<PAGE>
Inside front Cover
- ------------------
Artwork: Map of the world including locations
where the Company has completed installations
and where the Company has installations in progress.
Page 37
- -------
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).
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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>
------------------------
375 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.
375 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.001 per share........................ $44,275,000 $13,417
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
------------------------
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 FEBRUARY 27, 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>
SHARES
GLOBECOMM SYSTEMS INC.
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 $ and $ 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 "GSIC."
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>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total............................. $ $ $
Total Assuming Full Exercise of
Over-Allotment Option(3)........ $ $ $
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , 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 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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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, (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 1,874,154 SHARES OF COMMON STOCK UPON THE
CLOSING OF THIS OFFERING (THE "PREFERRED STOCK CONVERSION") AND (V) REFLECTS THE
EXERCISE OF A WARRANT ON JANUARY 24, 1997 TO PURCHASE 106,901 SHARES OF COMMON
STOCK AT AN EXERCISE PRICE OF $5.26 PER SHARE. SEE "DESCRIPTION OF CAPITAL
STOCK," "CERTAIN TRANSACTIONS" AND NOTES 6 AND 7 OF NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. 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.
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 the installation of 35 ground
segment systems and networks for 24 customers in 18 countries.
During the six months ended December 31, 1996, the Company booked $28.8
million in contract orders and at December 31, 1996 had a backlog of $27.1
million of contract orders. The Company believes that its historical performance
and its ability to compete successfully in the future 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.
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"). Any
use by NetSat of HNS' DirecPC technology will require the grant of a license
from HNS to NetSat. NetSat currently is pursuing joint ventures with local
partners in Russia and Brazil to market low-
3
<PAGE>
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.
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 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.
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 S.A. ("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 January 31, 1997, Hughes
Network Systems and Thomson owned equity interests in the Company of 3.7% and
4.9%, respectively. In addition, Hughes Network Systems owns a 19% equity stake
in NetSat, with an option to increase this position to 29%.
In addition to its strategic customer relationships, the Company also seeks
to develop strategic relationships with suppliers which it believes are each 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 December 31, 1996, the Company has made equity investments aggregating
approximately $835,000 in three such companies. These suppliers enable the
Company to outsource a significant portion
4
<PAGE>
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.
The Company was incorporated in Delaware on August 17, 1994. The Company's
principal executive offices are located at 375 Oser Avenue, Hauppauge, New York
11788, and its telephone number is (516) 231-9800.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... shares
Common Stock to be outstanding after the
Offering(1)................................ shares
Use of Proceeds.............................. Working capital, expansion of infrastructure
and general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... GSIC
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding as of January 31, 1997. Excludes
1,557,027 shares of Common Stock issuable upon the exercise of stock options
outstanding at January 31, 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.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
AUGUST 17, 1994 ENDED
(INCEPTION) DECEMBER 31,
THROUGH JUNE 30, YEAR ENDED --------------------
1995 JUNE 30,1996 1995 1996
----------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................ $ 72 $ 13,476 $ 7,315 $ 13,306
Costs of revenues............................................... 58 11,238 5,976 11,497
------- ------------- --------- ---------
Gross profit.............................................. 14 2,238 1,339 1,809
------- ------------- --------- ---------
Operating expenses:
Selling and marketing......................................... 346 1,915 796 1,401
Research and development...................................... -- 712 251 229
General and administrative.................................... 772 1,945 862 1,416
------- ------------- --------- ---------
Total operating expenses........................................ 1,118 4,572 1,909 3,046
------- ------------- --------- ---------
Loss from operations...................................... (1,104) (2,334) (570) (1,237)
Interest income, net............................................ 39 89 54 70
------- ------------- --------- ---------
Loss before minority interests in operations of consolidated
subsidiary.................................................... (1,065) (2,245) (516) (1,167)
Minority interests in operations of consolidated subsidiary..... -- -- -- 275
------- ------------- --------- ---------
Net loss.................................................. $ (1,065) $ (2,245) $ (516) $ (892)
------- ------------- --------- ---------
------- ------------- --------- ---------
Pro forma net loss per share (unaudited)(1)..................... $ $
------------- ---------
------------- ---------
Shares used in computing pro forma net loss per share
(unaudited)(1)................................................
------------- ---------
------------- ---------
OTHER OPERATING DATA:
EBITDA(2)....................................................... $ (1,036) $ (2,142) $ (502) $ (1,099)
Capital expenditures............................................ 437 339 100 3,011
Backlog at end of period(3)..................................... 7,716 11,588 7,983 27,128
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED(4)
--------- -------------------
BALANCE SHEET DATA:
Cash and cash equivalents................................................................ $ 9,618 $
Working capital.......................................................................... 11,262
Total assets............................................................................. 24,411
Long-term debt........................................................................... 47
Stockholders' equity..................................................................... 16,093
</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.
(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 shares of Common Stock offered hereby
at an assumed initial public offering price of $ 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
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 $1.2 million during the fiscal years ended June 30, 1995 and
1996 and during the six-month period ended December 31, 1996, respectively. The
Company currently anticipates that it will incur further operating losses as it
attempts to expand its business, and there can be no assurance that the Company
will generate significant additional revenues or will ever generate positive
operating or net income. As of December 31, 1996, the Company had an accumulated
deficit of $4.2 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- 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."
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
7
<PAGE>
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.
Any use by NetSat of 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."
CUSTOMER CONCENTRATION
The Company typically relies upon a small number of customers for a large
portion of its revenues. For example, approximately 43% and 17% of the Company's
revenues in fiscal 1996 and for the six months ended December 31, 1996,
respectively, were derived from sales to Hughes Network Systems. At December 31,
1996, $16.5 million, or approximately 61% of the Company's backlog, was
accounted for by a contract between the Company and American Sky Broadcasting
LLC ("A Sky B"). 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."
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
8
<PAGE>
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."
INTERNATIONAL OPERATIONS
Most of the Company's revenues are derived from sales to customers outside
the United States. Revenues from foreign sales accounted for 21.8% and 58.6% of
total revenues in fiscal 1996 and the six-month period ended December 31, 1996,
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 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
9
<PAGE>
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 Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Quarterly Results."
10
<PAGE>
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 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
11
<PAGE>
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 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 an application for registration of Globecomm Systems
Inc. as a service mark in the United States and has filed applications for
registration of NetSat Express as a trademark and service mark in the United
States, Singapore, the European Union and the Russian Federation and as a
12
<PAGE>
trademark in Brazil, and intends to seek registration of other trademarks and
service marks 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 and service marks in connection with related goods and
services.
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this Offering, the Company's officers and directors, and
their affiliates, will beneficially own approximately shares, constituting
approximately % 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."
SHARES ELIGIBLE FOR FUTURE SALE
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 shares
of Common Stock. In addition to the 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 5,750,191 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 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 or
exchangeable into Common Stock for a period of one year after the date of this
Prospectus 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
shares of restricted securities will become eligible for resale in the
public market. Beginning 180 days after the Effective Date, approximately
additional shares of restricted securities will become eligible for sale in the
public market upon expiration of certain lock-up agreements pursuant to Rules
144 and 701 and, as of that date, approximately of such shares will be
subject to certain volume and other resale restrictions pursuant to Rules 144
and 701. Beginning one year after the Effective Date, approximately
additional shares of restricted securities will become eligible for sale in the
public market upon expiration of certain lock-up agreements pursuant to Rules
144 and 701 and, as of that date, approximately of such shares will be
subject to certain volume and other resale restrictions pursuant to Rules 144
and 701.
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
13
<PAGE>
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 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."
ANTI-TAKEOVER CONSIDERATIONS
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 $ ($ if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per share
and after deducting underwriting discounts and commissions and estimated
Offering expenses.
The Company anticipates that approximately $ million of the net
proceeds from this Offering will be used to fund capital expenditures,
investments in strategic suppliers, including the exercise of certain stock
purchase rights, 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, start-up expenses related to NetSat,
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
December 31, 1996: (i) on a pro forma basis to give effect to the Stock Split,
the Preferred Stock Conversion, the exercise of a warrant on January 24, 1997 to
purchase 106,901 shares of Common Stock at an exercise price of $5.26 per share
and the authorization of additional shares of Common Stock and Preferred Stock,
$.001 par value (the "Preferred Stock") and (ii) on a pro forma as adjusted
basis to give effect to the sale by the Company of shares of Common Stock
at an assumed initial public offering price of $ per share, after
deducting underwriting discounts and commissions and estimated Offering
expenses, and the application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents, including restricted cash of $1.6 million.............. $ 11,796 $
----------- -----------
----------- -----------
Long-term debt, including current portion......................................... $ 100 $ 100
Note payable to stockholder....................................................... 315 315
Stockholders' equity:
Preferred Stock, $.001 par value, 1,000,000 shares authorized; none issued and
outstanding on a pro forma or pro forma as adjusted basis..................... -- --
Common Stock, $.001 par value, 12,000,000 shares authorized; 5,750,191 shares
issued and outstanding on a pro forma basis; and shares issued and
outstanding on a pro forma as adjusted basis(1)............................... 6
Additional paid-in capital........................................................ 20,852
Accumulated deficit............................................................... (4,203) (4,203)
----------- -----------
Total stockholders' equity.................................................... 16,655
----------- -----------
Total capitalization........................................................ $ 17,070 $
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding as of December 31, 1996. Excludes
1,557,027 shares of Common Stock issuable upon the exercise of stock options
outstanding at December 31, 1996 with a weighted average exercise price of
$5.65 per share. At December 31, 1996, 1,995,000 shares of Common Stock were
available for issuance under the Company's stock option plans. On February
26, 1997, the Board of Directors authorized, subject to stockholder
approval, an increase of 285,000 shares of Common Stock available for
issuance under the Company's stock option plan. 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 December 31, 1996
was approximately $16.5 million or $2.88 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, the Preferred Stock Conversion
and the exercise of a warrant on January 24, 1997 to purchase 106,901 shares of
Common Stock at an exercise price of $5.26 per share. After giving effect to the
sale by the Company of shares of Common Stock in this Offering (at an
assumed initial public offering price of $ per share) and after
deducting the estimated underwriting discounts and Offering expenses, the pro
forma net tangible book value of the Company as of December 31, 1996 would have
been $ or $ per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value per share of $
to existing holders and immediate dilution in pro forma net tangible book value
of $ per share to new investors. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $
---------
Pro forma net tangible book value before the
Offering............................................. $ 2.88
Increase attributable to new investors.................
---------
Pro forma net tangible book value after the Offering.....
---------
Dilution per share to new investors...................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, 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 $ per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 5,750,191 % $ 24,111,118 % $ 4.19
New Investors....................................... $
---------- ----- ------------- -----
Total........................................... 100.0% 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing is based on the number of shares outstanding as of December
31, 1996 and assumes no exercise of any outstanding options or warrants. At
December 31, 1996, there were outstanding options to purchase an aggregate of
1,557,027 shares at a weighted average exercise price of $5.65 per share.
Additionally, on December 31, 1996 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 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 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, 1995 and 1996 have been derived from consolidated
financial statements audited by Price Waterhouse LLP, independent accountants.
The consolidated statement of operations data for the six months ended December
31, 1996 and the consolidated balance sheet data at December 31, 1996 have been
audited by Ernst & Young LLP, independent auditors. The audited Consolidated
Financial Statements and the Notes thereto are included elsewhere in this
Prospectus. The selected consolidated financial data for the six months ended
December 31, 1995 are derived from unaudited consolidated financial statements
of the Company, which are included elsewhere in this Prospectus. The unaudited
consolidated financial data includes all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation. The results of operations for the six months ended December 31,
1996 are not necessarily indicative of the results for any future period or for
the full fiscal year ending June 30, 1997.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17, 1994 SIX MONTHS ENDED
(INCEPTION) DECEMBER 31,
THROUGH JUNE YEAR ENDED ----------------------
30, JUNE 30, 1995
1995 1996 ----------- 1996
--------------- ----------- (unaudited) ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ 72 $ 13,476 $ 7,315 $ 13,306
Costs of revenues.......................................... 58 11,238 5,976 11,497
------- ----------- ----------- ---------
Gross profit......................................... 14 2,238 1,339 1,809
------- ----------- ----------- ---------
Operating expenses:
Selling and marketing.................................... 346 1,915 796 1,401
Research and development................................. -- 712 251 229
General and administrative............................... 772 1,945 862 1,416
------- ----------- ----------- ---------
Total operating expenses................................... 1,118 4,572 1,909 3,046
------- ----------- ----------- ---------
Loss from operations................................. (1,104) (2,334) (570) (1,237)
Interest income, net....................................... 39 89 54 70
------- ----------- ----------- ---------
Loss before minority interests in operations of
consolidated subsidiary.................................. (1,065) (2,245) (516) (1,167)
Minority interests in operations of consolidated
subsidiary............................................... -- -- -- 275
------- ----------- ----------- ---------
Net loss............................................. $ (1,065) $ (2,245) $ (516) $ (892)
------- ----------- ----------- ---------
------- ----------- ----------- ---------
Pro forma net loss per share (unaudited)(1)................ $ $
----------- ---------
----------- ---------
Shares used in computing pro forma net loss per share
(unaudited)(1)...........................................
