997, respectively. There were no
discretionary contributions made by the Company during the years ended June 30,
1995, 1996 and 1997.
11. INCOME TAXES
As a result of losses incurred from inception, it would have available net
operating loss carryforwards of approximately $5,113,000 for income tax purposes
which expire through 2012. The Tax Reform Act of 1986 provides for an annual
limitation on the use of net operating loss carryforwards (following certain
ownership changes) that could signficantly limit the Company's ability to
utilize these carryforwards. Upon the completion of the planned IPO, the
exercise of the over-allotment option or the subsequent exercise of options or
warrants or in connection with other future sales of equity, the Company's
ability to utilize the aforementioned carryforwards to reduce future taxable
income and tax liabilities may be limited. Additionally, because the United
States tax laws limit the time during which these carryforwards may be applied
against future taxes, the Company may not be able to take full advantage of
these attributes for federal income tax purposes.
As the Company has had cumulative losses and there is no assurance of future
taxable income, a valuation allowance has been established to offset deferred
tax assets. The components of the Company's net deferred tax assets are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Deferred tax liability:
Depreciation and amortization..................................................... $ 16,000 $ 16,000
------------- -------------
Total deferred tax liability.................................................... 16,000 16,000
Deferred tax assets:
Net operating loss carryforwards.................................................. 891,000 2,045,000
Projects in progress.............................................................. 312,000 307,000
Accruals.......................................................................... 43,000 73,000
------------- -------------
Total deferred tax.............................................................. 1,246,000 2,425,000
Valuation allowance for deferred tax assets....................................... (1,230,000) (2,409,000)
------------- -------------
Net deferred tax assets........................................................... 16,000 16,000
------------- -------------
Net deferred taxes................................................................ $ -- $ --
------------- -------------
------------- -------------
</TABLE>
At June 30, 1995, the Company had a valuation allowance for deferred tax
assets of $365,000.
12. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company designs, assembles and installs satellite ground segment systems
and networks for customers in diversified geographic locations. The Company
performs ongoing credit evaluations of its customers' financial condition and in
most cases requires a letter of credit or cash in advance for foreign customers.
Historically, the Company has not incurred significant losses from trade
receivables.
Sales to two major customers accounted for approximately 61% (43% and 18%)
and 42% (29% and 13%) of the Company's net revenues for the years ended June 30,
1996 and 1997, respectively.
F-17
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
Revenues from foreign sales accounted for 22% (13% Europe, 5% Africa and 4%
Asia), and 40% (28% Asia, 1% Africa and 11% Europe) of total revenues for the
years ended June 30, 1996 and 1997, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
The Company places its cash and cash equivalents with high quality financial
institutions and, by policy, limits the amount of credit exposure to any one
institution. Cash equivalents are comprised of short-term debt instruments,
certificates of deposit or direct or guaranteed obligations of the United
States, which are held to maturity and approximate cost. At times, cash may be
in excess of FDIC insurance limits.
13. COMMITMENTS
LINE OF CREDIT
The Company has a $5.0 million credit facility consisting of (1) a $2.5
million secured domestic line of credit and (2) a $2.5 million secured
export-import guaranteed line of credit. Each line of credit bears interest at
the prime rate plus 1/2% per annum and is collateralized by a first security
interest on all assets.
LETTERS OF CREDIT
The Company utilizes standby letters of credit to secure certain bid
proposals and performance guarantees in the normal course of business. The
Company provides cash collateral for all of these letters of credit. As of June
30, 1996 and 1997, cash collateral related to bid proposals amounted to
$1,043,000, and $1,257,411, respectively, and cash collateral related to
performance guarantees amounted to $188,850, and $279,850, respectively. These
amounts are included in restricted cash in the accompanying consolidated balance
sheets.
LEASE COMMITMENTS
Future minimum payments under noncancelable leases for office space and
equipment with terms of one year or more, consist of the following at June 30,
1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
Year ending June 30, 1998.............................................. $ 62,232 $ 129,000
Year ending June 30, 1999.............................................. 18,367 16,000
Year ending June 30, 2000.............................................. -- 7,000
Year ending June 30, 2001.............................................. -- 1,000
--------- ----------
Total minimum lease payments........................................... 80,599 $ 153,000
----------
----------
Less amounts representing interest..................................... 6,654
---------
Present value of net minimum lease payments............................ $ 73,945
---------
---------
</TABLE>
EMPLOYMENT AGREEMENTS
During January 1997, the Company entered into three-year employment
agreements with two of its officers for an aggregate amount of $325,000 per
year. The Company will have certain obligations to the two officers if they are
terminated for disability, cause or following a change in control.
F-18
<PAGE>
- -------------------------------------------------------------
- -------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.................................... 3
Risk Factors.......................................... 7
Use of Proceeds....................................... 15
Dividend Policy....................................... 15
Capitalization........................................ 16
Dilution.............................................. 17
Selected Consolidated Financial Data.................. 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 20
Business.............................................. 27
Management............................................ 49
Certain Transactions.................................. 59
Principal Stockholders................................ 61
Description of Capital Stock.......................... 63
Shares Eligible for Future Sale....................... 66
Underwriting.......................................... 68
Legal Matters......................................... 69
Experts............................................... 70
Additional Information................................ 70
Change in Independent Accountants..................... 70
Index to Financial Statements......................... F-1
</TABLE>
-------------------
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,750,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-------------------
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS
------------
, 1997
- -------------------------------------------------------------
- -------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------------
<S> <C>
SEC registration fee......................................................... $ 13,417.00
NASD filing fee.............................................................. 4,927.50
Nasdaq National Market listing fee........................................... 42,168.61
Printing and engraving....................................................... 150,000.00
Legal fees and expenses...................................................... 625,000.00
Accounting fees and expenses................................................. 300,000.00
Blue sky fees and expenses................................................... 15,000.00
Transfer agent fees.......................................................... 5,000.00
Miscellaneous................................................................ 44,486.89
---------------
Total.................................................................. $ 1,200,000.00
---------------
---------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article 7 of the Registrant's Amended and Restated
Certificate of Incorporation provides for indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. Reference is
also made to Section 6 of the Underwriting Agreement contained in Exhibit 1.1
hereto, which sets forth certain indemnification provisions. The Registrant has
obtained liability insurance for its officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities during the past
three years:
In June 1995, the Company entered into a Securities Purchase Agreement for
the sale of an aggregate of 1,218,982 shares of Common Stock to various
investors at a purchase price of $4.68 per share. In connection with such
offering, the Company issued, as commission fees, 156,488 shares of Common
Stock.
In November 1995, the Company entered into an agreement with an investor
pursuant to which it issued 199,500 shares of Common Stock at a price of $4.68
per share. Pursuant to the terms of this agreement, in connection with certain
rights granted to this investor for its first $1.5 million of orders with the
Company, in November 1995 the Company issued this investor 37,147 shares of
Common Stock.
In May 1996, the Company issued an aggregate of 156,250 shares of Class A
Convertible Preferred Stock at a purchase price of $2.5 million to three
investors, convertible automatically upon the consummation of this Offering into
an aggregate of 445,313 shares of Common Stock.
II-1
<PAGE>
In August 1996, the Company issued an aggregate of 16,054 shares of Class A
Convertible Preferred Stock at a purchase price of $256,863 convertible
automatically upon the consummation of this Offering into an aggregate of 45,754
shares of Common Stock.
In October 1996, the Company's wholly-owned subsidiary, NetSat Express,
Inc., issued 18,939 shares of its Class A Preferred Stock to PolyVentures, which
the Company in April 1997 converted to 30,082 shares of its Common Stock.
In December 1996, the Company issued an aggregate of 432,142 shares of Class
B Convertible Preferred Stock at a purchase price of $28.00 per share to 77
investors, convertible automatically upon the consummation of this Offering into
an aggregate of 1,231,605 shares of Common Stock. In connection with such
offering, the Company issued, as commission fees, 53,152 shares of Class B
Convertible Preferred Stock, convertible automatically upon the closing of this
Offering into an aggregate of 151,483 shares of Common Stock.
In March 1997, the Company issued 29,420 shares of Class B Convertible Stock
at a purchase price of $28.00 per share to one investor, convertible
automatically upon consummation of this Offering into an aggregate of 83,847
shares of Common Stock.
The Registrant from time to time has granted stock options to employees and
directors. The following table sets forth certain information regarding such
grants:
<TABLE>
<CAPTION>
RANGE OF
NO. OF EXERCISE
SHARES PRICES
------------ ----------------
<S> <C> <C>
August 17, 1994 to June 30, 1995............................. 337,725 $3.51
July 1, 1995 to June 30, 1996................................ 730,384 $3.51-$4.67
July 1, 1996 to June 30, 1997................................ 776,198 $4.67-$12.98
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon an exemption from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering or (ii) Rule
701 under the Securities Act. No underwriters were involved in connection with
the sales of securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1## Form of Underwriting Agreement.
3.2## Form of Amended and Restated Certificate of Incorporation to be in effect upon the consummation of the
public offering.
3.3## Certificate of Increase of Class A Preferred Stock.
3.4## Form of Certificate Eliminating Reference to Class A Preferred Stock.
3.5## Form of Certificate Eliminating Reference to Class B Preferred Stock.
3.6# Bylaws of the Registrant.
3.7## Form of Amended and Restated By-Laws of the Registrant to be in effect upon the consummation of the
public offering.
4.1# Specimen Common Stock Certificate.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.2 See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7 for provisions of the Certificate of Incorporation and
Bylaws of the Registrant defining rights of holders of Common Stock of the Registrant.
5.1# Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Form of Registration Rights Agreement dated as of February 1997.
10.2# Form of Registration Rights Agreement dated May 30, 1996.
10.3# Form of Registration Rights Agreement dated December 31, 1996, as amended.
10.4# Letter Agreement for purchase and sale of 199,500 shares of Common Stock dated
November 9, 1995 between the Registrant and Thomson-CSF.
10.5# Investment Agreement dated February 12, 1996 by and between Shiron Satellite Communications (1996) Ltd.
and the Registrant.
10.6+# Stock Purchase Agreement dated as of August 30, 1996 by and between C-Grams Unlimited Inc. and the
Registrant.
10.7# Memorandum of Understanding dated December 18, 1996 by and between NetSat Express, Inc. and Applied
Theory Communications, Inc.
10.8# Stock Purchase Agreement dated as of August 23, 1996 by and between NetSat Express Inc. and Hughes
Network Systems, Inc.
10.9# Employment Agreement dated as of January 27, 1997 between the Registrant and David E. Hershberg.
10.10# Employment Agreement dated as of January 27, 1997 between the Registrant and Kenneth A. Miller.
10.11# Lease Agreement dated November 15, 1995 by and between RReef USA Fund-I, a California group trust, and
the Registrant.
10.12# Lease Agreement dated July 15, 1996 by and between NetSat Express, Inc. and RReef USA Fund-I.
10.13# Purchase and Sale Agreement, 45 Oser Avenue, Hauppauge, New York, dated December 12, 1996 by and between
Eaton Corporation and the Registrant.
10.14# 1997 Stock Incentive Plan.
11.1## Statement re: Computation of Pro Forma Net Loss Per Share
16.1# Letter from Price Waterhouse LLP.
23.1## Consent of Ernst & Young LLP.
23.2## Consent of Price Waterhouse LLP.
23.3# Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24# Powers of Attorney.
27## Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
# Previously filed.
## Filed herewith.
+ Confidential treatment has been requested for certain portions of this
Exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules
Financial Statement Schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in Financial
Statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424 (b) (1) or (4), or 497
(h) under the Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) That for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HAUPPAUGE, STATE OF NEW
YORK, ON THIS 29TH DAY OF JULY, 1997.
GLOBECOMM SYSTEMS INC.
By: /s/ KENNETH A. MILLER
-----------------------------------------
Kenneth A. Miller
PRESIDENT AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 29, 1997:
SIGNATURE TITLE
- --------------------------------------- ---------------------------
By: * Chairman and Chief
------------------------------ Executive Officer and
David E. Hershberg Director (Principal
Executive Officer)
By: /s/ KENNETH A. MILLER President and Director
------------------------------
Kenneth A. Miller
By: * Chief Financial Officer
------------------------------ (Principal Financial and
Andrew C. Melfi Accounting Officer)
By: * Vice President and Director
------------------------------
Thomas A. DiCicco
By: * Vice President and Director
------------------------------
Stephen C. Yablonski
By: * Vice President and Director
------------------------------
Donald G. Woodring
By: * Director
------------------------------
Herman Fialkov
By: * Director
------------------------------
Shelley A. Harrison
By: Director
------------------------------
Benjamin Duhov
By: * Director
------------------------------
Cecil J. Waylan
*By: /s/ KENNETH A. MILLER
------------------------------
Kenneth A. Miller
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1## Form of Underwriting Agreement.
3.1# Certificate of Incorporation.
3.2## Form of Amended and Restated Certificate of Incorporation to be in effect upon the consummation
of the public offering.
3.3## Certificate of Increase of Class A Preferred Stock.
3.4## Form of Certificate Eliminating Reference to Class A Preferred Stock.
3.5## Form of Certificate Eliminating Reference to Class B Preferred Stock.
3.6# Bylaws of the Registrant.
3.7## Form of Amended and Restated By-Laws of the Registrant to be in effect upon the consummation of
the public offering.
4.1# Specimen Common Stock Certificate.
4.2 See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders of Common Stock of the
Registrant.
5.1# Opinion of Brobeck, Phleger & Harrison LLP.
10.1# Form of Registration Rights Agreement dated as of February 1997.
10.2# Form of Registration Rights Agreement dated May 30, 1996.
10.3# Form of Registration Rights Agreement dated December 31, 1996, as amended.
10.4# Letter Agreement for purchase and sale of 199,500 shares of Common Stock dated
November 9, 1995 between the Registrant and Thomson-CSF.
10.5# Investment Agreement dated February 12, 1996 by and between Shiron Satellite Communications
(1996) Ltd. and the Registrant.
10.6+# Stock Purchase Agreement dated as of August 30, 1996 by and between C-Grams Unlimited Inc. and
the Registrant.
10.7# Memorandum of Understanding dated December 18, 1996 by and between NetSat Express, Inc. and
Applied Theory Communications, Inc.
10.8# Stock Purchase Agreement dated as of August 23, 1996 by and between NetSat Express Inc. and
Hughes Network Systems, Inc.
10.9# Employment Agreement dated as of January 27, 1997 between the Registrant and David E. Hershberg.
10.10# Employment Agreement dated as of January 27, 1997 between the Registrant and Kenneth A. Miller.
10.11# Lease Agreement dated November 15, 1995 by and between RReef USA Fund-I, a California group
trust, and the Registrant.
10.12# Lease Agreement dated July 15, 1996 by and between NetSat Express, Inc. and RReef USA Fund-I.
10.13# Purchase and Sale Agreement, 45 Oser Avenue, Hauppauge, New York, dated December 12, 1996 by and
between Eaton Corporation and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
10.14# 1997 Stock Incentive Plan.
11.1## Statement re: Computation of Pro Forma Net Loss Per Share
16.1# Letter from Price Waterhouse LLP.
23.1## Consent of Ernst & Young LLP.
23.2## Consent of Price Waterhouse LLP.
23.3# Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24# Powers of Attorney.
27## Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
# Previously filed.
## Filed herewith.
+ Confidential treatment has been requested for certain portions of this
Exhibit.
<PAGE>
______________Shares
GLOBECOMM SYSTEMS INC.
Common Stock
FORM OF
UNDERWRITING AGREEMENT
----------------------
________________, 1997
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS, L.P.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Globecomm Systems Inc., a Delaware corporation (the "Company"),
proposes to sell an aggregate of _____ shares (the "Firm Shares") of the
Company's Common Stock, $0.001 par value per share (the "Common Stock"), to you
and to the other underwriters named in Schedule I (collectively, the
"Underwriters"), for whom you are acting as representatives (the
"Representatives"). The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional _____
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section 1(b). The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."
The initial public offering price per share for the Shares and the
purchase price per share for the Shares to be paid by the several Underwriters
shall be agreed upon by the Company and the Representatives, acting on behalf of
the several Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company and the Representatives and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the Shares will be governed
by this Agreement, as supplemented by the Price Determination Agreement. From
and after the date of the
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execution and delivery of the Price Determination Agreement, this Agreement
shall be deemed to incorporate, and, unless the context otherwise indicates,
all references contained herein to "this Agreement" and to the phrase
"herein" shall be deemed to include the Price Determination Agreement.
The Company confirms as follows its agreements with the
Representatives and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and agreements of
the Company herein contained and subject to all the terms and conditions of this
Agreement, the Company agrees to sell to each Underwriter named below, and each
Underwriter, severally and not jointly, agrees to purchase from the Company at
the purchase price per share for the Firm Shares to be agreed upon by the
Representatives and the Company in accordance with Section 1(c) or 1(d) and set
forth in the Price Determination Agreement, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I, plus such additional number
of Firm Shares as such Underwriter may become obligated to purchase pursuant to
Section 8 hereof. Schedule I may be attached to the Price Determination
Agreement.
(b) Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to ____ Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A (as defined in Section 3(a) below),
on or before the 30th day after the date of the Price Determination Agreement),
upon written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, New York City time, at
least two and no more than five business days before the date specified for
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased and the time and date for
such purchase. On the Option Closing Date, the Company will issue and sell to
the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
(c) The initial public offering price per share for the Firm Shares
and the purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be agreed upon and set forth in the Price Determination
Agreement. If the Company has elected
2
<PAGE>
to rely on Rule 430A, in the event such price has not been agreed upon and
the Price Determination Agreement has not been executed by the close of
business on the fourteenth business day following the date on which the
Registration Statement (as hereinafter defined) becomes effective, this
Agreement shall terminate forthwith, without liability of any party to any
other party except that Section 6 shall remain in effect.
(d) If the Company has elected not to rely on Rule 430A, the initial
public offering price per share for the Firm Shares and the purchase price per
share for the Firm Shares to be paid by the several Underwriters shall be agreed
upon and set forth in the Price Determination Agreement, which shall be dated
the date hereof, and an amendment to the Registration Statement containing such
per share price information shall be filed before the Registration Statement
becomes effective
2. Delivery and Payment. Delivery of the Firm Shares shall be made
to the Representatives for the accounts of the Underwriters at the office of
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019
against payment of the purchase price by Federal Reserve Funds check payable in
immediately available funds to the order of the Company or by wire transfer of
Federal Funds or similar same day funds to an account designated in writing by
the Company to PaineWebber Incorporated at least one business day prior to the
Closing Date (as hereinafter defined). Such payment shall be made at 10:00
a.m., New York City time, on the third business day (or fourth business day, if
the Price Determination Agreement is executed after 4:30 p.m.) after the date on
which the first bona fide offering of the Shares to the public is made by the
Underwriters or at such time on such other date, not later than ten business
days after such date, as may be agreed upon by the Company and the
Representatives (such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for payment of the purchase price for the
Firm Shares at the time and date (which may be the Closing Date) specified in
the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and packaging of
certificates for the Shares, the Company agrees to make such certificates
available for inspection at least 24 hours prior to the Closing Date or the
Option Closing Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective
3
<PAGE>
Underwriters shall be borne by the Company. The Company will pay and save
each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance
or sale to such Underwriter of the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No.333-22425) on Form S-1
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A ("Rule 430A") of
the Rules and Regulations included at any time as part of the registration
statement. Copies of such registration statement and amendments and of each
related preliminary prospectus have been delivered to the Representatives. The
term "Registration Statement" means the registration statement as amended at the
time it becomes or became effective (the "Effective Date"), including financial
statements and all exhibits and any information deemed to be included by Rule
430A or Rule 434 of the Rules and Regulations. If the Company files a
registration statement to register a portion of the Shares and relies on Rule
462(b) of the Rules and Regulations for such registration statement to become
effective upon filing with the Commission (the "Rule 462 Registration
Statement"), then any reference to the "Registration Statement" shall be deemed
to include the Rule 462 Registration Statement, as amended from time to time.
The term "Prospectus" means the prospectus as first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is
required, the form of final prospectus included in the Registration Statement at
the Effective Date.