----------- ---------
----------- ---------
OTHER OPERATING DATA:
EBITDA(2).................................................. $ (1,036) $ (2,142) $ (502) $ (1,099)
Capital expenditures....................................... 437 339 100 3,011
Backlog at end of period(3)................................ 7,716 11,588 7,983 27,128
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------------- ------------
1995 1996 1996
--------- --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................... $ 3,507 $ 3,435 $ 9,618
Working capital................................................................. 2,663 4,727 11,262
Total assets.................................................................... 6,375 9,503 24,411
Long-term debt.................................................................. 109 74 47
Stockholders' equity............................................................ 3,207 5,730 16,093
</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.
(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. 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 43% and 17% of the Company's
revenues in fiscal 1996 and for the six months ended December 31, 1996,
respectively, were derived from sales to Hughes Network Systems. At December 31,
1996, $16.5 million, or approximately 61% of the Company's backlog, was
accounted for by a contract between the Company and A Sky B. 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
20
<PAGE>
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 agreement is in effect until May 1998. Upon the issuance of
shares under this agreement, the Company 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 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. 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 six
months ended December 31, 1996. 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% and PolyVentures II,
Limited Partnership's ("PolyVentures") 2% investment in NetSat. For the six
months ended December 31, 1996, 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 and PolyVentures would
have fully offset their proportionate share of NetSat's losses previously
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."
21
<PAGE>
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 SIX MONTHS ENDED
(INCEPTION)
THROUGH JUNE YEAR ENDED DECEMBER 31,
30, JUNE 30, --------------------
1995 1996 1995 1996
--------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues.......................................................... 100.0% 100.0% 100.0% 100.0%
Costs of revenues................................................. 81.0 83.4 81.7 86.4
------- ----- --------- ---------
Gross profit................................................ 19.0 16.6 18.3 13.6
------- ----- --------- ---------
Operating expenses:
Selling and marketing........................................... 482.4 14.2 10.9 10.5
Research and development........................................ -- 5.3 3.4 1.7
General and administrative...................................... 1,075.8 14.4 11.8 10.7
------- ----- --------- ---------
Total operating expenses.......................................... 1,558.2 33.9 26.1 22.9
------- ----- --------- ---------
Loss from operations.......................................... (1,539.2) (17.3) (7.8) (9.3)
Interest income, net.............................................. 54.7 .7 .7 .5
------- ----- --------- ---------
Loss before minority interests in operations of consolidated
subsidiary...................................................... (1,484.5) (16.6) (7.1) (8.8)
Minority interests in operations of consolidated subsidiary....... -- -- -- 2.1
------- ----- --------- ---------
Net loss.................................................... (1,484.5)% (16.6 )% (7.1)% (6.7)%
------- ----- --------- ---------
------- ----- --------- ---------
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues, which were derived from sales of ground segment systems
and networks, increased by $6.0 million, or 81.9%, to $13.3 million for the six
months ended December 31, 1996 from $7.3 million for the six months ended
December 31, 1995. The increase was primarily the result of an increase in the
number of shipments and/or completion of contracts from eight for the six months
ended December 31, 1995 to 24 for the six months ended December 31, 1996.
COSTS OF REVENUES. Costs of revenues increased by $5.5 million, or 92.4%,
to $11.5 million for the six months ended December 31, 1996 from $6.0 million
for the six months ended December 31, 1995. 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 86.4% for
the six months ended December 31, 1996 compared to 81.7% for the six months
ended December 31, 1995.
GROSS PROFIT. Gross profit increased by $470,000 to $1.8 million for the
six months ended December 31, 1996 from $1.3 million for the six months ended
December 31, 1995. 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 13.6% for the six months ended December 31, 1996 compared to 18.3%
for the six months ended December 31, 1995. 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.
22
<PAGE>
SELLING AND MARKETING. Selling and marketing expenses increased by
$605,000, or 75.9%, to $1.4 million for the six months ended December 31, 1996
from $796,000 for the six months ended December 31, 1995. 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, commission
expense recorded in connection with the issuance of 37,147 shares of Common
Stock to Thomson as described above, and the increase in the number of bids and
proposals prepared by the Company. Selling and marketing expenses as a
percentage of revenues was 10.5% for the six months ended December 31, 1996
compared to 10.9% for the six months ended December 31, 1995.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased by
$21,000, or 8.4%, to $229,000 for the six months ended December 31, 1996 from
$251,000 for the six months ended December 31, 1995 due to a decline in
development costs associated with customizable systems. Research and development
expenses as a percentage of revenues decreased to 1.7% for the six months ended
December 31, 1996 from 3.4% for the six months ended December 31, 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $554,000, or 64.2%, to $1.4 million for the six months ended December 31,
1996 from $862,000 for the six months ended December 31, 1995, but decreased as
a percentage of revenues to 10.7% for the six months ended December 31, 1996
from 11.8% for the six months ended December 31, 1995. 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.
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.
QUARTERLY RESULTS
The following tables set forth certain unaudited financial information for
each of the six fiscal quarters in the period ended December 31, 1996. The
Company believes that this information has been presented on the same basis as
the audited Consolidated Financial Statements appearing elsewhere in the
Prospectus
23
<PAGE>
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>
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30 DEC. 31,
1995 1995 1996 1996 1996 1996
----------- ----------- ----------- --------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 3,009 $ 4,306 $ 3,203 $ 2,958 $ 4,155 $ 9,151
Costs of revenues................................ 2,157 3,819 2,463 2,799 3,591 7,906
----------- ----------- ----------- --------- ----------- -----------
Gross profit................................... 852 487 740 159 564 1,245
----------- ----------- ----------- --------- ----------- -----------
Operating expenses:
Selling and marketing.......................... 338 458 458 661 513 888
Research and development....................... 175 76 237 224 73 156
General and administrative..................... 381 481 568 515 546 870
----------- ----------- ----------- --------- ----------- -----------
Total operating expenses......................... 894 1,015 1,263 1,400 1,132 1,914
----------- ----------- ----------- --------- ----------- -----------
Loss from operations......................... (42) (528) (523) (1,241) (568) (669)
Interest income, net............................. 40 14 28 7 14 56
----------- ----------- ----------- --------- ----------- -----------
Loss before minority interests in operations of
consolidated subsidiary......................... (2) (514) (495) (1,234) (554) (613)
Minority interests in operations of consolidated
subsidiary...................................... -- -- -- -- -- 275
----------- ----------- ----------- --------- ----------- -----------
Net loss..................................... $ (2) $ (514) $ (495) $ (1,234) $ (554) $ (338)
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
PERCENTAGE OF TOTAL REVENUES:
Revenues......................................... 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
----------- ----------- ----------- --------- ----------- -----------
Gross profit................................. 28.3 11.3 23.1 5.4 13.6 13.6
----------- ----------- ----------- --------- ----------- -----------
Operating expenses:
Selling and marketing.......................... 11.2 10.6 14.3 22.3 12.3 9.7
Research and development, net.................. 5.8 1.8 7.4 7.6 1.8 1.7
General and administrative..................... 12.7 11.2 17.8 17.4 13.1 9.5
----------- ----------- ----------- --------- ----------- -----------
Total operating expenses......................... 29.7 23.6 39.5 47.3 27.2 20.9
----------- ----------- ----------- --------- ----------- -----------
Loss from operations......................... (1.4) (12.3) (16.4) (41.9) (13.6) (7.3)
Interest income, net............................. 1.3 .4 .9 .2 .3 .6
----------- ----------- ----------- --------- ----------- -----------
Loss before minority interests in operations of
consolidated subsidiary......................... (.1) (11.9) (15.5) (41.7) (13.3) (6.7)
Minority interests in operations of consolidated
subsidiary...................................... -- -- -- -- -- 3.0
----------- ----------- ----------- --------- ----------- -----------
Net loss..................................... (.1)% (11.9)% (15.5)% (41.7)% (13.3)% (3.7)%
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
</TABLE>
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
24
<PAGE>
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
December 31, 1996, the Company raised approximately $19.8 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 $11.2
million from the sale of Convertible Preferred Stock in private offerings
completed during the six months ended December 31, 1996. 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 December 31, 1996, the Company had working capital of $11.3 million,
including cash and cash equivalents of $9.6 million, restricted cash of $1.6
million and accounts receivable of $7.8 million, offset by $6.3 million in
accounts payable and $1.6 million in accrued expenses.
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 year ended June 30, 1996 was $454,000 and $2.5
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, Brazil and Eastern Europe and initial
losses from operations. In order to limit the capital requirements for startup
of operations in Eastern Europe, current plans call for NetSat to use 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 six
months ended December 31, 1996. First, revenues increased substantially as a
result of a significant increase in contract deliveries, particularly during
December. Revenues for the six-month period nearly equaled those of the
25
<PAGE>
entire fiscal year ended June 30, 1996. The higher revenues increased the
Company's working capital needs, as accounts receivable increased by
approximately $5.8 million during the six-month period. Offsetting the increased
accounts receivable were an increase in accounts payable of approximately $3.5
million and accrued expenses of approximately $1.1 million, both reflecting
costs incurred in performing the contracts and receipt of substantial progress
payments against contracts not yet completed of approximately $1.7 million.
Because the Company records progress payments as an offset to inventory, the
approximately $1.3 million decrease in net inventory during the six-month period
is lower than might be expected based on the increased level of activity.
Inventory levels may be expected to increase as work proceeds on these
contracts.
The second factor affecting liquidity during the six-month period was the
Company's investment activities. The Company increased its investment in its
strategic suppliers by approximately $835,000 during the period and purchased
approximately $400,000 in additional computer and test equipment. In addition,
the Company purchased a new office and assembly facility for approximately $2.6
million in cash, which the Company expects will require an additional
expenditure of $2.5 million for improvements before it is ready for occupancy.
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 at the close of the six-month period.
Net proceeds of this offering were approximately $11.0 million leaving the
Company with cash and cash equivalents at the end of the period of approximately
$9.6 million.
The Company has incurred losses since its inception and therefore has not
been subject to federal income taxes. Through December 31, 1996, the Company,
for income tax purposes, has generated net operating loss carryforwards of
approximately $3.1 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 option 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 is currently in negotiations with a bank with respect to a $5.0
million credit facility.
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 18 months.
26
<PAGE>
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 the installation of 35 ground
segment systems and networks for 24 customers in 18 countries.
During the six months ended December 31, 1996, the Company booked $28.8
million in contract orders and at December 31, 1996 had a backlog of $27.1
million of contract orders. The Company believes that its historical performance
and its ability to compete successfully in the future 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.
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. Any use by NetSat of HNS' DirecPC technology will require the grant of
a license from HNS to NetSat. NetSat currently is pursuing joint ventures with
local partners in Russia and Brazil 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.
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 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.
27
<PAGE>
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.
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
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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. Recently introduced applications permit
the user to carry on a conversation, complete with video, with a user located
anywhere in the world for the price of a local call.
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.
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
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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.
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 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
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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 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.
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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 frequencies. 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 21.8% and 58.6% of total revenues in fiscal year 1996 and the six
month period ended December 31, 1996, 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 January 31, 1997, Hughes Network
Systems and Thomson owned equity interests in the Company of 3.7% and 4.9%,
respectively. In addition, Hughes Network Systems owns a 19% equity stake in
NetSat, with an option to increase this position to 29%.
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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 December 31, 1996, made equity
investments of an aggregate of approximately $835,000 for minority equity stakes
of approximately 19%, 5% and 15% 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 joint
ventures with local partners in Russia and Brazil.
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.
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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 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
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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.
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.
A SKY B DIRECT-TO-HOME TRANSMIT SYSTEMS. The Company has entered into a
contract to supply uplink facilities for A Sky B 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:
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.
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
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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. Any use by NetSat of 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.
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 seven 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 from 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 placed onto the satellite link and transmitted to the terminal units 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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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:
<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 % -- Customer Satellite networks
Thomson %(3) -- Customer Military communications systems
Shiron -- 19% Supplier Low-cost satellite modems
C-Grams -- 5% Supplier Earth station management systems
Armer -- 15% Supplier Site engineering services
Applied Theory -- -- Customer/ Commercial Internet service
Supplier
ATS -- -- Customer South American commercial
infrastructure developer/
investor
</TABLE>
- ------------------------------
(1) Pro forma for the sale of 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 % 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.