(b) On the Effective Date, the date the Prospectus is first filed
with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did or will comply with all applicable provisions of the Act and the
Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective
4
<PAGE>
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
At the Effective Date, the date the Prospectus or any amendment or supplement
to the Prospectus is filed with the Commission and at the Closing Date and,
if later, the Option Closing Date, the Prospectus did not or will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading. The foregoing representations
and warranties in this Section 3(b) do not apply to any statements or
omissions made in reliance on and in conformity with information relating to
any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement or Prospectus or any
amendment or supplement thereto. For all purposes of this Agreement, the
information set forth in the last paragraph on the front cover page of the
Prospectus (insofar as such information relates to the Underwriters), on the
inside front cover of the Prospectus concerning stabilization and
over-allotment by the Underwriters, and information concerning stabilization
and overallotment by the Underwriters, the list of Syndicate members and the
amounts of the selling concession and reallowance set forth under the caption
"Underwriting" in the Prospectus constitute the only information relating to
any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement, the preliminary
prospectus or the Prospectus. The Company has not distributed any offering
material in connection with the offering or sale of the Shares other than the
Registration Statement, the preliminary prospectus, the Prospectus or any
other materials, if any, permitted by the Act.
(c) The only majority-owned subsidiary of the Company is NetSat
Express, Inc. (the "Subsidiary"). The Company owns 81% of the Subsidiary. As
of the Closing Date, the Company has no wholly-owned subsidiaries. Each of the
Company and the Subsidiary is, and at the Closing Date will be, a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and the Subsidiary has, and
at the Closing Date will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement and the
Prospectus. Each of the Company and the Subsidiary is, and at the Closing Date
will be, duly licensed or qualified to do business and in good standing as a
foreign corporation in all jurisdictions in which the nature of the activities
conducted by it or the character of the assets owned or leased by it makes such
licensing or qualification necessary. All of the outstanding shares of capital
stock of the Subsidiary have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in the Registration Statement
and the Prospectus, 81% of the outstanding shares of capital stock of the
Subsidiary are owned by the Company free and clear of all liens, encumbrances
and claims whatsoever. Except for the stock of the Subsidiary, Euro
Broadcasting and as disclosed in the Registration Statement, the Company
5
<PAGE>
does not own, and at the Closing Date will not own, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity. Complete and correct copies of the
certificate of incorporation and of the by-laws of each of the Company and
the Subsidiary and all amendments thereto have been delivered to the
Representatives, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
(d) The outstanding shares of Common Stock have been, and the Shares
to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and except as disclosed
in the Registration Statement and the Prospectus will not be subject to any
preemptive or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date will be,
complete and accurate in all respects. Except as disclosed in the Registration
Statement and the Prospectus, the Company does not have outstanding, and at the
Closing Date will not have outstanding, any options to purchase, or any rights
or warrants to subscribe for, or any securities or obligations convertible into,
or any contracts or commitments to issue or sell, any shares of Common Stock,
any shares of capital stock of the Subsidiary or any such warrants, convertible
securities or obligations.
(e) The financial statements included in the Registration Statement
or the Prospectus present fairly the consolidated financial condition of the
Company as of the respective dates thereof and the consolidated results of
operations and cash flows of the Company for the respective periods covered
thereby, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the entire period involved, except as otherwise
disclosed in the Registration Statement and the Prospectus. No other financial
statements of the Company are required by the Act or the Rules and Regulations
to be included in the Registration Statement or the Prospectus. Ernst & Young
LLP and Price Waterhouse LLP (the "Accountants") who have reported on such
financial statements, are independent accountants with respect to the Company as
required by the Act and the Rules and Regulations. The statements included in
the Registration Statement with respect to the Accountants pursuant to Rule 509
of Regulation S-K of the Rules and Regulations are true and correct in all
material respects.
(f) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded
6
<PAGE>
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the Closing
Date, except as set forth in or contemplated by the Registration Statement and
the Prospectus, (i) there has not been and will not have been any material
adverse change in the capitalization of the Company, or in the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company and the Subsidiary, arising for any reason whatsoever,
(ii) neither the Company nor the Subsidiary has incurred nor will it incur any
material liabilities or obligations, direct or contingent, nor has it entered
into nor will it enter into any material transactions other than pursuant to
this Agreement and the transactions referred to herein and (iii) the Company has
not and will not have paid or declared any dividends or other distributions of
any kind on any class of its capital stock.
(h) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
(i) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the best
knowledge of the Company after due inquiry, threatened against or affecting the
Company or the Subsidiary or any of their respective officers in their capacity
as such, before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding might materially and adversely affect
the Company or the Subsidiary or its business, properties, business prospects,
condition (financial or otherwise) or results of operations.
(j) Except as described in the Registration Statement and the
Prospectus, each of the Company and the Subsidiary has, and at the Closing Date
will have obtained all necessary orders, permits, licenses, authorizations,
consents and approvals of and from, and has made all necessary filings with, all
federal, state, local, foreign, national, regional and other governmental
authorities, all self-regulatory organizations, all courts and tribunals and
from other persons necessary to carry on its business as contemplated in the
Registration Statement and the Prospectus, except to the extent that the failure
to obtain such orders, permits, licenses, authorizations, consents and approvals
or to make such filings, singly or in the aggregate, would not have a material
adverse effect on the Company or the Subsidiary or its business, properties,
business prospects, condition (financial or otherwise) or results of operations;
except as described in the Registration Statement and the Prospectus, neither
the Company nor the Subsidiary has received any notice of proceedings relating
to revocation or modification of any such orders, permits, licenses,
authorizations, consents or approvals, nor
7
<PAGE>
is the Company or the Subsidiary in violation of, or in default under, any
federal, state, local, foreign, national or regional law, regulation, rule,
decree, order or judgment applicable to the Company or the Subsidiary the
effect of which, singly or in the aggregate, would have a material adverse
effect on the Company or the Subsidiary or its business, properties, business
prospects, condition (financial or otherwise) or results of operations.
(k) Each of the Company and the Subsidiary has, and at the Closing
Date will have, (i) complied in all respects with all laws, regulations and
orders applicable to it or its business and (ii) performed all its obligations
required to be performed by it, and is not, and at the Closing Date will not be,
in default, under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract or
other agreement or instrument (collectively, a "contract or other agreement") to
which it is a party or by which its property is bound or affected, except for
such breaches or defaults that would not have a material adverse effect. To the
best knowledge of the Company and the Subsidiary, no other party under any
contract or other agreement to which it is a party is in default in any respect
thereunder, except for such defaults that would not have a material adverse
effect. Neither the Company nor the Subsidiary is, nor at the Closing Date will
any of them be, in violation of any provision of its certificate of
incorporation or by-laws.
(l) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking by
the Company of any action contemplated hereby, except such as have been obtained
under the Act or the Rules and Regulations and such as may be required under
state securities or Blue Sky laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution by the Underwriters of the Shares.
(m) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the Company and
is enforceable against the Company in accordance with the terms hereof. The
performance of this Agreement and the consummation of the transactions
contemplated hereby and the application of the net proceeds from the offering
and sale of the Shares in the manner set forth in the Prospectus under "Use of
Proceeds" will not result in the creation or imposition of any lien, charge or
encumbrance upon any of the assets of the Company or the Subsidiary pursuant to
the terms or provisions of, or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or give any other party a
right to terminate any of its obligations under, or result in the acceleration
of any obligation under, the certificate of incorporation or by-laws of the
Company or the Subsidiary, any contract or other agreement to which the
8
<PAGE>
Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of its properties is bound or affected, or violate or
conflict with any judgment, ruling, decree, order, statute, rule or
regulation of any court or other governmental agency or body applicable to
the business or properties of the Company or the Subsidiary.
(n) Each of the Company and the Subsidiary has good and marketable
title to all properties and assets described in the Registration Statement and
the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and the Prospectus or are not material to the business of the Company
or the Subsidiary. Each of the Company and the Subsidiary has valid, subsisting
and enforceable leases for the properties described in the Registration
Statement and the Prospectus as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such properties by the Company and such Subsidiary.
(o) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or the Subsidiary is a party
have been duly authorized, executed and delivered by the Company or the
Subsidiary, constitute valid and binding agreements of the Company or the
Subsidiary and are enforceable against the Company or the Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(p) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when made,
inaccurate, untrue or incorrect in any material respect.
(q) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(r) Except as disclosed in the Registration Statement and the
Prospectus, no holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
9
<PAGE>
(s) The offer and sale of Class B Convertible Preferred Stock by the
Company in the private placement completed in December, 1996 did not require
registration under the Securities Act.
(t) Prior to the Closing Date, the Shares will be approved for
quotation on the Nasdaq National Market upon official notice of issuance.
(u) The Company and the Subsidiary are in compliance with all
federal, state and local employment and labor laws, including, but not limited
to, laws relating to non-discrimination in hiring, promotion and pay of
employee, except for such breaches and defaults that would not have a material
adverse effect; no labor dispute with the employees of the Company or the
Subsidiary exists or, to the knowledge of the Company, is imminent or
threatened; and the Company is not aware of any existing, imminent or threatened
labor disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in a material adverse effect on
the condition (financial or otherwise) or on the earnings, business, properties,
business prospects or operations of the Company and the Subsidiary, taken as a
whole.
(v) The patent applications of the Company described in the
Registration Statement and the Prospectus are owned by the Company, and the
Company has not received written notice of any claims by a third party
suggesting that the Company's practice of the inventions covered by such patent
applications, infringes or would infringe the rights of any third party. Except
for normal patent office actions, the Company has not received any written
notice of any basis for rendering invalid any patent which may be issued on such
applications, and the Company has no actual knowledge of any specific factual
basis for rendering any such patent invalid. Except as stated in the
Registration Statement and the Prospectus, the know-how of the Company described
in the Registration Statement and the Prospectus is owned by or licensed to the
Company and the Company has not received written notice of any claims by a third
party suggesting that the Company's use of such know-how infringes the rights of
any third party. The Company is the owner of all pending applications for
registration of trademarks identified in the Registration Statement or the
Prospectus as trademarks of the Company and the Company has not received
written notice of any claims by a third party suggesting that the Company's use
of the trademarks covered thereby, or any other trademark (referred to in the
Registration Statement or the Prospectus) infringes or would infringe the rights
of any third party. Except with respect to the Company's former corporate name
Worldcomm Systems Inc., the Company has not received notice that its use of any
trade name infringes the rights of any third party.
(w) Neither the Company nor the Subsidiary nor, to the Company's
knowledge, any employee or agent of the Company or the Subsidiary has made any
payment
10
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of funds of the Company or the Subsidiary or received or retained any funds
in violation of any law, rule or regulation or of a character required to be
disclosed in the Prospectus.
(x) The Company and the Subsidiary (i) are in compliance with any and
all applicable foreign, federal, state, local, foreign, national or regional
laws and regulations relating to the protection of human health and safety, the
environment or imposing liability or standards of conduct concerning any
Hazardous Material (as hereinafter defined) ("Environmental Laws"), except for
such breaches that would not have a material adverse effect, (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses as conducted to date
and (iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approval, or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, individually or in the aggregate result in a material adverse effect
on the condition (financial or otherwise) or on the earnings, business,
properties, business prospects or operations of the Company and the Subsidiary,
taken as a whole. The term "Hazardous Material" means (A) any "hazardous
substance" as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, (B) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act, as amended, (C) any petroleum or
petroleum product, (D) any polychlorinated biphenyl and (E) any pollutant or
contaminant or hazardous, dangerous, or toxic chemical, material, waste or
substance regulated under or within the meaning of any other Environmental Law.
(y) The Company maintains insurance with respect to its properties
and business of the types and in amounts reasonably deemed by management to be
adequate for its business, all of which insurance is in full force and effect.
(aa) The Company has filed all material federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due thereon,
other than taxes which are being contested in good faith and for which adequate
reserves have been established in accordance with generally accepted accounting
principles ("GAAP"); and the Company has no knowledge of any tax deficiency
which has been or might be asserted or threatened against the Company. There
are no tax returns of the Company or of the Subsidiary that are currently being
audited by state, local or federal taxing authorities or agencies (and with
respect to which the Company or the Subsidiary has received notice), where the
findings of such audit, if adversely determined, would result in a material
adverse effect on the condition (financial or otherwise) or on the earnings,
business, properties, business prospects or operations of the Company and the
Subsidiary, taken as a whole.
(bb) With respect to each employee benefit plan, program and
arrangement (including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the
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Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
maintained or contributed to by the Company, or with respect to which the
Company could incur any liability antler ERISA (collectively, the "Benefit
Plans"), no event has occurred and, to the best knowledge of the Company,
there exists no condition or set of circumstances, in connection with which
the Company could be subject to any liability under the terms of such Benefit
Plan, applicable taw (including, without limitation, ERISA and the Internal
Revenue Code of 1986, as amended) or any applicable agreement that could
materially adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company
and the Subsidiary, taken as a whole.
4. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (1) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or supplements to
the Registration Statement or the Prospectus or for additional information,
(3) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose or the threat thereof, (4) of the happening of any event during
the period mentioned in the second sentence of Section 4(e) that in the judgment
of the Company makes any statement made in the Registration Statement or the
Prospectus untrue or that requires the making of any changes in the Registration
Statement or the Prospectus in order to make the statements therein, in the
light of the circumstances in which they are made, not misleading and (5) of
receipt by the Company or any representative or attorney of the Company of any
other communication from the Commission relating to the Company, the
Registration Statement, any preliminary prospectus or the Prospectus. If at any
time the Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. The Company will
use its best efforts to comply with the provisions of and make all requisite
filings with the Commission pursuant to Rule 430A and to notify the
Representatives promptly of all such filings.
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(c) The Company will furnish to the Representatives, without charge,
two signed copies of the Registration Statement and of any post-effective
amendment thereto, including financial statements, and all exhibits thereto and
will furnish to the Representatives, without charge, for transmittal to each of
the other Underwriters, a copy of the Registration Statement and any
post-effective amendment thereto, including financial statements but without
exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many copies
of the Prospectus or any amendment or supplement thereto as the Representatives
may reasonably request. The Company consents to the use of the Prospectus or
any amendment or supplement thereto by the several Underwriters and by all
dealers to whom the Shares may be sold, both in connection with the offering or
sale of the Shares and for any period of time thereafter during which the
Prospectus is required by law to be delivered in connection therewith. If
during such period of time any event shall occur which in the judgment of the
Company or counsel to the Underwriters should be set forth in the Prospectus in
order to make any statement therein, in the light of the circumstances under
which it was made, not misleading, or if it is necessary to supplement or amend
the Prospectus to comply with law, the Company will forthwith prepare and duly
file with the Commission an appropriate supplement or amendment thereto, and
will deliver to each of the Underwriters, without charge, such number of copies
thereof as the Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters,
the Company will cooperate with the Representatives and counsel to the
Underwriters in connection with the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of such jurisdictions
as the Representatives may request; provided that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general service of
process in any jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter who
may so request copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.
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(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company will pay, or
reimburse if paid by the Representatives, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
but not limited to costs and expenses of or relating to (1) the preparation,
printing and filing of the Registration Statement and exhibits to it, each
preliminary prospectus, the Prospectus and any amendment or supplement to the
Registration Statement or the Prospectus, (2) the preparation and delivery of
certificates representing the Shares, (3) the word processing, printing and
reproduction of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements and any Underwriters' Questionnaire, (4) furnishing (including costs
of shipping, mailing and courier) such copies of the Registration Statement, the
Prospectus and any preliminary prospectus, and all amendments and supplements
thereto, as may be requested for use in connection with the offering and sale of
the Shares by the Underwriters or by dealers to whom Shares may be sold, (5) the
listing of the Shares on the Nasdaq National Market, (6) any filings required to
be made by the Underwriters with the NASD, and the fees, disbursements and other
charges of counsel for the Underwriters in connection therewith, (7) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions designated pursuant to Section
4(f), including the reasonable fees, disbursements and other charges of counsel
to the Underwriters in connection therewith, and the preparation and printing of
preliminary, supplemental and final Blue Sky memoranda, (8) counsel to the
Company, (9) the transfer agent for the Shares and (10) the Accountants.
(j) If this Agreement shall be terminated by the Company pursuant to
any of the provisions hereof (otherwise than pursuant to Section 8) or if for
any reason the Company shall be unable to perform its obligations hereunder, the
Company will reimburse the several Underwriters for all out-of-pocket expenses
(including the reasonable fees, disbursements and other charges of counsel to
the Underwriters) reasonably incurred by them in connection herewith.
(k) The Company will not at any time, directly or indirectly, take
any action intended, or which might reasonably be expected, to cause or result
in, or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.
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<PAGE>
(l) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(m) During the period of 180 days from the date of the Prospectus,
the Company will not, without the prior written consent of PaineWebber
Incorporated, directly or indirectly, sell, offer to sell, grant any option for
the sale of, or otherwise dispose of, any Common Stock or securities convertible
into Common Stock, other than to the Underwriters pursuant to this Agreement, to
Thomson-CSF as described in the Registration Statement and the Prospectus and
other than pursuant to employee benefit plans, provided that the Company will
not grant options to purchase shares of Common Stock pursuant to such employee
benefit plans at a price less than the fair market value thereof as of the date
of grant.
(n) The Company will not, and will cause each of its executive
officers, directors and certain stockholders holding in the aggregate ____% of
the Company's outstanding Common Stock on the date hereof to enter into
agreements with the Representatives in the form set forth in Exhibit B-1 to the
effect that they will not, for a period of 180 days after the commencement of
the public offering of the Shares, without the prior written consent of
PaineWebber Incorporated, offer to sell, sell, contract to sell, grant any
option to sell, or otherwise dispose of, or require the Company to file with the
Commission a registration statement under the Act to register any shares of
Common Stock or warrants or other rights to acquire such shares (other than
pursuant to employee stock option plans or in connection with other employee
incentive compensation arrangements).
5. Conditions of the Obligations of the Underwriters. In addition
to the execution and delivery of the Price Determination Agreement, the
obligations of each Underwriter hereunder are subject to the following
conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by Rule
424 of the Rules and Regulations and Rule 430A shall have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceedings for such purpose shall be
pending
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before or threatened or contemplated by the Commission or the authorities of
any such jurisdiction, (iii) any request for additional information on the
part of the staff of the Commission or any such authorities shall have been
complied with to the satisfaction of the staff of the Commission or such
authorities and (iv) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Representatives and the Representatives
did not object thereto in good faith, and the Representatives shall have
received certificates, dated the Closing Date and the Option Closing Date and
signed by the Chief Executive Officer or the President of the Company and the
Chief Financial Officer of the Company (who may, as to proceedings
threatened, rely upon the best of their information and belief), to the
effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (i) there shall not have been and
no development shall have occurred which could reasonably be expected to result
in, a material adverse change in the general affairs, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company and the Subsidiary, taken as a whole, whether or not
arising from transactions in the ordinary course of business, in each case other
than as set forth in or contemplated by the Registration Statement and the
Prospectus and (ii) neither the Company nor the Subsidiary shall have sustained
any material loss or interference with its business or properties from fire,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in the judgment of the Representatives any such development makes
it impracticable or inadvisable to consummate the sale and delivery of the
Shares by the Underwriters at the initial public offering price.
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or the Subsidiary
or any of their respective officers or directors in their capacities as such,
before or by any federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
the Subsidiary taken as a whole.
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing Date,
as if made at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements
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<PAGE>
herein contained to be performed on the part of the Company and all
conditions herein contained to be fulfilled or complied with by the Company
at or prior to the Closing Date and, with respect to the Option Shares, at or
prior to the Option Closing Date, shall have been duly performed, fulfilled
or complied with.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to counsel for the Underwriters, from
Brobeck, Phleger & Harrison LLP, counsel to the Company, to the effect set forth
in Exhibit C.
(g) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to counsel for the Underwriters, from Irwin,
Campbell & Tannenwald, P.C., special United States regulatory counsel for the
Company, to the effect set forth in Exhibit D.
(h) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
from Shearman & Sterling, counsel to the Underwriters, with respect to the
Registration Statement, the Prospectus and this Agreement, which opinion will be
satisfactory in all respects to the Representatives.
(i) On the date of the Prospectus, each of Ernst & Young LLP and
Price Waterhouse LLP shall have furnished to the Representatives a letter, dated
the date of its delivery, addressed to the Representatives and in form and
substance satisfactory to the Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters, confirming
that they are independent accountants with respect to the Company as required by
the Act and the Rules and Regulations and containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial and other statistical and numerical
information contained in the Registration Statement. At the Closing Date and,
as to the Option Shares, the Option Closing Date, Ernst & Young LLP shall have
furnished to the Representatives a letter, dated the date of its delivery, which
shall confirm, on the basis of a review in accordance with procedures set forth
in the letter from such firm, that nothing has come to their attention during
the period from the date of the letter referred to in the preceding sentence to
the date (specified in the letter) not more than three business days prior to
the Closing Date and the Option Closing Date which would require any change in
the letter delivered on the date of Prospectus, if it were required to be dated
and delivered on the Closing Date and the Option Closing Date.