In August 1996, Hughes Network Systems invested $250,800 in convertible
preferred stock of NetSat, convertible into 19% of NetSat's Common Stock and
received a five-year option to purchase up to an additional 10% of NetSat's
Common Stock under specified circumstances. NetSat uses the HNS DirecPC Terminal
and Personal Earth Station products in its data communications systems. Any use
by NetSat of 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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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. At December 31, 1996, 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% of the Company's Common
Stock outstanding at such time. Thomson is currently marketing two versions of
the Company's militarized triband fly-away earth station products. See "Certain
Transactions" for further information regarding the transactions with Thomson.
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% 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% equity
interest in C-Grams for $400,278, has an option for an additional 15%, and
agreed to use C-Gram's earth station monitor and control systems when
appropriate. 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."
ARMER COMMUNICATIONS ENGINEERING SERVICES, INC.
In November 1996, the Company purchased for $150,000 a 15% interest (with an
option to purchase up to an additional 10% interest) in Armer, a field
engineering company focused on the satellite communications business. 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
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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.
ATS AMERICAS TELECOM SYSTEMS LTDA.
In November 1996, the Company and Boasafra Negocios e Participacoes S/C
Ltda. ("Boasafra"), a Brazilian financial services company, agreed to form
ATS-Americas Telecom Systems Ltda. ("ATS"), a Brazilian limited liability
company, to provide communications services to customers located in Brazil. Upon
the formation of ATS, the Company will own 41% of ATS and Boasafra will own the
remaining 59%. The Company and Boasafra are currently engaged in developing
business plans to form a data communications service provider in Brazil to
provide business data communications services and Internet access services in
concert with NetSat and intend, through ATS, to seek opportunities to leverage
the Company's communications network design and implementation expertise in
cooperation with local or regional telephone companies. There can be no
assurance that the Company and Boasafra will form ATS on a timely basis, or at
all.
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 23 persons with marketing responsibility, of which 10
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 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.
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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>
CUSTOMER SOLUTION LOCATION
- --------------------------------------------- --------------------------------------------- -------------------
<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. Ltd. Digital Video Broadcast Uplink and Israel
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
United Nations Digital Transportable Earth Station Croatia
Thomson-CSF S.A. 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
Soros Foundation Affiliates in Eastern Europe Internet access through NetSat Serbia, Bulgaria,
Slovenia
</TABLE>
The Company typically relies upon a small number of customers for a large
portion of its revenues. For example, approximately 43% and 17% of the Company's
revenues in fiscal 1996 and for the six months ended December 31, 1996,
respectively, were derived from sales to Hughes Network Systems. At December 31,
1996, $16.5 million, or approximately 61% of the Company's backlog, was
accounted for by a contract between the Company and A Sky B. 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 December 31, 1996, the Company's backlog of undelivered orders was $27.1
million (approximately 82% of which is expected to be delivered during fiscal
1997) compared with $8.0 million at December 31, 1995. 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
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<PAGE>
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 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
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<PAGE>
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 December 31, 1996, the Company has incurred
$941,000 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. 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
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<PAGE>
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 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 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 an application for registration of Globecomm Systems
Inc. as a service mark in the United States and has filed applications for
registration of NetSat Express as a trademark and service mark in the United
States and in Singapore, the European Union and the Russian Federation and as a
trademark in Brazil, and intends to seek registration of other trademarks and
service marks in the future. There can be no assurance that registrations will
be granted from any of the Company's pending or
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future applications, or that any registrations that are granted to the Company
will prevent others from using similar trademarks and service marks 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.
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
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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.
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 December 31, 1996, the Company had 60 full-time employees, including
27 in engineering and program management, 12 in the manufacturing and
manufacturing support group, 10 in sales and marketing, and 11 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's principal offices and production facilities are currently
located in approximately 20,000 square feet of space in an industrial facility
located at 375 Oser Avenue, Hauppauge, New York.
47
<PAGE>
The Company leases the space under an agreement which terminates on November 30,
1998 with a base rent of $105,000 per year. In December 1996, the Company
purchased 121,830 square feet of space in a facility in Hauppauge on 7.2 acres
where the Company intends to move its principal offices and production
facilities by May 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. NetSat's principal offices are located in approximately 3,000 square feet
of space located at 400 Oser Avenue, Hauppauge, New York, which NetSat leases on
a month-to-month basis, at a monthly rent of $2,500.
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................................... 59 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................................... 49 Vice President--Network and Systems Analysis and
Director
Stephen C. Yablonski................................. 50 Vice President--Commercial Systems and Director
Ray Stuart........................................... 58 Vice President--International Marketing
Paul J. Johnson...................................... 41 Vice President--Contracts
Andrew C. Melfi...................................... 43 Chief Financial Officer
Gerald A. Gutman..................................... 54 President--NetSat Express
Gary C. Gomes........................................ 51 Executive Vice President--NetSat Express
Herman Fialkov(1).................................... 74 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, L.P., a
high technology venture capital fund ("PolyVentures Associates") 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. 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
Mr. Fialkov 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. 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, 1996
to: (i) the Company's Chief Executive Officer and (ii) all of the other
executive officers whose base salary during fiscal 1996 was in excess of
$100,000 (together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)(2)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION SECURITIES
------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY OPTIONS COMPENSATION(3)
- ------------------------------------------------------------------ ------------- ------------- -----------------
<S> <C> <C> <C>
David E. Hershberg,
Chairman and Chief Executive Officer............................ $ 165,006 -- $ 2,350
Kenneth A. Miller,
President....................................................... 159,994 68,400 6,500
Stephen A. Yablonski,
Vice President--Commercial Systems.............................. 119,995 22,800 --
Ray Stuart,
Vice President--International Marketing......................... 128,797(4) 55,219 --
</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
1996.
(2) Does not include summary compensation information for Gerald A. Gutman,
President--NetSat, who was retained on July 1, 1996 at an annual salary of
$100,000 per year.
(3) Includes annual registrant contributions to the Company's 401(k) plan.
(4) Includes $34,893 paid to Mr. Stuart as a consulting fee.
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
1996 to each of the Named Executive Officers. The Company has never granted any
stock appreciation rights.
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......... 68,400 9.4% $ 4.68 03/14/06 $ 201,096 $ 510,264
Stephen C. Yablonski...... 22,800 3.1 4.68 03/14/06 67,032 170,088
Ray Stuart................ 40,969(4) 5.6 4.68 07/07/05 120,448 305,628
14,250 2.0 4.68 03/14/06 41,895 106,305
</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 730,384 options granted to employees in fiscal
1996, including options granted to the Named Executive Officers.
53
<PAGE>
(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.
(4) These options replace 35,625 options originally granted to Mr. Stuart on
July 7, 1995, which had an exercise price of $3.51 per share.
No options were exercised by the Named Executive Officers in 1996. 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
1996.
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...................................... -- 68,400 -- $0
Stephen C. Yablonski (2)............................... 29,498 111,292 $0 0
Ray Stuart............................................. 10,243 44,976 0 0
</TABLE>
- ------------------------
(1) Based on the estimated fair value of the Company's Common Stock at the end
of fiscal year 1996 valued at $4.68 per share (as determined by the
Company's Board of Directors), less the exercise price payable for such
shares. If the initial public offering price of $ is used in this
calculation instead of the fair market value of the shares at the end of
fiscal year 1996, the value for Mr. Miller becomes $ , the values for
Mr. Yablonski become $ and $ , and the values for Mr. Stuart
become $ and $ .
(2) Includes 117,990 options which replace 102,600 options originally granted to
Mr. Yablonski on May 5, 1995, which had an exercise price of $3.51 per
share.
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, subject to
stockholder approval. 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 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.
54
<PAGE>
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.
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.
55
<PAGE>
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 automatic
option will be immediately exercisable; however, any shares purchased upon
exercise of the option will be subject to repurchase should the optionee's
service as a nonemployee Board member cease prior to vesting in the shares. Each
15,000-share grant will vest to the extent of one-third of the number of shares
granted (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 of the date of grant. 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.
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
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<PAGE>
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 Mr. Andrew B.
Krieger (who is no longer a Director of the Company). Prior to that time,
decisions concerning the compensation of 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
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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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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 has paid all interest on
the loan as it has become due. As of December 31, 1996, the aggregate amount
outstanding on the note was $150,000.
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. Mr. 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
aggregating $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 $12,000 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 $116,000 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 and 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
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nominate a director to the Board of Directors. 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 January 1996, 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 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 the rights of first
refusal 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.
From August 17, 1994 through January 31, 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 866,329 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 January 31, 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) 22.3% %
Kenneth A. Miller............................................ 273,600(4) 4.7
Stephen C. Yablonski......................................... 36,623(5) *
Ray Stuart................................................... 13,805(6) *
Thomas A. DiCicco............................................ 142,500(7) 2.5
Donald G. Woodring........................................... 141,078(8) 2.4
Herman Fialkov............................................... 14,250(9) *
Shelley A. Harrison.......................................... 317,114(10) 5.5
Benjamin Duhov............................................... 5,700 *
C.J. Waylan.................................................. -- --
Thomson Corp. of America..................................... 366,248(11) 6.3
99 Canal Center Plaza
Suite 450
Alexandria, VA 22314
Vertex Investment (II) Ltd................................... 356,250(12) 6.2
c/o Vertex Management (II) Pte Ltd.
77 Science Park Drive
#02-15 Cintech III
Singapore Science Park
Singapore U511
PolyVentures II, Limited Partnership......................... 302,864 5.3
c/o Polytechnic University
901 Route 110
Farmingdale, NY 11735
All current directors and executive officers as a group (14
persons)................................................... 2,254,247(13) 38.3% %
</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, 375 Oser Avenue, Hauppauge, New York 11788.
(2) The number of shares of Common Stock deemed outstanding prior to this
Offering includes (i) 3,876,037 shares of Common Stock and (ii) 1,874,154
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 January 31, 1997.
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(3) Includes 342,000 shares of Common Stock held in trust by Mr. Hershberg for
certain members of his family of which Mr. Hershberg disclaims beneficial
ownership 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 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
35,198 shares of Common Stock issuable upon exercise of stock options.
(6) Consists of 13,805 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 14,250 shares of Common Stock issuable upon exercise of stock
options.
(10) Consists of 302,864 shares of Common Stock held by PolyVentures of which
Dr. Harrison is the Managing General Partner, and 14,250 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) Includes 83,847 shares of Common Stock (on a post-conversion basis) which
Thomson has a right to acquire pursuant to its rights of first refusal. 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 shares of Common Stock, $0.001 par value, and
1,000,000 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 January 31, 1997, there were 5,750,191 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
1,557,027 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 1,000,000 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 January 31, 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 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 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 491,066 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
1,383,088 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.
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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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this Offering, the Company will have shares of
Common Stock outstanding, assuming no exercise of the over-allotment option or
of warrants and options to acquire an aggregate of shares outstanding at
December 31, 1996. Of these shares, the 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 5,750,191 shares will be "restricted
securities," as defined in Rule 144 under the Securities Act (the "Restricted
Shares").
As of the date of this Prospectus, Restricted Shares not subject to
lock-up agreements 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 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 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 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 owned by them for a
period ending one year after the date of this Prospectus (the "one-year 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 shares will become eligible for sale without restriction
under Rule 144(k), and an additional shares issuable upon exercise of then
exercisable options will become eligible subject to the restrictions of Rule 144
and, in some cases, Rule 701. Upon the expiration of the one-year lock-up
period, or earlier upon the consent of PaineWebber Incorporated shares
will become eligible for sale without restriction under Rule 144(k), and an
additional shares issuable upon exercise of then exercisable options will
become eligible subject to the restrictions of Rule 144 and, in some cases, Rule
701.
In general, under Rule 144, as it will be in effect as of April , 1997, 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 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. Currently, the holding
periods are two years and three years, respectively.
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.
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
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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
1,557,027 shares of Common Stock are issuable pursuant to outstanding options
and options under the 1997 Plan. An additional 722,973 shares of Common Stock
are available for future grants under the Company's 1997 Plan.
Following this Offering, the holders of Restricted Shares and the
holders of warrants to purchase an additional shares of Common Stock 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..............................................................................
-----------
-----------
</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 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.
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 shares of Common Stock, for a period
ending 180 days from the date of this
68
<PAGE>
Prospectus, and certain other stockholders holding in the aggregate shares
of Common Stock, for a period ending one year from the date of this Prospectus,
have agreed not to offer to sell, sell, contract to 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 one year 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.
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.
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.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1996,
and for the six months then ended, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, and at
June 30, 1996 and 1995, 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.