(j) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of
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<PAGE>
its delivery, signed by each of the Chief Executive Officer and the Chief
Financial Officer of the Company, in form and substance satisfactory to the
Representatives, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, such documents are true and correct in all material respects
and do not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not untrue or misleading
and (B) since the Effective Date, no event has occurred as a result of
which it is necessary to amend or supplement the Prospectus in order to
make the statements therein not untrue or misleading in any material
respect;
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects;
(iii) Each of the covenants required herein to be performed by the
Company on or prior to the delivery of such certificate has been duly,
timely and fully performed and each condition herein required to be
complied with by the Company on or prior to the date of such certificate
has been duly, timely and fully complied with; and
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (A) there has not been, and
no development has occurred which could reasonably be expected to result
in, a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or
results of operations of the Company and the Subsidiary, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, in each case other than as set forth in or contemplated by the
Registration Statement and the Prospectus and (B) neither the Company nor
the Subsidiary has sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or any court
or legislative or other governmental action, order or decree, which is not
set forth in the Registration Statement and the Prospectus, and such other
matters as the Representatives may reasonably request.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 4(n).
(l) The "lock-up" agreements in the form set forth in Exhibit B-2
between you and certain stockholders, officers and directors of the Company
relating to sales, directly or indirectly, of shares of Class B convertible
preferred stock (the "Preferred Stock") issued by the Company pursuant to a
private placement completed in December 1996, or any
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<PAGE>
securities convertible into or exchangeable for such Preferred Stock,
delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
(m) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
and the Option Closing Date.
(n) Prior to the Closing Date, the Shares shall have been approved
for quotation on the Nasdaq National Market upon official notice of issuance.
(o) The National Association of Securities Dealers, Inc. shall have
approved the underwriting terms and arrangements and such approval shall not
have been withdrawn or limited.
(p) The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement in
the Registration Statement or the Prospectus, as to the accuracy at the Closing
Date and the Option Closing Date of the representations and warranties of the
Company herein, as to the performance by the Company of its obligations
hereunder, or as to the fulfillment of the conditions concurrent and precedent
to the obligations hereunder of the Representatives.
6. Indemnification.
(a) The Company will indemnify and hold harmless each Underwriter,
the directors, officers, employees and agents of each Underwriter and each
person, if any, who controls each Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") from and against any and all losses, claims,
liabilities, expenses and damages (including, but not limited to, any and all
investigative, legal and other expenses reasonably incurred in connection
with, and any and all amounts paid in settlement of, any action, suit or
proceeding between any of the indemnified parties and any indemnifying
parties or between any indemnified party and any third party, or otherwise,
or any claim asserted) as and when incurred, to which any underwriter, or any
such person, may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, liabilities, expenses or damages arise out of
or are based on (i) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or (ii) any amendment or supplement to the
Registration Statement or the Prospectus or the omission or alleged omission
to state in such document a material fact
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required to be stated in it or necessary to make the statements in it not
misleading, provided that the Company will not be liable to the extent that
such loss, claim, liability, expense or damage arises from the sale of the
Shares in the public offering to any person by an Underwriter and is based on
an untrue statement or omission or alleged untrue statement or omission made
in reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives on behalf of any
Underwriter expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity agreement will be
in addition to any liability that the Company might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, each director of the Company and
each officer of the Company who signs the Registration Statement to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of such Underwriter expressly for use in the Registration Statement, the
Preliminary Prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have; provided, however,
that in no case shall any Underwriter be liable or responsible for any amount in
excess of the underwriting discounts and commissions received by such
underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section 6 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 6, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of Section 6 unless, and only to the extent that, such
omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel satisfactory to the indemnified party, and after notice
from the indemnifying party to the indemnified party of its election to assume
the defense, the indemnifying party will not be liable to the indemnified party
for any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
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in connection with the defense. The indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. An indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld). No
indemnifying party shall, without the prior written consent of each indemnified
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated by this Section 6 (whether or not any indemnified party is a party
thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding. Notwithstanding any
other provision of this Section 6(c), if at any time an indemnified party shall
have requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel, such indemnifying party agrees that it shall be liable
for any settlement effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt of such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any
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action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of
the Act, officers of the Company who signed the Registration Statement and
directors of the Company, who also may be liable for contribution) to which
the Company and any one or more of the Underwriters may be subject in such
proportion as shall be appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other,
with respect to the statements or omissions which resulted in such loss,
claim, liability, expense or damage, or action in respect thereof, as well as
any other relevant equitable considerations with respect to such offering.
Such relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or
the Representatives on behalf of the Underwriters, the intent of the parties
and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 6(d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim liability, expense or
damage, or action in respect thereof, referred to above in this Section 6(d)
shall be deemed to include, for purpose of this Section 6(d), any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 6(d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
received by it and no person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided
in this Section 6(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 6(d),
any person who controls a party to this Agreement within the meaning of the
Act will have the same rights to contribution as that party, and each officer
of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof. Any party entitled to contribution, promptly after receipt of notice
of commencement of any action against such party in respect of which a
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claim for contribution may be made under this Section 6(d), will notify any such
party or parties from whom contribution may be sought, but the omission so to
notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 6(d).
Except for a settlement entered into pursuant to the last sentence of
Section 6(c) hereof, no party will be liable for contribution with respect to
any action or claim settled without its written consent (which consent will
not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this
Section 6 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of the Underwriters, (ii) acceptance
of the Shares and payment therefor or (iii) any termination of this Agreement.
7. Termination. The obligations of the several Underwriters under
this Agreement may be terminated at any time on or prior to the Closing Date
(or, with respect to the Option Shares, on or prior to the Option Closing Date),
by notice to the Company from the Representatives, without liability on the part
of any Underwriter to the Company, if, prior to delivery and payment for the
Shares (or the Option Shares, as the case may be), in the sole judgment of the
Representatives, (i) there has been, since the respective dates as of which
information is given in the Registration Statement, any material adverse change
in the Company's business, properties, business prospects, condition (financial
or otherwise) or results of operations, (ii) trading in any of the equity
securities of the Company shall have been suspended by the Commission, by the
NASD, by an exchange that lists the Shares or by the Nasdaq National Market,
(iii) trading in securities generally on the New York Stock Exchange or the
Nasdaq National Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange or over
the counter market, or additional material governmental restrictions, not in
force on the date of this Agreement, shall have been imposed upon trading in
securities generally by such exchange or by order of the Commission or any court
or other governmental authority, (iv) a general banking moratorium shall have
been declared by either Federal or New York State authorities or (v) any
material adverse change in the financial or securities markets in the United
States or in political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or declaration by the United
States of a national emergency or war or other calamity or crisis shall have
occurred the effect of any of which is such as to make it, in the sole judgment
of the Representatives, impracticable or inadvisable to market the Shares on the
terms and in the manner contemplated by the Prospectus.
8. Substitution of Underwriters. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it or
they have agreed to purchase hereunder, and the aggregate number of Firm Shares
which such defaulting
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Underwriter or Underwriters agreed but failed or refused to purchase is not
more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so
agreed to purchase, or in such other proportions as the Representatives may
specify; provided that in no event shall the maximum number of Firm Shares
which an Underwriter has become obligated to purchase pursuant to Section 1
be increased pursuant to this Section 8 by more than one-ninth of the number
of Firm Shares agreed to be purchased by such Underwriter without the prior
written consent of such Underwriter. If any Underwriter or Underwriters
shall fail or refuse to purchase any Firm Shares and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase exceeds one-tenth of the aggregate number of
the Firm Shares and arrangements satisfactory to the Representatives and the
Company for the purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or the Company for the purchase or
sale of any Shares under this Agreement. In any such case either the
Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in
any other documents or arrangements may be effected. Any action taken
pursuant to this Section 8 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
9. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 45 Oser
Avenue, Hauppauge, New York 11788, Attention: David E. Hershberg, or (b) if to
the Underwriters, to the Representatives at the offices of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019, Attention:
Corporate Finance Department. Any such notice shall be effective only upon
receipt. Any notice under Section 7 or 8 may be made by telex or telephone, but
if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters and the Company and of the controlling persons, directors
and officers referred to in Section 6, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" as used in this Agreement
shall not include a purchaser, as such purchaser, of Shares from any of the
several Underwriters.
24
<PAGE>
All representations, warranties and agreements of the Company
contained herein or in certificates or other instruments delivered pursuant
hereto, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any of its controlling
persons and shall survive delivery of and payment for the Shares hereunder.
Any action required or permitted to be taken by the Representatives
under this Agreement may be taken by them jointly or by PaineWebber
Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably waive any
right they may have to a trial by jury in respect of any claim based upon or
arising out of this Agreement or the transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or any
provision hereof waived except by an instrument in writing signed by the
Representatives and the Company.
25
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
GLOBECOMM SYSTEMS INC.
By:
-------------------------------------
Title:
Confirmed as of the date first
above mentioned:
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS, L.P.
Acting on behalf of themselves
and as the Representatives of the
other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By:
--------------------------
Title:
UNTERBERG HARRIS, L.P.
By:
--------------------------
Title:
26
<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Name of Firm Shares
Underwriters to be Purchased
- ------------ ---------------
PaineWebber Incorporated
Unterberg Harris, L.P.
Total.................... ---------------
---------------
<PAGE>
EXHIBIT A
GLOBECOMM SYSTEMS INC.
PRICE DETERMINATION AGREEMENT
-----------------------------
__________ ___, 1997
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS, L.P.
As Representatives of the several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated ______________,
1997 (the "Underwriting Agreement"), among Globecomm Systems Inc., a Delaware
corporation (the "Company") and the several Underwriters named in Schedule I
thereto or hereto (the "Underwriters"), for whom PaineWebber Incorporated and
Unterberg Harris, L.P. are acting as representatives (the "Representatives").
The Underwriting Agreement provides for the purchase by the Underwriters from
the Company, subject to the terms and conditions set forth therein, of an
aggregate of _____ shares (the "Firm Shares") of the Company's common stock, par
value $0.001 per share. This Agreement is the Price Determination Agreement
referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned
agree with the Representatives as follows:
The initial public offering price per share for the Firm Shares shall
be $__________.
<PAGE>
The purchase price per share for the Firm Shares to be paid by the
several Underwriters shall be $__________representing an amount equal to the
initial public offering price set forth above, less $__________per share.