69
<PAGE>
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, 1995 and 1996 and December 31, 1996........ F-4
Consolidated Statements of Operations for the period from August 17, 1994 (inception)
through June 30, 1995, the year ended June 30, 1996 and the six months ended
December 31, 1995 (unaudited) and 1996.............................................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the period from August
17, 1994 (inception) through June 30, 1995, the year ended June 30, 1996 and the six
months ended December 31, 1996...................................................... F-6
Consolidated Statements of Cash Flows for the period from August 17, 1994 (inception)
through June 30, 1995, the year ended June 30, 1996 and the six months ended
December 31, 1995 (unaudited) and 1996.............................................. 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 December 31, 1996 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the six months
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 December 31, 1996, and the consolidated results of its
operations and its cash flows for the six months then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Melville, New York
January 24, 1997, except for
Note 1 as to which the date
is , 1997
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon (a) completion of
the split of outstanding shares of common stock and amendment to the certificate
of incorporation and (b) determination of the estimated initial public offering
price for purposes of computing shares used in per share computations, as
described in Notes 1 and 2, respectively, to the consolidated financial
statements.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Melville, New York
February 27, 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 February 26, 1997. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets 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,
1995 and 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, 1995 JUNE 30, 1996 DECEMBER 31, 1996
------------- ------------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 3,507,108 $ 3,434,910 $ 9,618,382
Restricted cash................................................ 96,000 1,231,850 1,615,486
Accounts receivable............................................ 68,515 1,998,846 7,838,033
Inventories, net............................................... 2,041,303 1,377,083 88,642
Note receivable from stockholder............................... -- 150,000 150,000
Prepaid expenses and other current assets...................... 9,875 233,612 222,654
------------- ------------- -----------------
Total current assets............................................. 5,722,801 8,426,301 19,533,197
Fixed assets, net................................................ 560,881 719,657 3,605,832
Investments...................................................... -- 238,418 1,078,678
Other assets..................................................... 91,658 118,419 193,194
------------- ------------- -----------------
Total assets..................................................... $ 6,375,340 $ 9,502,795 $ 24,410,901
------------- ------------- -----------------
------------- ------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 2,428,596 $ 2,766,790 $ 6,275,817
Accrued payroll and related fringe benefits.................... 102,720 217,000 319,750
Accrued expenses............................................... 143,015 350,213 875,772
Accrued commissions............................................ -- -- 432,000
Note payable to stockholder.................................... 315,000 315,000 315,000
Loan payable to stockholder.................................... 20,700 -- --
Capital lease obligations...................................... 49,678 50,083 53,036
------------- ------------- -----------------
Total current liabilities........................................ 3,059,709 3,699,086 8,271,375
Capital lease obligations........................................ 108,852 73,945 46,664
------------- ------------- -----------------
Total liabilities................................................ 3,168,561 3,773,031 8,318,039
------------- ------------- -----------------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized:
Class A Convertible--shares authorized, issued and
outstanding: none at June 30, 1995, 156,250 at June 30,
1996 and 172,304 at December 31, 1996 (liquidation
preference $2,756,864)..................................... -- 156 172
Class B Convertible--shares authorized, issued and
outstanding: none at June 30, 1995 and 1996 and 485,294 at
December 31, 1996 (liquidation preference $13,588,232)..... -- -- 485
Common stock, $.001 par value; 12,000,000 shares authorized,
shares issued and outstanding: 3,506,275 at June 30, 1995,
and 3,769,136 at June 30, 1996 and December 31, 1996
(5,643,290 after giving effect to the conversion of preferred
stock into common stock)..................................... 3,506 3,769 3,769
Additional paid-in capital..................................... 5,168,100 9,036,298 20,291,057
Accumulated deficit............................................ (1,065,183) (3,310,459) (4,202,621)
------------- ------------- -----------------
4,106,423 5,729,764 16,092,862
Less stock subscriptions receivable............................ (899,644) -- --
------------- ------------- -----------------
Total stockholders' equity....................................... 3,206,779 5,729,764 16,092,862
------------- ------------- -----------------
Total liabilities and stockholders' equity....................... $ 6,375,340 $ 9,502,795 $ 24,410,901
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31
JUNE 30, JUNE 30, ---------------------------
1995 1996 1995 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues.............................................. $ 71,756 $ 13,476,276 $ 7,315,340 $ 13,306,482
Costs of revenues..................................... 58,089 11,237,977 5,976,034 11,497,100
------------- ------------- ------------ -------------
Gross profit.......................................... 13,667 2,238,299 1,339,306 1,809,382
------------- ------------- ------------ -------------
Operating expenses:
Selling and marketing............................... 346,141 1,915,037 796,421 1,401,071
Research and development............................ -- 711,906 250,528 229,593
General and administrative.......................... 771,974 1,945,623 862,491 1,416,294
------------- ------------- ------------ -------------
Total operating expenses.............................. 1,118,115 4,572,566 1,909,440 3,046,958
------------- ------------- ------------ -------------
Loss from operations.................................. (1,104,448) (2,334,267) (570,134) (1,237,576)
Interest income, net of interest expense of $14,797,
$32,293, $14,880 (unaudited) and $15,898 in June
1995, June 1996, December 1995 and December 1996,
respectively........................................ 39,265 88,991 53,965 70,414
------------- ------------- ------------ -------------
Loss before minority interests in operations of
consolidated subsidiary............................. (1,065,183) (2,245,276) (516,169) (1,167,162)
Minority interests in operations of consolidated
subsidiary.......................................... -- -- -- 275,000
------------- ------------- ------------ -------------
Net loss.............................................. $ (1,065,183) $ (2,245,276) $ (516,169) $ (892,162)
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
Pro forma net loss per share (unaudited).............. $ $
------------- -------------
------------- -------------
Shares used in computing pro forma net loss per share
(unaudited).........................................
------------- -------------
------------- -------------
</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 --
Options granted to employees
and directors............... -- -- -- -- -- -- 33,397 --
Net loss...................... -- -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
Balance at December 31,
1996........................ 172,304 $ 172 485,294 $ 485 3,769,136 $ 3,769 $20,291,057 $ --
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
--------- ----------- --------- ----------- --------- ----------- ---------- ------------
<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
Options granted to employees
and directors............... -- 33,397
Net loss...................... (892,162) (892,162)
------------ ------------
Balance at December 31,
1996........................ $(4,202,621) $16,092,862
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 17,
1994 SIX MONTHS ENDED
(INCEPTION) DECEMBER 31
THROUGH JUNE YEAR ENDED ----------------------------
30, 1995 JUNE 30, 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net loss............................................. $(1,065,183) $ (2,245,276) $ (516,169) $ (892,162)
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 22,079 --
Depreciation and amortization.................... 61,163 180,634 65,000 124,587
Amortization of organization costs............... 7,020 12,034 3,510 14,134
Stock compensation expense....................... 16,318 192,015 96,008 33,397
Minority interests in operations of consolidated
subsidiary..................................... -- -- -- (275,000)
Changes in operating assets and liabilities:
Accounts receivable............................ (68,515) (1,930,331) (1,723,595) (5,839,187)
Inventories.................................... (2,041,303) 664,220 1,858,446 1,288,441
Prepaid expenses and other current assets...... (9,875) (223,737) (31,668) 10,958
Other assets................................... (38,505) (38,795) (39,332) (7,751)
Accounts payable............................... 2,428,596 338,194 (1,417,185) 3,509,027
Accrued payroll and related fringe benefits.... 102,720 114,280 (13,702) 102,750
Accrued expenses............................... 143,015 207,198 (7,687) 957,559
------------- ------------- ------------- -------------
Net cash used in operating activities................ (453,994) (2,509,551) (1,704,295) (973,247)
------------- ------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of investments............................. -- (238,418) (3,400) (840,260)
Purchases of fixed assets............................ (437,210) (339,410) (100,111) (3,010,762)
Payment of organization costs........................ (60,173) -- -- (81,158)
Restricted cash...................................... (96,000) (1,135,850) (328,000) (383,636)
------------- ------------- ------------- -------------
Net cash used in investing activities................ (593,383) (1,713,678) (431,511) (4,315,816)
------------- ------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from sales of common stock, net............. 4,195,966 1,871,233 1,865,240 --
Proceeds from sales of preferred stock, net.......... -- 2,485,000 -- 11,221,863
Proceeds from stockholder loans...................... 444,823 -- -- --
Investment from minority stockholders................ -- -- -- 275,000
Loan to stockholder.................................. -- (150,000) (150,000) --
Repayment of loans payable to stockholder............ (60,000) (20,700) (13,301) --
Payments under capital leases........................ (26,304) (34,502) (22,033) (24,328)
------------- ------------- ------------- -------------
Net cash provided by financing activities............ 4,554,485 4,151,031 1,679,906 11,472,535
------------- ------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents........................................ 3,507,108 (72,198) (455,900) 6,183,472
Cash and cash equivalents at beginning of period..... -- 3,507,108 3,507,108 3,434,910
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period........... $ 3,507,108 $ 3,434,910 $ 3,051,208 $ 9,618,382
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest............................... $ 1,882 $ 13,341 $ 6,874 $ 6,424
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
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 February 26, 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
12,000,000, 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, subject to stockholder approval, 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 December 31, 1996 of $4,202,621. 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 December 31, 1997.
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.
INTERIM FINANCIAL STATEMENTS
The consolidated statements of operations and cash flows for the six months
ended December 31, 1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations and cash
flows for the six months ended December 31, 1995 have been made.
F-8
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
F-9
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, the stock options that were issued during the 12 months
preceding the planned IPO at prices below the estimated IPO price (assumed to be
$ 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, 1995 and 1996 and December 31, 1996.
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 six months ended December 31, 1996, and there was no effect on
the financial statements related to the adoption.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1996 DECEMBER 31, 1996
------------- ------------- -----------------
<S> <C> <C> <C>
Raw materials................................ $ 7,516 $ 32,850 $ 60,930
Work-in-progress............................. 3,631,720 3,106,125 4,715,435
------------- ------------- -----------------
3,639,236 3,138,975 4,776,365
Less progress payments....................... 1,597,933 1,761,892 4,687,723
------------- ------------- -----------------
$ 2,041,303 $ 1,377,083 $ 88,642
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
F-10
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1995 1996 1996
------------- ------------- ----------------
<S> <C> <C> <C>
Construction in progress.......................... $ -- $ -- $ 2,613,619
Computer equipment................................ 188,810 408,586 671,333
Leasehold improvements............................ 95,843 119,822 149,055
Machinery and equipment........................... 83,738 135,485 258,960
Furniture and fixtures............................ 68,819 112,727 120,115
Equipment under capital leases.................... 184,834 184,834 159,134
------------- ------------- ----------------
622,044 961,454 3,972,216
Less accumulated depreciation and amortization.... 61,163 241,797 366,384
------------- ------------- ----------------
$ 560,881 $ 719,657 $ 3,605,832
------------- ------------- ----------------
------------- ------------- ----------------
</TABLE>
5. INVESTMENTS
Investments consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1996
------------- -----------------
<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)....................... -- 400,278
Armer Communications Engineering Services, Inc. ("Armer")
(d)....................................................... -- 150,000
Other....................................................... $ 88,418 $ 3,400
------------- -----------------
238,418 1,078,678
------------- -----------------
------------- -----------------
</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 and has an option to purchase an
additional 15% at a price in accordance with the terms of the agreement.
F-11
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
5. INVESTMENTS (CONTINUED)
(d) On November 18, 1996, the Company purchased 15% of the common stock of
Armer, an Arizona corporation, for $150,000 and has an option to purchase up
to an additional 10% 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.
The Company did not hold any investments at June 30, 1995.
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.
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.
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.
F-12
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
6. COMMON STOCK (CONTINUED)
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. 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 for the six months ended
December 31, 1996, the period in which the related revenue was recognized.
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.
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 $13,588,232.
- - 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 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 1,874,154 shares of common stock for issuance upon
conversion of the Preferred Stock at December 31, 1996.
- - 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
F-13
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
7. CONVERTIBLE PREFERRED STOCK (CONTINUED)
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 December 31, 1996.
- - 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.
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 the six months ended December 31, 1996, the Company increased the number
of shares it may grant to 1,710,000. 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 SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996 DECEMBER 31, 1996
-------------------------- -------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
UNDER OPTION PRICE UNDER OPTION PRICE UNDER OPTION PRICE
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period............... 209,475 $ 3.51 820,159 $ 4.45
Grants..................................... 209,475 $ 3.51 730,384 $ 4.57 608,618 $ 7.71
Canceled................................... -- -- (119,700) $ 3.51 -- --
------------- ------------- -------------
Balance, end of period..................... 209,475 $ 3.51 820,159 $ 4.45 1,428,777 $ 5.84
------------- ------------- -------------
------------- ------------- -------------
Weighted-average fair value of options
granted during the period................ $ 2.26 $ 3.28
</TABLE>
Exercise prices for options outstanding at December 31, 1996 ranged from
$3.51 to $8.07 per share. The weighted average remaining contractual life of
those options is approximately ten years. As of December 31, 1996, options to
purchase approximately 120,000 shares of common stock are exercisable at a
weighted average exercise price of $4.27.