The Company represents and warrants to each of the Underwriters that
the representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
As contemplated by the Underwriting Agreement, attached as Schedule I
is a complete list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
This Agreement shall be governed by the law of the State of New York
without regard to the conflict of laws principles of such State.
If the foregoing is in accordance with your understanding of the
agreement among the Underwriters and the Company, please sign and return to the
Company a counterpart hereof, whereupon this instrument along with all
counterparts and together with the Underwriting Agreement shall be a binding
agreement among the Underwriters and the Company in accordance with its terms
and the terms of the Underwriting Agreement.
Very truly yours,
GLOBECOMM SYSTEMS INC.
By:
--------------------------------
Title:
A-2
<PAGE>
Confirmed as of the date
first above mentioned:
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS, L.P.
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
By: PAINEWEBBER INCORPORATED
By:
--------------------------
Title:
UNTERBERG HARRIS, L.P.
By:
--------------------------
Title:
A-3
<PAGE>
EXHIBIT B-1
[DATE]
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS, L.P.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters, for
which PaineWebber Incorporated and Unterberg Harris, L.P. (the
"Representatives") intend to act as Representatives to underwrite a proposed
public offering (the "Offering") of shares of Common Stock, par value $0.001 per
share (the "Common Stock") of Globecomm Systems Inc., a Delaware corporation, as
contemplated by a registration statement with respect to such shares filed with
the Securities and Exchange Commission on Form S-1, the undersigned hereby
agrees that the undersigned will not, for a period of 180 days after the
commencement of the public offering of such shares, without the prior written
consent of PaineWebber Incorporated, offer to sell, sell, contract to sell,
grant any option to sell, or otherwise dispose of, or require the Company to
file with the Securities and Exchange Commission a registration statement under
the Securities Act of 1933 to register any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights to
acquire shares of Common Stock of which the undersigned is now, or may in the
future become, the beneficial owner within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) (other than pursuant to employee stock option
plans or in connection with other employee incentive compensation arrangements).
Very truly yours,
By:
--------------------------------------
--------------------------------------
(Print Name)
<PAGE>
EXHIBIT B-2
[DATE]
PAINEWEBBER INCORPORATED
UNTERBERG HARRIS, L.P.
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
In consideration of the agreement of the several Underwriters, for
which PaineWebber Incorporated and Unterberg Harris, L.P. (the
"Representatives") intend to act as Representatives to underwrite a proposed
public offering (the "Offering") of shares of Common Stock, par value $0.01 per
share (the "Common Stock") of Worldcomm Systems Inc., a Delaware corporation, as
contemplated by a registration statement with respect to such shares filed with
the Securities and Exchange Commission on Form S-1, the undersigned hereby
agrees that the undersigned will not, without the prior written consent of
PaineWebber Incorporated, (i) for a period of one year after the commencement of
the public offering of such shares in the case of the Company's Class B
Preferred Stock, acquired in the private placement completed on December 31,
1996 or any shares of Common Stock into which any shares of such Class B
Preferred Stock are converted and (ii) otherwise for a period of 180 days after
the commencement of such public offering, offer to sell, sell, contract to sell,
grant any option to sell, or otherwise dispose of, or require the Company to
file with the Securities and Exchange Commission a registration statement under
the Securities Act of 1933 to register any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or warrants or other rights to
acquire shares of Common Stock of which the undersigned is now, or may in the
future become, the beneficial owner within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) (other than pursuant to employee stock option
plans or in connection with other employee incentive compensation arrangements).
Very truly yours,
By:
----------------------------------
----------------------------------
(Print Name)
<PAGE>
EXHIBIT C
Form of Opinion of
Counsel to the Company
Each of the Company and Net Sat Express, Inc., a majority-owned
subsidiary (the "Subsidiary") is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has full corporate power and authority to own or lease all the properties owned
or leased by it and to conduct its business as described in the Registration
Statement and the Prospectus. The Company owns 81% of the Subsidiary free and
clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
Except as disclosed in the Registration Statement and Prospectus, all
of the outstanding shares of Common Stock have been, and the Shares, when paid
for by the Underwriters in accordance with the terms of the Agreement, will be,
duly authorized, validly issued, fully paid and nonassessable and will not be
subject to any preemptive or similar right under (i) the statutes, judicial and
administrative decisions, and the rules and regulations of the governmental
agencies of the State of Delaware, (ii) the Company's certificate of
incorporation or by-laws or (iii) any instrument, document, contract or other
agreement referred to in or filed as an exhibit to the Registration Statement or
otherwise known to us. Except as described in the Registration Statement or the
Prospectus, to the best of our knowledge, there is no commitment or arrangement
to issue, and there are no outstanding options, warrants or other rights calling
for the issuance of, any share of capital stock of the Company or the Subsidiary
to any person or any security or other instrument that by its terms is
convertible into, exercisable for or exchangeable for capital stock of the
Company.
No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company pursuant to the Agreement, in connection with the
execution, delivery and performance of the Agreement by the Company or, if so
required, all such consents, approvals, authorizations and orders, have been
obtained and are in full force and effect, except such as have been obtained
under the Act and the Rules and Regulations and (as to which we express no
opinion) such as may be required under state securities or "Blue Sky" laws or by
the by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by the Company.
The authorized, issued and outstanding capital stock of the Company is
as set forth in the Registration Statement and the Prospectus under the caption
"Capitalization." The form of certificate used to evidence the Common Stock is
in due and proper form and complies with Delaware law.
<PAGE>
The issuance and sale of Class B Convertible Preferred Stock by the
Company in the private placement completed on or about December 31, 1996 were
exempt from the registration requirements of the Securities Act.
The Registration Statement and the Prospectus comply in all material
respects as to form with the requirements of the Act and the Rules and
Regulations (except that we express no opinion as to financial statements,
schedules and other financial data contained in the Registration Statement or
the Prospectus).
We do not know of any contract or other document (collectively,
"Documents") that is required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
is not described or filed as required; and no default exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any Document filed or required to be filed as an exhibit
to the Registration Statement.
To the best of our knowledge, except as described in the Registration
Statement, no person or entity has the right to require the registration under
the Act of shares of Common Stock or other securities of the Company by reason
of the filing or effectiveness of the Registration Statement.
To the best of our knowledge, the Company is not in violation of, or
in default with respect to, any law, rule, regulation, order, judgment or
decree, except as may be described in the Prospectus or such as in the aggregate
do not now have and will not in the future have a material adverse effect upon
the operations, business or assets of the Company and the Subsidiary, taken as a
whole.
The statements in the Registration Statement and the Prospectus under
the following captions: "Management - Limitations of Liability and
Indemnification Matters" and "Description of Capital Stock" insofar as they are
descriptions of laws, regulations and rules or of legal or governmental
proceedings, contracts and other documents or refer to statements of law or
legal conclusions have been reviewed by such counsel and are accurate and fairly
summarize the information required to be shown.
The Company has full corporate power and authority to enter into the
Agreement, and the Agreement has been duly authorized, executed and delivered by
the Company.
The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Agreement do not and will not (i)
violate the certificate of incorporation or by-laws of the Company, (ii) breach
or result in a default under, cause the
C-2
<PAGE>
time for performance of any obligation to be accelerated under, or result in
the creation or imposition of any lien, charge or encumbrance upon any of the
assets of the Company or the Subsidiary pursuant to the terms of any Document
filed as an exhibit to the Registration Statement or listed on a schedule
attached to this opinion, (iii) breach or otherwise violate any existing
obligation of the Company under any court or administrative order, judgment
or decree of which we have knowledge or (iv) violate applicable provisions of
any statute or regulation in the States of Delaware, New York or of the
United States, except such as may pertain to the securities or blue sky laws
of the various states (on which we express no opinion).
The Shares sold by the Company pursuant to the provisions of the
Agreement have been duly authorized and validly issued and are fully paid and
non-assessable; no holder thereof is or will be subject to personal liability by
reason of being such a holder; such Shares are not subject to the preemptive
rights of any stockholder of the Company, and all corporate action required to
be taken for the authorization, issue and sale of such Shares has been validly
and sufficiently taken.
The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
We hereby confirm to you that we have been advised by the Commission
that the Registration Statement has become effective under the Act and that to
our knowledge no order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been instituted
or is pending, threatened or contemplated.
To our knowledge, except as set forth in or contemplated by the
Registration Statement and the Prospectus, there are no actions, suits,
proceedings or investigations pending or, to our knowledge, overtly threatened
in writing against the Company or the Subsidiary, or any of their respective
officers or directors in their capacities as such, before or by any court,
governmental agency or arbitrator which (i) seek to challenge the legality or
enforceability of the Agreement, (ii) seek to challenge the legality or
enforceability of any of the Documents filed as exhibits to the Registration
Statement, (iii) seek damages or other remedies with respect to any of the
Documents filed as exhibits to the Registration Statement, (iv) except as set
forth in or contemplated by the Registration Statement and the Prospectus, seek
money damages or seek to impose criminal penalties upon the Company, the
Subsidiary or any of their respective officers or directors in their capacities
as such and of which we have knowledge or (v) seek to enjoin any of the business
activities of the Company or the Subsidiary or the transactions described in the
Prospectus.
C-3
<PAGE>
In addition to rendering legal advice and assistance to the Company in
the course of the preparation of the Registration Statement and the Prospectus,
which involved, among other things, discussions and inquiries concerning various
legal matters and the review of certain corporate records, documents and
proceedings (in addition to those described in paragraphs (__) through (__)
above), we also participated in conferences with certain officers and other
representatives of the Company, including its independent public accountants,
special regulatory and intellectual property counsel of the Company, and with
you and your counsel at which the contents of the Registration Statement, the
Prospectus and related matters were discussed. We have not, however, except
with respect to matters expressly covered above by this opinion, independently
checked or verified the accuracy, completeness or fairness of the information
contained in the Registration Statement and the Prospectus.
Based upon our participation as described in the preceding paragraph
however, we confirm that we have no reason to believe that (except for financial
statements, schedules and other financial data as to which we express no belief)
the Registration Statement, as of the Effective date and as of the date hereof,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that (except for financial
statements, schedules and other financial data as to which we express no belief)
the Prospectus, at the time the Prospectus was issued, at the Closing Date and
at the Option Closing Date, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement may be: (i) subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally; and (ii) subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
including principles of commercial reasonableness or conscionability and an
implied covenant of good faith and fair dealing.
This letter is furnished by us solely for your benefit in connection
with the transactions referred to in the Agreement and may not be circulated to,
or relied upon by, any other person, except that this letter may be relied upon
by your counsel in connection with the opinion letter to be delivered to you
pursuant to Section 5(f) of the Agreement.
In rendering the foregoing opinion, counsel may rely, to the extent
they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel as to matters governed by the laws of
jurisdictions other than the United States and the States of Delaware and New
York, and as to matters of fact, upon certificates of officers of the
C-4
<PAGE>
Company and of government officials; provided that such counsel shall state
that the opinion of any other counsel is in form satisfactory to such
counsel. Copies of all such opinions and certificates shall be furnished to
counsel to the Underwriters on the Closing Date.
C-5
<PAGE>
Exhibit 3.2
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GLOBECOMM SYSTEMS INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
Globecomm Systems Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "General
Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Globecomm Systems
Inc., and that this corporation was originally incorporated in Delaware under
the name Worldcomm Systems Inc., on August 17, 1994, pursuant to the General
Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in
the best interests of this corporation and its stockholders, and authorizing
the appropriate officers of this corporation to solicit the consent of the
stockholders therefore, which resolution setting forth the proposed amendment
and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I.
The name of this corporation is Globecomm Systems Inc.
ARTICLE II.
The address of the registered office of this corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law.
ARTICLE IV.
A. This corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which this corporation is authorized to issue is
25,000,000 shares. 22,000,000 shares, par value $.001 per share, shall be
Common Stock and 3,000,000 shares, par value $.001 per share, shall be
Preferred Stock.
B. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
stock of this corporation entitled to vote, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law of Delaware.
ARTICLE V.
A. Common Stock.
(a) General. All shares of Common Stock will be identical
and will entitle the holders thereof to the same rights, powers and
privileges. The rights, powers and privileges of the holders of the Common
Stock are subject to and qualified by the rights of holders of the Preferred
Stock.
(b) Dividends. Dividends may be declared and paid on the
Common Stock from funds lawfully available therefor as and when determined by
the Board of Directors and subject to any preferential dividend rights of any
then outstanding Preferred Stock.
(c) Dissolution, Liquidation or Winding Up. In the event of
any dissolution, liquidation or winding up of the affairs of this
corporation, whether voluntary or involuntary, each issued and outstanding
share of Common Stock shall entitle the holder thereof to receive an equal
portion of the net assets of this corporation available for distribution to
the holders of Common Stock, subject to any preferential rights of any then
outstanding Preferred Stock.
(d) Voting Rights. Except as otherwise required by law or
this Amended and Restated Certificate of Incorporation, each holder of Common
Stock shall have one vote in respect of each share of stock held of record by
such holder on the books of this
2
<PAGE>
corporation for the election of directors and on all matters submitted to a
vote of stockholders of this corporation. Except as otherwise required by
law or provided herein, holders of Common Stock shall vote together with
holders of Common Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock. There
shall be no cumulative voting.
(e) Redemption. The Common Stock is not redeemable.
(f) Stock Split. Upon the effectiveness of this Amended and
Restated Certificate of Incorporation, each outstanding share of Common
Stock, par value $.01 per share, shall be changed into 2.85 shares of Common
Stock, par value $.001. Each holder of record of a certificate for one or
more shares of Common Stock of the Corporation as of the close of business on
the date this Amended and Restated Certificate of Incorporation becomes
effective shall be entitled to receive as soon as practicable, and without
surrender of such certificate, a certificate or certificates representing
1.85 additional shares of Common Stock, par value $.001, for each one share
of Common Stock represented by the certificate of such holder.
B. Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of ARTICLE IV, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware,
to establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences, and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that series;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
3
<PAGE>
(e) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date
or dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of this
corporation, and the relative rights or priority, if any, of payment of
shares of that series; and
(h) Any other relative rights, preferences and limitations of that
series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the Common Stock with respect to the
same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of this corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to
pay such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all series
of Preferred Stock in accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.
ARTICLE VI.
In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend
or repeal the Bylaws of this corporation.
ARTICLE VII.
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for this
corporation under the
4
<PAGE>
provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this corporation.
ARTICLE VIII.
A director of this corporation shall not be personally liable to
this corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of this corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such
repeal or modification.
ARTICLE IX.
This corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he is or was, or has agreed to become, a director or officer of
this corporation, or is or was serving, or has agreed to serve, at the
request of this corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of
any action alleged to have been taken or omitted in such capacity, against
all expenses
5
<PAGE>
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with
such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by this corporation of expenses
in defending an action or proceeding in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by the person
indemnified to repay such payment if it is ultimately determined that such
person is not entitled to indemnification under this Article, which
undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
This corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated
by such person unless the initiation thereof was approved by the Board of
Directors of this corporation.
The indemnification rights provided in this Article (i) shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. This corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of this corporation or
other persons serving this corporation and such rights may be equivalent to,
or greater or less than, those set forth in this Article.
ARTICLE X.
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE XI.
The number of directors of this corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE XII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of this corporation may provide. The books of this
corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place
6
<PAGE>
or places as may be designated from time to time by the Board of Directors or
in the Bylaws of this corporation.
The Stockholders of this corporation may not take any action by
written consent in lieu of a meeting."
* * *
THIRD: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 228
of the General Corporation Law.
FOURTH: That said amendments were duly adopted in accordance with
the provisions of Section 242 and 245 of the General Corporation Law.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chairman of the Board and the Secretary
of this corporation this ____ day of August, 1997.
---------------------------------------
David E. Hershberg, Chairman
of the Board and Chief Executive Officer
---------------------------------------
Thomas A. DiCicco, Secretary
7
<PAGE>
Exhibit 3.3
CERTIFICATE OF INCREASE
OF
CLASS A PREFERRED STOCK
OF
GLOBECOMM SYSTEMS INC.
Pursuant to Section 151(g)
of the General Corporation
Law of the State of Delaware
**************************
Globecomm Systems Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State
of Delaware (the "DGCL") DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation, as amended, of the
Corporation empowers the Board of Directors (the "Board"), to authorize the
issuance of one or more classes of the Corporation's Preferred Stock, or one
or more series of any such class, and to fix the preferences and relative,
participation, optional or other special rights, and qualifications,
limitations or restrictions thereof for each such class or series.
SECOND: The Board of the Corporation pursuant to the authority
expressly vested in the Board has adopted the following resolution increasing
the Class A Preferred Stock:
"RESOLVED: That the total number of Class A Preferred
Stock which the Corporation shall have the authority to issue is hereby
increased from One Hundred Fifty-Six Thousand Two Hundred Fifty (156,250)
shares of Class A Preferred Stock, to One Hundred Seventy-Two Thousand Three
Hundred Four (172,304) shares of Class A Preferred Stock."
THIRD: That the foregoing amendment has been duly adopted in
accordance with the provisions of Section 151(g) of the DGCL.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to
be signed by Andrew C. Melfi, its Chief Financial Officer and Thomas DiCicco,
its Secretary, this 23 day of July, 1997.
By: /s/ Andrew C. Melfi
---------------------------
Andrew C. Melfi
Chief Financial Officer
ATTEST:
/s/ Thomas A. DiCicco
- ----------------------------
Thomas A. DiCicco, Secretary
<PAGE>
Exhibit 3.4
FORM OF
CERTIFICATE ELIMINATING
REFERENCE TO THE CLASS A PREFERRED STOCK
FROM THE
CERTIFICATE OF INCORPORATION
OF
GLOBECOMM SYSTEMS INC.
Pursuant to the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware, it is hereby certified that:
1. The name of the corporation (hereinafter referred to as the
"corporation") is Globecomm Systems Inc.
2. The designation of the series of shares of stock of the corporation
to which this certificate relates is the Class A Preferred Stock, filed with the
Secretary of State of Delaware on May 30, 1996.
3. The voting powers, designations, preferences, and the relative,
participating, optional, or other rights, and the qualifications, limitations,
and restrictions of the Class A Preferred Stock were provided for in certain
resolutions adopted by the Board of Directors of the corporation pursuant to
authority expressly vested in it by the provisions of the certificate of
incorporation filed with the Secretary of State of the State of Delaware
pursuant to the provisions of Section 151(g) of the General Corporation Law of
the State of Delaware.
4. The Board of Directors of the corporation has adopted the following
resolution:
RESOLVED, that none of the authorized shares of the Class A
Preferred Stock of the corporation are outstanding, and
FURTHER RESOLVED, that none of the Class A Preferred Stock
of the corporation will be issued, and
FURTHER RESOLVED, that the proper officers of the
corporation be and hereby are authorized and directed to
file a certificate setting forth this resolution with the
Secretary of State
<PAGE>
of the State of Delaware pursuant to the provisions of Section 151(g)
of the General Corporation Law of the State of Delaware for the purpose
of eliminating from the certificate of incorporation of the corporation
all reference to the Class A Preferred Stock.
5. The effective time of this certificate shall be August __, 1997.
Signed on August __, 1997.
_____________________________________
David E. Hershberg
Chairman of the Baord and
Chief Executive Officer
<PAGE>
Exhibit 3.5
FORM OF
CERTIFICATE ELIMINATING
REFERENCE TO THE CLASS B PREFERRED STOCK
FROM THE
CERTIFICATE OF INCORPORATION
OF
GLOBECOMM SYSTEMS INC.
Pursuant to the provisions of Section 151(g) of
the General Corporation Law of the State of Delaware, it is
hereby certified that:
1. The name of the corporation (hereinafter
referred to as the "corporation") is Globecomm Systems Inc.
2. The designation of the series of shares of
stock of the corporation to which this certificate relates
is the Class B Preferred Stock, filed with the Secretary of
State of Delaware on January 21, 1997.
3. The voting powers, designations, preferences,
and the relative, participating, optional, or other rights,
and the qualifications, limitations, and restrictions of the
Class B Preferred Stock were provided for in certain
resolutions adopted by the Board of Directors of the
corporation pursuant to authority expressly vested in it by
the provisions of the certificate of incorporation filed
with the Secretary of State of the State of Delaware
pursuant to the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware.
4. The Board of Directors of the corporation has
adopted the following resolution:
RESOLVED, that none of the authorized
shares of the Class B
Preferred Stock of the corporation are
outstanding, and
FURTHER RESOLVED, that none of the Class
B Preferred Stock of the corporation
will be issued, and
FURTHER RESOLVED, that the proper
officers of the corporation be and
hereby are authorized and directed to
file a certificate setting forth this
resolution with the Secretary of State
<PAGE>
of the State of Delaware pursuant to
the provisions of Section 151(g) of the
General Corporation Law of the State of
Delaware for the purpose of eliminating
from the certificate of incorporation of
the corporation all reference to the Class
B Preferred Stock.