As a result of stock options granted during the years ended June 30, 1995
and 1996, the Company recorded compensation expense of $14,237, $99,053, $49,527
and $13,625, during the years ended June 30,
F-14
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
8. STOCK OPTION PLANS (CONTINUED)
1995 and 1996 and the six months ended December 31, 1995 and 1996, 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 December 31, 1996, remaining
compensation expense to be recorded through the year ended June 30, 1999 was
approximately $63,000.
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 and
1996, and the six months ended December 31, 1995 and 1996 of $2,081, $92,962,
$46,481 and $19,772, respectively, based on the fair market value of the shares
at the date of grant. As of December 31, 1996, remaining compensation expense to
be recorded through the year ended June 30, 1998 was approximately $35,000. As
of December 31, 1996, 64,125 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 year ended June 30, 1996 and the
six months ended December 31, 1996: 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.
F-15
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
8. STOCK OPTION PLANS (CONTINUED)
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>
SIX MONTHS ENDED
DECEMBER 31
YEAR ENDED --------------------------
JUNE 30, 1996 1995 1996
------------- ----------- -------------
<S> <C> <C> <C>
Pro forma net loss................................. $ (2,426,617) $ (563,766) $ (1,148,128)
Pro forma net loss per share....................... $ $ $
</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.
The following table summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<S> <C> <C>
EXERCISE
PRICES OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------- ------------------- -------
$3.51 151,050 40,000
$4.67 734,659 80,000
$8.07 543,068 --
---------- ------
1,428,777 120,000
---------- ------
---------- ------
</TABLE>
The Company has reserved 2,451,026 shares of common stock for issuance upon
exercise of all outstanding options and warrants.
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. The note was due on June 30, 1996 and was extended
until June 30, 1997. Interest is receivable at an annual rate of 5%.
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, $9,450 and
$9,450 during the years ended June 30, 1995 and 1996 and the six months ended
December 31, 1995 and 1996, respectively.
As of June 30, 1995 and 1996 and December 31, 1996, $12,915, $29,266 and
$38,740, respectively, 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.
F-16
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
9. RELATED PARTY TRANSACTIONS (CONTINUED)
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 year 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 and 1996 and the six months ended December
31, 1995 and 1996. The plan also provides for discretionary contributions by the
Company. The Company contributed $8,967, $41,883, $11,896 and $42,994 to the
plan during the years ended June 30, 1995 and 1996 and the six months ended
December 31, 1995 and 1996, respectively. There were no discretionary
contributions made by the Company during the years ended June 30, 1995 and 1996
and the six months ended December 31, 1995 and 1996.
11. INCOME TAXES
As a result of losses incurred from inception, and if the Company filed an
income tax return at December 31, 1996, it would have available net operating
loss carryforwards of approximately $3,100,000 for income tax purposes which
expire through 2012.
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, 1995 JUNE 30, 1996 DECEMBER 31, 1996
------------- ------------- -----------------
<S> <C> <C> <C>
Deferred tax liability:
Depreciation and amortization.................................. $ 13,000 $ 16,000 $ 19,000
------------- ------------- -----------------
Total deferred tax liability................................. 13,000 16,000 19,000
Deferred tax assets:
Net operating loss carryforwards............................... 378,000 891,000 1,240,000
Projects in progress........................................... -- 312,000 312,000
Accruals....................................................... -- 43,000 43,000
------------- ------------- -----------------
Total deferred tax........................................... 378,000 1,246,000 1,595,000
Valuation allowance for deferred tax assets.................... (365,000) (1,230,000) (1,576,000)
------------- ------------- -----------------
Net deferred tax assets........................................ 13,000 16,000 19,000
------------- ------------- -----------------
Net deferred taxes............................................. $ -- $ -- $ --
------------- ------------- -----------------
------------- ------------- -----------------
</TABLE>
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
F-17
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
12. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
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%)
of the Company's net revenues for the year ended June 30, 1996, and 86% (53% and
33%) and 33% (17% and 16%) of net revenues for the six months ended December 31,
1995 and 1996, respectively.
Revenues from foreign sales accounted for 22% (13% Europe, 5% Africa and 4%
Asia), 5% (Asia) and 59% (43% Asia, 13% Europe and 3% Africa) of total revenues
for the year ended June 30, 1996 and the six months ended December 31, 1995 and
1996, 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
As of December 31, 1996, the Company maintains a secured line of credit of
$1,500,000, which expires on January 31, 1997. Borrowings under this line bear
interest at the then prime rate and are secured by certain assets of the Company
in addition to a personal guarantee by the Company's chief executive officer,
who is also a stockholder of the Company. Through December 31, 1996, there were
no borrowings made under this line.
During January 1997, the Company received a one year, $5,000,000 proposed
credit facility from a bank. The proposed facility is to support the working
capital requirements of the Company and for the issuance of letters of credit.
The proposed facility will provide for interest at the prime rate plus 1/2% per
annum and will be collateralized by a first security interest on all assets.
Prior to closing of the proposed facility, the bank will complete its due
diligence inquiry of the Company, including an accounts receivable review, as
defined.
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, 1995 and 1996 and December 31, 1996, cash collateral related to bid
proposals amounted to $96,000, $1,043,000 and $1,270,625, respectively, and cash
collateral related to performance guarantees amounted to zero, $188,850 and
$344,861, respectively. These amounts are included in restricted cash in the
accompanying consolidated balance sheet.
F-18
<PAGE>
GLOBECOMM SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED
13. COMMITMENTS (CONTINUED)
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 December
31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
January 1, 1997 to June 30, 1997....................................... $ 31,116 $ 127,000
Year ending June 30, 1998.............................................. 62,232 150,000
Year ending June 30, 1999.............................................. 18,366 53,000
--------- ----------
Total minimum lease payments........................................... 111,714 $ 330,000
----------
----------
Less amounts representing interest..................................... 12,014
---------
Present value of net minimum lease payments............................ $ 99,700
---------
---------
</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-19
<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 and 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............................................... 69
Additional Information................................ 69
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.
SHARES
GLOBECOMM SYSTEMS INC.
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.............................................. *
Printing and engraving.......................................................... *
Legal fees and expenses......................................................... *
Accounting fees and expenses.................................................... *
Blue sky fees and expenses...................................................... *
Transfer agent fees............................................................. *
Miscellaneous................................................................... *
------------
Total..................................................................... $ *
------------
------------
</TABLE>
- ------------------------
* To be completed by amendment.
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 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 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.
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.
II-1
<PAGE>
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.
The Registrant from time to time has granted stock options to employees,
directors and consultants. 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............................. 209,475 $3.51
July 1, 1995 to June 30, 1996................................ 730,384 $3.51-$4.68
July 1, 1996 to December 31, 1996............................ 608,618 $3.51-$8.07
</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.
3.1 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 Bylaws of the Registrant.
3.4 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 and 3.4 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
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.
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.
+ Confidential treatment has been requested for certain portions of this
Exhibit.
(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,
II-3
<PAGE>
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 27TH DAY OF FEBRUARY, 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 FEBRUARY 27, 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>
PAGE
NUMBER DESCRIPTION NO.
- ----------- ------------------------------------------------------------------------------------------------ ---------
<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 Bylaws of the Registrant.
3.4 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 and 3.4 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.
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.
+ Confidential treatment has been requested for certain portions of this
Exhibit.
<PAGE>
Exhibit 3.1
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/17/1994
944154259 - 2427656
CERTIFICATE OF INCORPORATION
A Stock Corporation
FIRST: The corporation name is WORLDCOMM SYSTEMS INC.
SECOND: Its registered office in the State of Delaware is to be located at 3422
Old Capitol Trail, Suite 700, in the city of Wilmington, county of New Castle,
19808-6192. The registered agent in charge thereof is Delaware Business
Incorporators, Inc., located at same address, as above.
THIRD: The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of the total authorized capital stock of this corporation is
2000000 shares of .01 par value.
FIFTH: The name and mailing address of the incorporator is Delaware Business
Incorporators, Inc., 3422 Old Capitol Trail, Suite 700, Wilmington, DE
19808-6192.
SIXTH: The powers of the incorporator are to terminate upon the filing of the
certificate of incorporation. The name and mailing address of the person who is
to serve as director until the first annual meeting of the shareholders or until
their successors are duly elected and qualify is as follows:
David E. Hershberg
15 Waterview Drive
Port Jefferson, NY 11777
I, THE UNDERSIGNED, for the purpose of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate, and do certify
that the facts herein stated are true, and I have accordingly hereunto set my
hand this date August 17, 1994.
Incorporator:
Delaware Business Incorporators, Inc.
By: /s/ Russell D. Murray
-------------------------------------
Russell D. Murray, V.P.
<PAGE>
CERTIFICATION OF AMENDMENT
OF CERTIFICATE OF INCORPORATION OF
WORLDCOMM SYSTEMS INC.
The undersigned, being the President of Worldcomm Systems Inc., a Delaware
Corporation (the "Corporation"), hereby certifies and sets forth:
1. Article FOURTH of the Certificate of Incorporation, which sets forth the
number of shares which the Corporation is authorized to issue is amended to read
as follows:
FOURTH: The total number of shares of capital stock which the Corporation shall
have authority to issue is 3,000,000 shares, of which 2,000,000 shares shall be
Common Stock, $.01 par value and 1,000,000 shares shall be Preferred Stock, par
value $.01 per share.
(a) Common stock.
(i) Voting Rights. The holders of shares of Common Stock shall be
entitled to one vote for each share so held with respect to all matters voted on
by the stockholders of the Corporation.
(ii) Liquidation Rights. Subject to the prior and superior rights of
the Preferred Stock, upon any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, or the merger or consolidation
of the Corporation into another corporation, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock pro rata based upon the number of shares of
Common Stock held by each.
(iii) Dividends. Subject to the rights of the Preferred Stock,
dividends may be paid on the Common Stock out of any assets legally available
therefor, as and when declared by the Board of Directors.
(iv) Relative Rights of Preferred Stock and Common Stock. All
relative, participating, optional or other special rights of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
(b) Preferred Stock. The Board of Directors is empowered 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,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof for each such class or series, specifying for each such
class or series:
(i) the designation thereof in such manner as shall distinguish
shares thereof from all other series of Preferred Stock then or theretofore
authorized;
(ii) the number of shares which shall initially constitute such
class or series;
(iii) whether or not the shares of such class or series shall have
voting rights in addition to the voting rights affirmatively required by law;
(iv) the rate or rates and the time or times at which dividends and
other distributions on the shares of such class or series shall be paid, and
whether or not any such dividends shall be cumulative;
(v) the amount payable on the shares of such class or series in the
event of the voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation;
(vi) whether or not shares of such class or series are to be
redeemable, and the terms and conditions upon which the Corporation or a holder
may exercise its or his right to redeem, or require redemption of, shares of
such class or series;
(vii) whether or not a sinking fund shall be created for the
redemption of the shares of such class or series, and the terms and conditions
of any such fund; and
(viii) any other preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions thereof
which shall be applicable to such class or series.
<PAGE>
2. The following additional Articles are inserted for the management of the
business and for the conduct of the affairs of the corporation, and for further
definition, limitation and regulation of the powers of the corporation and of
its directors and stockholders:
SEVENTH: 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 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 (3/4) 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.
EIGHTH: A director of the corporation shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of his 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) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
NINTH: The Board of Directors shall have power without the assent or vote of the
stockholders to make, alter, amend, change, add to or repeal the By-Laws of the
corporation.
3. This amendment has been duly adopted in accordance with Section 242 of the
General Corporation Law.
IN WITNESS of the foregoing I have executed this certificate this 13 day of
October, 1995.
/s/ David E. Hershberg
-------------------------------------
David E. Hershberg, CEO
Attest:
/s/ Thomas A. DiCicco
- ----------------------------------
Thomas A. DiCicco, Secretary
<PAGE>
WORLDCOMM SYSTEMS INC.
CERTIFICATE OF DESIGNATION OF RELATIVE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
The undersigned, President of Worldcomm Systems, Inc., a Delaware
corporation (the "Corporation"), hereby certifies and sets forth the following.
Pursuant to the authority contained in Article FOURTH of the Certificate of
Incorporation, the Board of Directors has adopted the following resolution to
authorize the issuance of a class of the Corporation's Preferred Stock, par
value $.01 per share, and to fix the preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof.
RESOLVED, that pursuant to the authority granted by Article FOURTH of
the Certificate of Incorporation, the Board of Directors authorizes
issuance of a new class of the Corporation's Preferred Stock, par value
$.01 per share, having the following designation and preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof.
This class is designated Class A Preferred Stock.
The number of shares which shall initially constitute the Class A
Preferred Stock is 156,250 shares.
At the option of the holder thereof, each share of Class A Preferred
Stock shall be convertible, at any time or from time to time, into the
number of fully paid and nonassessable share of Common Stock which results
from dividing $16.00 by the conversion price which is in effect at the time
of conversion (the "Conversion Price"). The Conversion Price shall be
subject to adjustment from time to time as provided below.
If the Corporation shall (i) issue additional shares of Common Stock
as a dividend or other distribution on outstanding Common Stock, (ii)
subdivide the outstanding shares of Common Stock into a greater number of
shares of Common Stock or (iii) combine the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, then upon the
happening of such event, the Conversion Price of the Class A Preferred
Stock shall be adjusted by multiplying the Conversion Price in effect
immediately prior to such event by a fraction, the numerator of which is
the number of shares of Common Stock issued and outstanding immediately
prior to such event, and the denominator of which is the number of shares
of Common Stock issued and outstanding immediately after such event. The
product so obtained shall thereafter be the Conversion Price for the Class
A Preferred Stock.
If at any time or from time to time the Corporation shall pay a
dividend or make another distribution to holders of the Common Stock
payable in securities of the Corporation other than shares of Common
<PAGE>
Stock, then in each such event the Corporation shall make provision so that
holders of the Class A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
upon conversion thereof, the amount of securities of the Corporation which
they would have received had their Class A Preferred Stock been converted
into Common Stock on the date of such event and had they thereafter, during
the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period
under this Section (c) with respect to rights of the holders of the Class A
Preferred Stock or with respect to such other securities by their terms.
Each holder of Class A Preferred Stock who elects to convert the
same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
any transfer agent for the Class A Preferred Stock or Common Stock, and
shall give written notice to the Corporation at such office that such
holder elects to convert the same and shall state therein the number of
shares of Class A Preferred Stock being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder
a certificate or certificates for the number of shares of Common Stock to
which such holder is entitled upon such conversion. Such conversion shall
be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate or certificates representing
the shares of Class A Preferred Stock to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such
shares of Common Stock on such date.
No fractional shares of Common Stock shall be issued upon any
conversion of Class A Preferred Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Corporation shall pay the
holder cash equal to be product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Corporation's
Board of Directors as of the date of conversion.
The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Class A Preferred
Stock, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of Class A
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all been outstanding shares of Class A Preferred Stock, the Corporation
will take such corporate action as may, in the opinion of its
<PAGE>
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose.
The Corporation shall not avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by
the Corporation, but shall at all times in good faith assist in carrying
out all such actions as may be reasonably necessary or appropriate in order
to protect the conversion price of the holders of the Class A Preferred
Stock against impairment.
Each share of Class A Preferred Stock shall automatically be converted
into fully paid and nonassessable shares of Common Stock, as provided
herein immediately prior to the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common
Stock for the account of the Corporation in which the aggregate public
offering price (before deduction of underwriters' discounts and
commissions) equals or exceeds $7,500,000. Such conversion shall occur
whether or no the certificates evidencing the shares so converted are
surrendered to the Corporation or its transfer agent. However, the
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Class A Preferred Stock are either
delivered to the Corporation or its transfer agent as provided below, or
the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. Upon the occurrence of
such automatic conversion of Class A Preferred Stock, the holders of such
Preferred Stock shall surrender the certificates evidencing such shares at
the office of the Corporation or any transfer agent for the Class A
Preferred Stock or Common Stock. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown
on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares
of Class A Preferred Stock so surrendered were convertible on the date on
which such automatic conversion occurred.
Except as otherwise required by law, each holder of the Class A
Preferred Stock shall be entitled to one vote for each share of Common
Stock into which the Preferred Stock held by such holder is at the time
reference convertible. Holders of the Class A Preferred Stock shall vote as
a single class with holders of the Common Stock on all matters upon which a
vote of stockholders is authorized or required by law or by the Certificate
of Incorporation.
<PAGE>
Holders of the Class A Preferred Stock shall be entitled to
participate ratably, based on the number of shares of Common Stock into
which the such holder's shares of Class A Preferred Stock are then
convertible, with holders of the Common Stock in any dividends or other
distributions which may be declared upon or paid to holders of the Common
Stock.
In the event of the dissolution, liquidation or winding up of the
Corporation, or a sale of all of its assets, whether voluntary or
involuntary, or in the event of its insolvency, there shall be paid to the
holders of the Preferred Stock the sum of $16.00 per share, before any sums
shall be paid or any assets distributed among holders of the Common Stock.
If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of the Preferred Stock of the amount thus
distributable, then the entire assets of the Corporation shall be
distributed ratably among the holders of the Preferred Stock. After the
foregoing up to the holders of the Preferred Stock, the remaining assets
and funds of the Corporation shall be distributed among and paid to the
holders of the Common Stock and the Preferred Stock, share and share alike,
in proportion to their stockholdings.
If the Corporation proposes at any time to issue additional voting
securities for payment in cash, the Corporation shall give holders of the
Class A Preferred Stock prompt written notice of such proposal, including
information regarding (i) the number and class or series of the securities
proposed to be sold (the "Offered Securities"), and, if such securities
will be of a new class, the rights, preferences and restrictions applicable
to such new class, (ii) if known, the identity of any proposed third party
acquiror or acquirors of the proposed Offered Securities, (iii) the price
per security at which the Corporation proposes to sell the Offered
Securities (the "Offer Price") and (iv) the proposed terms of payment and
other material terms and conditions of the proposed sale. Subject to the
provisions set forth below, each holder of the Class A Preferred Stock held
have a preemptive right to purchase such holder's Pro Rata Part (as
hereinafter defined) of the Offered Securities at the Offer Price and on
the other terms and conditions set forth in the notice. "Pro Rata Part"
shall mean the proportion which the number of votes which the holder is
entitled to cast by reason of his ownership of Class A Preferred Stock
bears to the number of votes which holders of all voting securities
(including such holder) are entitled to cast immediately prior to the date
subscriptions are opened for such offering. In order to exercise such
preemptive rights, such holder must notify the Corporation in writing not
later than fifteen (15) days after receipt by the holder of the
Corporation's notice. Such notice from the holder shall state the number of
<PAGE>
securities which the holder desires to purchase, and shall be deemed an
irrevocable commitment on the part of such holder to purchase the number of
securities set forth therein for the Offer Price and upon the other terms
and conditions set forth in the Corporation's notice. The preemptive right
set forth above shall not apply to:
shares of the Corporation's Common Stock (or options or
warrants therefor) issued to employees, officers or directors of or
consultants to, the Corporation pursuant to incentive agreements or plans
approved by the Board of Directors of the Corporation;
any securities issuable upon conversion of or with respect
to any then outstanding shares of Class A Preferred Stock of the
Corporation or Common Stock or other securities issuable upon conversion
thereof;
any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Corporation
outstanding on the date of issuance of such Class A Preferred Stock
("Warrant Securities") and any securities issuable upon the conversion of
any Warrant Securities;
shares the Corporation's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;
securities offered by the Corporation to the public pursuant
to a registration statement filed under the Securities Act of 1933;
securities issued pursuant to the acquisition of another
corporation or entity by the Corporation by consolidation, merger, purchase
of all or substantially all of the assets, or other transaction in which
the Corporation acquires in a single transaction or series of related
transactions, all or substantially all of the assets of such a corporation
or entity of fifty percent (50%) or more of the voting power of such other
corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity; or
any offering of securities by the Corporation exclusively to
a single industrial entity as part of a Strategic Business Alliance (as
hereinafter defined) with such entity. "Statistics Business Alliance" shall
mean an alliance with an industrial entity where (i) the Board of Directors
of the Corporation has been given a written report outlining in reasonable
detail the business objectives and commercial advantages to be obtained by
the Corporation and providing a business plan demonstrating the commercial
advantages to be obtained by the Corporation in connection with such
alliance and (ii) such strategic has been approved by a majority vote of
the Board of Directors of the Corporation after full consideration of any
strongly and well reasoned objection thereto by any member of such Board or
any stockholder owning shares entitling such stockholder to cast at least
5% of the total number of votes which may be cast by all stockholders upon
the election
<PAGE>
of directors. The term "industrial entity" shall include designees of an
industrial entity who are elated to such entity by virtue of substantial
stock ownership or by virtue of such designee's being an officer or
director of such entity.
The Class A Preferred Stock shall not be redeemable.
There shall not be any sinking fund for the redemption of the Class A
Preferred Stock.
The approval, by vote or written consent, of the holders of a majority
of the outstanding shares of Class A Preferred Stock shall be required to:
take any action which would alter or change any of the rights,
preferences, privileges or restrictions of such Class or increase the total
number of authorized shares of such Class:
reclassify any outstanding shares or securities of the
corporation into shares having rights, preferences or privileges senior to
such Class; or
authorize or issue any other stock having rights or preferences
senior to such Class.
Except as expressly provided above, or as required by law, the
preferences and relative participating, optional or other special rights,
and qualifications, limitations or restrictions thereof granted to or
imposed upon the Common Stock and the Class A Preferred Stock, or the
holders thereof, shall be in all respects identical.
The foregoing resolution was duly adopted at a meeting of the Board of Directors
held on May 23, 1996.
IN WITNESS of the foregoing I have executed this certificate this 29th day
of May, 1996.
/s/ David E. Hershberg
----------------------------------
David E. Hershberg, CEO & Chairman
Attest:
/s/ Thomas A. DiCiccio
- -----------------------------------
Thomas A. DiCiccio, Secretary
<PAGE>
CERTIFICATION OF AMENDMENT
OF CERTIFICATE OF INCORPORATION OF
WORLDCOMM SYSTEMS INC.
The undersigned, being the Chairman of the Board of Directors of Worldcomm
System Inc., a Delaware Corporation (the "Corporation"), hereby certifies and
sets forth:
1. The first sentence of Article FOURTH of the Certificate of Incorporation,
which sets forth the number of shares which the Corporation is authorized to
issue, is amended to read as follows:
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 4,000,000 million
shares, of which 3,000,000 shares shall be Common Stock, $.01 par
value and 1,000,000 shares shall be Preferred Stock, $.01 par value.
2. This amendment has been duly adopted in accordance with Section 242 of the
General Corporation Law.
IN WITNESS of the foregoing I have executed this certificate this 1 day
of October, 1996.
/s/ David E. Hershberg
-------------------------------------
David E. Hershberg
Chairman of the Board
Attest:
/s/ Thomas A. DiCicco
- ----------------------------------
Thomas A. DiCicco, Secretary
<PAGE>
WORLDCOMM SYTEMS INC.
CERTIFICATION OF DESIGNATION OF RELATIVE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
The undersigned, President of Worldcomm Systems, Inc., a Delaware
corporation (the "Corporation"), hereby certifies and sets forth the following.
1. Pursuant to the authority contained in Article FOURTH of the Certificate of
Incorporation, the Board of Directors has adopted the following resolution
to authorize the issuance of a class of the Corporation's Preferred Stock,
par value $.01 per share, and to fix the preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof.
RESOLVED, that pursuant to the authority granted by Article FOURTH of the
Certificate of Incorporation, the Board of Directors authorizes issuance of a
new class of the Corporation's Preferred Stock, par value $.01 per share, having
the following designation and preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof.
(a) This class is designated Class B Preferred Stock.
(b) The number of shares which shall initially constitute the Class B
Preferred Stock is 714,400 shares.
(c) At the option of the holder thereof, each share of Class B Preferred
Stock shall be convertible, at any time or from time to time, into the
number of fully paid and nonassessable shares of Common Stock which
results from dividing $28.00 by the conversion price which is in
effect at the time of conversion (the "Conversion Price"). The
Conversion Price shall be subject to adjustment from time to time as
provided below.
(i) If the Corporation shall (1) issue additional shares of
Common Stock as a dividend or other distribution on outstanding
Common Stock, (2) subdivide the outstanding shares of Common
Stock into greater number of Common Stock, or (3) combine the
outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then upon the happening of such event,
the Conversion Price of the Class B Preferred Stock shall be
adjusted by multiplying the Conversion Price in effect
immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock issued and
outstanding immediately prior to such event, and the denominator
of which is the number of shares of Common Stock issued and
outstanding immediately after such event. The product so obtained
shall thereafter be the Conversion Price for the Class B
Preferred Stock.