5. The effective time of this certificate shall be
August __, 1997.
Signed on August __, 1997.
_____________________________________
David E. Hershberg
Chairman of the Board and
Chief Executive Officer
<PAGE>
Exhibit 3.7
-----------
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
GLOBECOMM SYSTEMS INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the city of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
<PAGE>
Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the Chairman of the Board or the Chief Executive
Officer and shall be called by the Chairman
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<PAGE>
of the Board, the Chief Executive Officer or Secretary at the request in writing
of a majority of the Board of Directors.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall
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<PAGE>
decide any question brought before such meeting, unless the question is one upon
which by express provision of the statutes or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. A. Annual Meetings of Stockholders
1. Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (a) pursuant to the corporation's
notice of meeting, (b) by or at the direction of the Board of Directors or (c)
by any stockholder of the corporation who was a stockholder of record at the
time of giving of notice provided for in this Section 11, who is entitled to
vote at the meeting and who complies with the notice procedures set forth in
this Section 11.
2. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 11, the stockholder must have given timely notice thereof
in writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
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<PAGE>
executive offices of the corporation not later than the close of business on the
one hundred twentieth (120th) day nor earlier than the close of business on the
one hundred fiftieth (150th) day prior to the first anniversary of the date of
the proxy statement delivered to stockholders in connection with the preceding
year's annual meeting; provided, however, that if either (i) the date of the
annual meeting is more than thirty (30) days before or more than sixty (60) days
after such an anniversary date or (ii) no proxy statement was delivered to
stockholders in connection with the preceding year's annual meeting, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the corporation. Such stockholder's notice shall set forth (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
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<PAGE>
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of capital stock of the
corporation that are owned beneficially and held of record by such stockholder
and such beneficial owner.
3. Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 11 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or seventy (70) days after such anniversary date, at
least sixty (60) days prior to such annual meeting), a stockholder's notice
required by this Section 11 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive office of the
corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
corporation.
B. Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors
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<PAGE>
shall be elected at such meeting, by any stockholder of the corporation who is a
stockholder of record at the time of giving of notice of the special meeting,
who shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 11. If the corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be), for election to such position(s) as specified in the
corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this Section 11 shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the ninetieth
(90th) day prior to such special meeting not later than the later of (x) the
close of business of the sixtieth (60th) day prior to such special meeting or
(y) the close of business of the tenth (10th) day following the day on which
public announcement is first made of the date of such special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
C. General.
1. Only such persons who are nominated in accordance with the
procedures set forth in this Section 11 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 11. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 11 and, if any proposed
nomination or
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<PAGE>
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
2. For purposes of this Section 11, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 and 15(d) of the Exchange Act.
3. Notwithstanding the foregoing provisions of this Section 11,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 11 shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors under specified
circumstances.
Notwithstanding any other provision of law, the Certificate of
Incorporation or these By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least seventy-five percent (75%) of the votes which all the stockholders would
be entitled to cast at any annual election of directors or class of directors
shall be required to amend or repeal, or to adopt any provision inconsistent
with, this Section 11.
-8-
<PAGE>
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until
said director's successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the corporation and
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<PAGE>
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these by-laws directed or required to be exercised or
done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 7. Special meetings of the Board may be called by the
Chairman of the Board or the Chief Executive Officer on two (2) days' notice to
each director by mail or forty-eight (48) hours notice to each director either
personally or by facsimile or electronic mail; special meetings shall be called
by the Chairman of the Board, the Chief Executive Officer or the Secretary in
like manner and on like notice on the written request of two directors unless
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<PAGE>
the Board consists of only one director, in which case special meetings shall be
called by the Chairman of the Board, the Chief Executive Officer or the
Secretary in like manner and on like notice on the written request of the sole
director.
Section 8. At all meetings of the Board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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<PAGE>
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not the member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
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<PAGE>
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director or receive shares of stock or options to purchase shares of
stock in lieu of cash payments. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
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<PAGE>
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at such director's or stockholder's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
facsimile or electronic mail.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a chairman of the Board, chief executive
officer, president, chief financial officer, treasurer and a secretary. The
Board of Directors may elect from among its members a chairman of the Board and
a vice chairman of the Board. The Board of Directors may also choose one or
more senior vice-president, vice-presidents, assistant secretaries and
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<PAGE>
assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which the Chairman
shall be present. The Chairman shall have and may exercise such powers as are,
from time to time, assigned to the Chairman by the Board and as may be provided
by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the
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<PAGE>
stockholders at which the Vice Chairman shall be present. The Vice Chairman
shall have and may exercise such powers as are, from time to time, assigned to
the Vice Chairman by the Board and as may be provided by law.
THE CHIEF EXECUTIVE OFFICER
Section 8. The Chief Executive Officer shall be the chief executive
officer of the Corporation and shall have general supervision over the business
of the Corporaiton. The Chief Executive Officer shall have all powers and
duties usually incident to the office of Chief Executive Officer. The Chief
Executive Officer shall have such other powers and perform such other duties as
may be assigned to the Chief Executive Officer from time to time by the Board of
Directors.
THE PRESIDENT AND VICE-PRESIDENTS
Section 9. The President shall be the Chief Operating Officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
the President shall preside at all meetings of the stockholders and the Board of
Directors; the President shall have general and active management of the
business of the corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect.
Section 10. The President shall execute bonds, mortgages and other
contracts, requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall
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<PAGE>
be expressly delegated by the Board of Directors to some other officer or agent
of the corporation.
Section 11. In the absence of the President or in the event of the
President's inability or refusal to act, a senior vice-president, if any, (or in
the event there be more than one senior vice-president, the senior
vice-presidents in the order designated by the directors, or in the absence of
any designation, then in the order of their election) shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Senior Vice-President
and the Vice-Presidents shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 12. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors,
the President or the Chairman of the Board, under whose supervision the
secretary shall be. The Secretary shall have custody of the corporate seal of
the corporation and the Secretary, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by the signature of the secretary or by the
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<PAGE>
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by said officer's signature.
Section 13. The Assistant Secretary, or if there be more than one,
the Assistant Secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 14. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 15. The Treasurer shall disburse the funds of the corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all the Treasurer's transactions as treasurer and of the financial condition of
the corporation.
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<PAGE>
Section 16. If required by the Board of Directors, the Treasurer
shall give the corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of the office of the
Treasurer and for the restoration to the corporation, in case of the Treasurer's
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the corporation.
Section 17. The Assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the Treasurer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice-Chairman of the Board of Directors, or the President or a
vice-president and the Treasurer or an assistant treasurer, or the Secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by such holder in the corporation.
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<PAGE>
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificate issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions or such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if the
former officer, transfer agent or registrar were such officer, transfer agent or
registrar at the date of issue.
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<PAGE>
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or the
legal representative of the owner of such lost, stolen or destroyed certificate
or certificates, to advertise the same in such manner as it shall require and/or
give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any
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dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty days prior to
any other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash,
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<PAGE>
in property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
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<PAGE>
Section 6. The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, indemnify each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was, or has agreed to become, a director or officer of the
corporation, or is or was serving, or has agreed to serve, at the request of
the corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other enterprise
(including any employee benefit plan), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person or on such person's behalf in connection with
such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Section, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the corporation.
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<PAGE>
The indemnification rights provided in this Section (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the corporation or other persons serving the
corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Section.
TRANSACTIONS WITH INTERESTED PARTIES
Section 7. No contract or transaction between the corporation and one
or more of the directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of the directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
such director or officer is present at or participates in the meeting of the
Board of Directors or a committee of the Board of Directors which authorizes the
contract or transaction or solely because his, her or their votes are counted
for such purpose, if:
(1) The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board or committee in
good faith authorizes the contract or transaction by the affirmative
vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
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<PAGE>
(2) The material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(3) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE VIII
AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may
be adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new by-laws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
by-laws is conferred upon the Board of Directors by the certificate or
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal by-laws.
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<PAGE>
EXHIBIT 11.1--COMPUTATION OF PRO FORMA NET LOSS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1997
-------------
<S> <C>
Weighted average common shares outstanding......................................................... 3,822,619
Shares assuming conversion of preferred stock into common stock.................................... 1,240,864
Additional shares based on application of SAB 83................................................... 1,022,566
-------------
Shares used in computing pro forma net loss per share.............................................. 6,086,049
-------------
-------------
Net loss........................................................................................... $ (2,668,713)
-------------
-------------
Pro forma net loss per share (unaudited)........................................................... $ (.44)
-------------
-------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data", "Experts" and "Change in Independent Accountants"
and to the use of our report dated July 25, 1997 (except for Note 1 as to which
the date is , 1997), in Amendment No. 3 to the Registration Statement
(Form S-1 No. 333-22425) and related Prospectus of Globecomm Systems Inc. for
the registration of 2,750,000 shares of its common stock.
Ernst & Young LLP
Melville, New York
------------------------
The foregoing consent is in the form that will be signed upon completion of
the split of outstanding shares of common stock and amendment to the certificate
of incorporation as described in Note 1 to the consolidated financial
statements.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Melville, New York
July 28, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 23, 1996, except
as to the stock split described in Note 1 which is as of , 1997,
relating to the financial statements of Globecomm Systems Inc., which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data".
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
New York, New York
July 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,164,253
<SECURITIES> 0
<RECEIVABLES> 14,350,274
<ALLOWANCES> 0
<INVENTORY> 2,292,824
<CURRENT-ASSETS> 23,651,593
<PP&E> 7,726,289
<DEPRECIATION> 575,489
<TOTAL-ASSETS> 33,285,881
<CURRENT-LIABILITIES> 17,272,704
<BONDS> 0
0
686
<COMMON> 3,906
<OTHER-SE> 21,970,004
<TOTAL-LIABILITY-AND-EQUITY> 33,285,881
<SALES> 36,220,355
<TOTAL-REVENUES> 36,220,355
<CGS> 32,059,999
<TOTAL-COSTS> 32,059,999
<OTHER-EXPENSES> 7,379,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,018
<INCOME-PRETAX> (2,668,713)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,668,713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,668,713)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