(ii) If at any time or from time to time the Corporation
shall pay a dividend or make another distribution to holders of
the Common Stock payable in securities of the Corporation other
than shares of Common Stock, then in each such event the
Corporation shall make provision so that holders of the Class B
Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable upon
conversion thereof, the amount of securities of the Corporation
which they would have received had their Class B
<PAGE>
Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the
date of such event to and including the conversion date, retained
such securities receivable by them as aforesaid during such
period, subject to all other adjustment called for during such
period under this Section (c) with respect to rights of the
holders of the Class B Preferred Stock or with respect to such
other securities by their terms.
(iii) Each holder of Class B Preferred Stock who elects to
convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the Corporation or any transfer agent for the Class B
Preferred Stock or Common Stock and shall give written notice to
the Corporation at such office that such holder elects to convert
the same and shall state therein the number of shares of Class B
Preferred Stock being converted. Thereupon, the Corporation shall
promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common
Stock to which such holder is entitled upon conversion. Such
conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the
certificate or certificates representing the shares of Class B
Preferred Stock to be converted, and the person entitled to
receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such
shares of Common Stock on such date.
(iv) No fractional shares of Common Stock shall be issued
upon any conversion of Class B Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled,
the Corporation shall pay the holder cash equal to be product of
such fraction multiplied by the Common Stock's fair market value
as determined in good faith by the Corporation's Board of
Directors as of the date of conversion.
(v) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the
shares of Class B Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Class B Preferred
Stock, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Class B Preferred
Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(vi) The corporation shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but shall at all times in
good faith assist in carrying out all such actions as may be
reasonably necessary or appropriate in order to protect the
conversion price of the holders of
<PAGE>
the Class B Preferred Stock against impairment.
(d) Each share of Class B Preferred Stock shall automatically be converted
into fully paid and nonassessable shares of Common Stock, as provided
herein immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock for the account of the Corporation in
which the aggregate public offering price (before deduction of
underwriters' discounts and commissions) equals or exceeds $7,500,000.
Such conversion shall occur whether or not certificates evidencing the
shares so converted are surrendered to the Corporation or its transfer
agent. However, the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Class B
Preferred Stock are either delivered to the Corporation or its
transfer agent as provided below, or the holder notifies the
Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss by it in
connection with such certificates. Upon the occurrence of such
automatic conversion of Class B Preferred Stock, the holder of such
Preferred Stock, shall surrender the certificates evidencing such
shares at the office of the Corporation or any transfer agent for the
Class B Preferred Stock or Common Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock
into which the shares of Class B Preferred Stock so surrendered were
convertible on the date on which such automatic conversion occurred.
(e) Except as otherwise required by law, each holder of the Class B
Preferred Stock shall be entitled to one vote for each share of Common
Stock into which the Preferred Stock held by such holder is at the
time of reference convertible. Holders of the Class B Preferred Stock
shall vote as a single class with holders of the Common Stock on all
mattters upon which a vote of stockholders is authorized or required
by law by the Certificate of Incorporation.
(f) Holders of the Class B Preferred Stock shall be entitled to
participate ratably, based on the number of shares of Common Stock
into which some holder's shares of Class B Preferred Stock are then
convertible, with holders of the Common Stock in any dividends or
other distributions which may be declared upon or paid to holders of
the Common Stock.
(g) In the event of the dissolution, liquidation or winding up of the
Corporation, or a sale of all its assets, whether voluntary or
involuntary, or in the event of its insolvency, there shall be paid to
the holders of the Preferred Stock the sum of $28.00 per share, before
any sums shall be paid or any assets distributed among holders of the
Common Stock. If the assets of the Corporation shall be insufficient
to permit the payment in full to the holders of the Preferred Stock of
the amount thus distributable, then the entire assets of the
Corporation shall be distributed ratably among the holders of the
Preferred Stock. After the foregoing payment to the holders of the
Preferred Stock, the remaining assets and funds of the Corporation
shall be distributed among and paid to the holders of the Common Stock
and the Preferred Stock, share and share alike, in proportion to their
stockholdings.
(h) The Class B Preferred Stock shall not be redeemable.
(i) There shall not be any sinking fund for the redemption of the Class B
Preferred Stock.
(j) The approval, by vote or written consent, of the holders of a majority
of the outstanding shares of Class B Preferred Stock shall be required
to:
(1) take any action which would alter or change any of the
rights, preferences, privileges or restrictions of such
Class or increase
<PAGE>
the total number of authorized shares of such Class;
(2) reclassify any outstanding shares or securities of the
corporation into shares having rights, preferences or
privileges senior to such Class; or
(3) authorize or issue any other stock having rights or
preferences senior to such Class.
(k) Except as expressly provided above, or above, or as required by law,
the preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof
granted to or imposed upon the Common Stock and the Class B Preferred
Stock, or the holders thereof, shall be in all respects identical.
2. The foregoing resolution was duly adopted at a meeting of the Board of
Directors held on Sept. 19, 1996.
IN WITNESS of the foregoing I have executed this certificate this 17
day of November, 1996.
/s/ Kenneth A. Miller
------------------------------
Kenneth A. Miller, President.
Attest:
/s/ Thomas A. DiCicco
- ------------------------------
Thomas A. DiCicco, Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
GLOBECOMM SYSTEMS INC.
Globecomm Systems Inc., a Delaware corporation (the "Corporation"), hereby
certifies and sets forth:
1. The name of the Corporation is Globecomm Systems Inc. The Corporation was
originally incorporated under the name Worldcomm Systems Inc. The original
Certificate of Incorporation was filed with the Secretary of State on August 17,
1994.
2. The Certificate of Incorporation is amended and restated as set forth
herein.
3. The total number of shares of capital stock which the Corporation shall
have authority to issue is 12,000,000 shares, of which 11,000 shares shall be
Common Stock, $.001 par value and 1,000,000 shares shall be Preferred Stock,
$.001 par value.
(a) Common stock.
(i) Voting Rights. The holders of shares of Common Stock
shall be entitled to one vote for each share so held with respect to all matters
voted on by the stockholders of the Corporation.
(ii) Liquidation Rights. Subject to the prior and superior
rights of the Preferred Stock, upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, or the merger or
consolidation of the Corporation into another corporation, the remaining assets
of the Corporation available for distribution to stockholders shall be
distributed among the holders of Common Stock pro rata based upon the number of
shares of Common Stock held by each.
(iii) Dividends. Subject to the rights of the Preferred Stock,
dividends may be paid on the Common Stock out of any assets legally available
therefor, as and when declared by the Board of Directors.
(iv) Relative Rights of Preferred Stock and Common Stock. All
relative, participating, optional or other special rights of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
(b) Preferred Stock. The Board of Directors is empowered 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,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof for each such class or series, specifying for each such
class or series:
(i) the designation thereof in such manner as shall
distinguish shares thereof from all other series of Preferred Stock then or
theretofore authorized;
(ii) the number of shares which shall initially constitute
such class or series;
(iii) whether or not the shares of such class or series shall
have voting rights in addition to the voting rights affirmatively required by
law;
<PAGE>
(iv) the rate or rates and the time or times at which
dividends and other distributions on the shares of such class or series shall be
paid, and whether or not any such dividends shall be cumulative;
(v) the amount payable on the shares of such class or series
in the event of the voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation;
(vi) whether or not shares of such class or series are to be
redeemable, and the terms and conditions upon which the Corporation or a holder
may exercise its or his right to redeem, or require redemption of, shares of
such class or series;
(vii) whether or not a sinking fund shall be created for the
redemption of the shares of such class or series, and the terms and conditions
of any such fund; and
(viii) any other preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof which shall be applicable to such class or series.
4. 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.
5. This Amended and Restated Certificate of Incorporation is being filed in
connection with the Corporation's initial public offering of its securities.
Upon the closing of such initial public offering, each share of Class A
Preferred Stock, and each share of Class B Preferred Stock, previously
outstanding will be automatically converted, pursuant to the terms of the
respective Certificates of Designation with respect such classes, into 2.85
shares of Common Stock, par value $.001. Following such conversion, each
certificate evidencing shares of either of such classes shall be deemed to
evidence the same number of shares of Common Stock, par value $.001, and each
holder of record of a certificate for one or more shares of such class 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 preferred stock of such
class representative by the certificate of such holder.
6. 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
<PAGE>
creditor or stockholder thereof or on the application of any receiver or
receivers appointed for this corporation under the 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 (3/4) 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.
7. A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of his 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) under Section 174 of
the General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
8. The Board of Directors shall have power without the assent or vote of the
stockholders to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
9. This amendment and restatement has been duly adopted in accordance with
Section 245 of the General Corporation Law.
IN WITNESS of the foregoing I have executed this certificate this __ day of
__________, 1997.
___________________________________
David E. Hershberg, Chairman of the
Board of Directors
Attest:
__________________________________
Thomas A. DiCicco, Secretary
<PAGE>
Exhibit 3.3
BY-LAWS
OF
WORLDCOMM SYSTEMS INC.
a Delaware corporation (the "Corporation")
ARTICLE I - OFFICES
Section 1.1. Location. The address of the Corporation's registered office
in the State of Delaware shall be 3422 Old Capitol Trail, Suite 700, in the City
of Wilmington, County of New Castle, 19808-6192, or such other address as is
designated by resolution of the Board of Directors. The Corporation may also
have other offices at such places within or without the State of Delaware as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II - MEETING OF STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall he held at the principal
office of the Corporation in the State of New York, or at such other place
within or without the State of Delaware as the Board of Directors may fix, at 10
o'clock a.m., local time, on August 15 of each year, commencing with the year
1995, or at such other time and date as the Board of Directors may fix.
Section 2.2. Special Meetings. Special meetings of stockholders, unless
otherwise prescribed by law, may be called at any time by the Board of
Directors, by the Chief Executive Officer or by order of the Board of Directors
pursuant to the written request of the holders of at least twenty percent (20%)
of the outstanding stock of the Corporation. At any special meeting, only such
business may be transacted as is related to the purpose or purposes set forth in
the notice required by Section 2.4. Special meetings of stockholders shall be
held at such place within or without the State of Delaware as shall be
designated in the notice of meeting.
Section 2.3. List of Stockholders Entitled to Vote. A list of stockholders
as of the record date, determined pursuant to Section 5.8 and certified by the
corporate officer responsible for its preparation or by the Corporation's
transfer agent, shall be produced at any meeting of stockholders upon request of
any stockholder thereat or prior thereto. If the right to vote at any meeting is
challenged, the inspectors of election, or person presiding thereat, shall
require such list of stockholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be stockholders entitled to vote thereat may vote at such meeting.
Section 2.4. Notice of Meetings. Written notice of each annual and special
meeting of stockholders, other than any meeting for which the giving of notice
is otherwise prescribed by law, stating the place, date and hour of the meeting,
and, in the case of a special meeting, indicating that it is being issued by or
at the direction of the person or persons calling the meeting and stating the
purpose or purposes for which it is called, shall be given, personally or by
mail, not less than ten (10) nor more than sixty (60) days before such meeting,
to each stockholder entitled to vote at such meeting, except that where the
matter to be acted on is a merger or consolidation of the Corporation or a sale,
lease or exchange of all or substantially all of its assets, such notice shall
be
<PAGE>
given not less than twenty (20) nor more than sixty (60) days before such
meeting. If mailed, such notice shall be deemed given when deposited in the
United States mail, postage prepaid, directed to such stockholder at his address
as it appears on the record of stockholders of the Corporation. An affidavit of
the Secretary or other person giving the notice or of the transfer agent of the
Corporation that notice has been given shall be evidence of the facts stated
therein.
Notice of any meeting need not be given to any stockholder who submits a
signed waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of any stockholder at a meeting, in person or by proxy,
shall constitute a waiver of notice by him except where the person is attending
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of stockholders, directors or committee of directors
need be specified in any written waiver of notice.
Section 2.5. Adjourned Meeting and Notice Thereof. Any meeting of
stockholders may be adjourned to another time or place, and the Corporation may
transact at any adjourned meeting any business which might have been transacted
on the original date of the meeting. Notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, unless a new record date is fixed for the adjourned
meeting by the Board of Directors. If notice of the adjourned meeting is given,
such notice shall be given to each stockholder of record entitled to vote at the
adjourned meeting in the manner prescribed in Section 2.4.
Section 2.6. Quorum. At any meeting of stockholders, except as otherwise
expressly required by law or the Certificate of Incorporation, the holders of a
majority of the shares entitled to vote at such meeting shall constitute a
quorum for the transaction of any business, provided that when a specified item
of business is required to be voted on by a class or series, voting as a class,
the holders of a majority of the shares of such class or series shall constitute
a quorum for the transaction of such specified item of business. In the absence
of a quorum, the stockholders present may adjourn such meeting. When a quorum is
once present to organize a meeting, the quorum is not broken by the subsequent
withdrawal of any stockholders.
Section 2.7. Voting. Every stockholder of record shall be entitled, at
every meeting of stockholders, to one (1) vote for every share standing in his
name on the record of stockholders of the Corporation unless otherwise provided
in the Certificate of Incorporation. Directors shall, unless otherwise required
by law or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of stockholders by the holders of shares entitled to
vote thereon. Whenever any corporate action, other than the election of
directors, is to be taken by vote of the stockholders, it shall, except as
otherwise required by law or by the Certificate of Incorporation, be authorized
by a majority of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote thereon.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy. Every proxy must be signed by the stockholder
or his attorney-in-fact. No proxy shall be valid after the expiration of three
(3) years from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder executing it, except
as otherwise provided by law.
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The Board of Directors, in advance of any stockholders, meeting, may
appoint one (1) or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
stockholders, meeting may, and on the request of any stockholder entitled to
vote thereat shall, appoint one (1) or more inspectors. In case any person
appointed fails to appear or act, the vacancy may be filled by appointment made
in advance of the meeting by the Board of Directors or at the meeting by the
person presiding thereat.
Section 2.8. Voting Rights of Certain Shares. Neither treasury shares nor
shares held by another corporation, if a majority of the shares entitled to vote
in the election of directors of such other corporation is held by the
Corporation, shall be counted for quorum purposes or entitled to vote. Shares
held by an administrator, executor, guardian, conservator, committee, or other
fiduciary, except a trustee, may be voted by him, either in person or by proxy,
without transfer of such shares into his name. Shares held by a trustee may be
voted by him, either in person or by proxy, only after the shares have been
transferred into his name as trustee or into the name of his nominee. A
stockholder whose shares are pledged shall be entitled to vote such until the
shares have been transferred into the name of the pledgee, or a nominee of the
pledgee.
Section 2.9. Action by Consent of Stockholders. Whenever a vote of
stockholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of statute or of the
Certificate of Incorporation or these By-Laws, the meeting, prior notice thereof
and vote of stockholders may be dispensed with if the holders of shares having
not less than the minimum number of votes that would have been necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted shall consent in writing to the taking of such
action. Where corporate action is taken in such manner by less than unanimous
written consent, prompt written notice of the taking of such action shall be
given to all stockholders who have not consented in writing thereto.
ARTICLE III - BOARD OF DIRECTORS
Section 3.1. General Powers. The business of the Corporation shall be
managed by the Board of Directors. The Board of Directors may exercise all such
powers of the Corporation and have such authority and do all such lawful acts
and things as are permitted by law, the Certificate of Incorporation or these
Bylaws.
Section 3.2. Number of Directors. The number of directors constituting the
entire Board of Directors shall be the number, not more than ten, as fixed from
time to time by a majority of the total number of directors which the
Corporation would have, prior to any increase or decrease, if there were no
vacancies, provided, however, that no decrease shall shorten the term of an
incumbent director. Until otherwise fixed by the directors, the number of
directors constituting the entire Board shall be five (5).
Section 3.3. Election. Directors of the Corporation shall be elected to
hold office until the next annual meeting. At each annual meeting of
stockholders or at a special meeting in lieu of the annual meeting called for
such purpose, a new Board of Directors of the Corporation shall be elected.
Section 3.4. Term. Each director shall hold office until the expiration of
the term for which he is elected and until his successor is duly elected and
qualified, except in the event of
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the earlier termination of his term of office by reason of death, resignation,
removal or other person.
Section 3.5. Resignation and Removal. Any director may resign at any time
upon written notice to the Board of Directors, the Chief Executive Officer, the
President or the Secretary. The resignation of any director shall take effect
upon receipt of notice thereof or at such later time as shall be specified in
such notice, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Any director may be removed for cause by vote of the stockholders or the
Board of Directors. Any director may be removed without cause by vote of the
stockholders.
Section 3.6. Vacancies. Newly created directorships resulting from an
increase in the number of directors and vacancies occurring in the Board of
Directors for any reason except the removal of directors without cause may be
filled by vote of a majority of the directors then in office, although less than
a quorum exists. Vacancies occurring in the Board of Directors by reason of the
removal of directors without cause may be filled only by vote of the
stockholders.
A director elected to fill a vacancy shall be elected to hold office for
the unexpired term of his predecessor.
Section 3.7. Quorum and Voting. Unless the Certificate of Incorporation
provides otherwise, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business or of any specified item of business. A director interested in a
contract or transaction may be counted in determining the presence of a quorum
at a meeting of the Board of Directors which authorizes the contract or
transaction. In the absence of a quorum, a majority of the directors present may
adjourn the meeting until a quorum shall be present.
The vote of the majority of the directors present at the time of a vote at
a meeting at which a quorum is present shall be the act of the Board of
Directors unless the Certificate of Incorporation shall require the vote of a
greater number.
Section 3.8. Regulations. The Board of Directors may adopt such rules and
regulations for the conduct of the business and management of the Corporation,
not inconsistent with the law or the Certificate of Incorporation or these
By-Laws, as the Board of Directors may deem proper.
The Board of Directors may hold its meetings at any place within or
without the State of Delaware as the Board of Directors may from time to time
determine.
Section 3.9. Annual Meeting of Board of Directors. An annual meeting of
the Board of Directors shall be called and held for the purpose of organization,
election of officers and transaction of any other business. If such meeting is
held promptly after and at the place specified for the annual meeting of
stockholders, no notice of the annual meeting of the Board of Directors need be
given. Otherwise such annual meeting shall be held at such time (not more than
thirty (30) days after the annual meeting of stockholders) and place as may be
specified in a notice of the meeting.
Section 3.10. Regular Meetings. Regular meetings of the Board of Directors
shall be held at the time and place as shall from time to time be determined by
the Board of Directors.
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After there has been such determination and notice thereof has been given to
each member of the Board of Directors, no further notice shall be required for
any such regular meeting. Except as otherwise provided by law, any business may
be transacted at any regular meeting.
Section 3.11. Special Meetings. Special meetings of the Board of Directors
may, unless otherwise prescribed by law, be called from time to time by the
Chief Executive officer, and shall be called by the President or the Secretary
upon the written request of a majority of the Board of Directors then in office
directed to the President or the Secretary. Except as provided below, notice of
any special meeting of the Board of Directors, stating the time and place of
such special meeting, shall be given to each director.
Section 3.12. Notice of Meeting; Waiver of Notice. Notice of any meeting
of the Board of Directors shall be deemed to be duly given to a director (i) if
mailed to such director, addressed to him at his address as it appears upon the
books of the Corporation, or at the address last made known in writing to the
Corporation by such director as the address to which such notices are to be
sent, at least four (4) days before the day on which such meeting is to be held,
or (ii) if sent to him at such address by telegraph, cable, radio or wireless
not later than two (2) days before the day on which such meeting is to be held,
or (iii) if delivered to him personally or orally, by telephone or otherwise,
not later than the day before the day on which such meeting is to held. Each
such notice shall state the time and place of the meeting.
Notice of any meeting of the Board of Directors need not be given to any
director who submits a signed waiver of notice whether before or after the
holding of such meeting, or who attends such meeting without protesting, prior
thereto or at its commencement, the lack of notice to him.
Section 3.13. Committees of Directors. The Board of Directors may, by
resolution or resolutions, designate from among its members one (1) or more
committees.
The Board of Directors may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Members of a committee shall hold office for such
period as may be fixed by a resolution adopted by the Board of Directors,
subject, however, to removal at any time by the vote of the Board of Directors.
Section 3.14. Powers and Duties of Committees. Except as otherwise
provided by law, any committee, to the extent provided in the resolution of
resolutions creating such committee, shall have all the authority of the Board
of Directors, except that no such committee shall have authority as to the
following matters: (a) amending the Certificate of Incorporation, (b) adopting
an agreement of merger or consolidation, (c) recommending to the stockholders
the sale, lease or exchange of all or substantially all of the Corporation's
property and assets, (d) recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, or (e) amending these By-Laws, and,
unless expressly so provided by resolution of the Board, no such committee shall
have power or authority in reference to (f) declaring a dividend, or (g)
authorizing the issuance of share of the Corporation of any class.
Each committee may adopt its own rules of procedure and may meet at stated
times or on such notice as such committee may determine. Except as otherwise
permitted by these By-
<PAGE>
Laws, each committee shall keep regular minutes of its proceedings and report
the same to the Board of Directors and the Chief Executive Officer when
required.
Section 3.15. Compensation of Directors. The Board of Directors may from
time to time, in its discretion, fix the amounts, if any, which shall be payable
to directors and to members of any committee of the Board of Directors for
attendance at the meetings of the Board of Directors or of such committee and
for services rendered to the Corporation.
Section 3.16. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or the committee consent in writing to
the adoption of a resolution authorizing the action. The resolution and written
consents thereto by the members of the Board of Directors or committee shall be
filed with the minutes of the proceedings of the Board of Directors or the
committee.
Section 3.17. Participation by Telephone Conference. Any one or more
members of the board or committee may participate in a meeting of the Board or
committee by means of a conference telephone or similar communication equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE IV - OFFICERS
Section 4.1. Principal Officers. The principal officers of the Corporation
shall be elected by the Board of Directors and may include a Chairman of the
Board, a Chief Executive Officer, a President, a Secretary and a Treasurer and
may, at the discretion of the Board of Directors, also include one or more Vice
Presidents and a Controller. Any two (2) or more principal offices may be held
by the same person.
Section 4.2. Election of Principal Officers; Term of Office. The principal
officers of the Corporation shall be elected annually by the Board of Directors
at each annual meeting of the Board of Directors.
If the Board of Directors shall fall to fill any principal office at an
annual meeting, or if any vacancy in any principal office shall occur, or if any
principal office shall be newly created, such principal office may be filled at
any regular or special meeting of the Board of Directors.
Each principal officer shall hold office until his successor is duly
elected and qualified, or until his earlier death, resignation or removal.
Section 4.3. Subordinate Officers, Agents and Employees. In addition to
the principal officers, the Corporation may have one or more Assistant
Treasurers, Assistant Secretaries and such other subordinate officers, agents
and employees as the Board of Directors may deem advisable, each of whom shall
hold office for such period and have such authority and perform such duties as
the Board of Directors, the Chief Executive Officer, or any officer designated
by the Board of Directors, may from time to time determine. The Board of
Directors at any time may appoint and remove, or may delegate to any principal
officer the power to appoint and to remove, any subordinate officer, agent or
employee of the Corporation.
Section 4.4. Delegation of Duties of Officers. The Board of Directors may
delegate the duties and powers of any officer of the Corporation to any other
officer or to any
<PAGE>
director for a specified period of time for any reason that the Board of
Directors may deem sufficient.
Section 4.5. Removal of Officers. Any officer of the Corporation may be
removed with or without cause by resolution of the Board of Directors.
Section 4.6. Resignation. Any officer may resign at any time by giving
written notice of his resignation to the Board of Directors, to the Chief
Executive Officer, to the President or to the Secretary. Any such resignation
shall take effect upon receipt of such notice or at any later time specified
therein. Unless otherwise specified in the notice, the acceptance of a
resignation shall not be necessary to make the resignation effective.
Section 4.7. Chairman of the Board. The Chairman of the Board, if one is
elected, will preside at all meetings of the stockholders and of the Board of
Directors at which he is present. The Chairman of the Board shall have such
other powers and perform such other duties as may be assigned to him from time
to time by the Board of Directors.
Section 4.8. Chief Executive Officer. The Chief Executive Officer shall be
the chief executive officer of the Corporation and shall have general
supervision over the business of the Corporation. The Chief Executive Officer
shall have all powers and duties usually incident to the office of Chief
Executive Officer except as specifically limited by a resolution of the Board of
Directors. The Chief Executive Officer shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors.
Section 4.9. President. The President shall be the chief operating officer
of the Corporation and shall have general supervision over the business of the
Corporation. The President shall have all powers and duties usually incident to
the office of the President, except as specifically limited by a resolution of
the Board of Directors. The President shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors.
Section 4.10. Vice President. In the absence or disability of the
President or if the office of President be vacant, the Vice Presidents in the
order determined by the Chief Executive officer or the Board of Directors, or if
no such determination has been made, in the order of their seniority, shall
perform the duties and exercise the powers of the President, subject to the
right of the Chief Executive officer or the Board of Directors at any time to
extend or confine such powers and duties or to assign them to others. Any Vice
President may have such additional designation in his title as the Chief
Executive Officer or the Board of Directors may determine. The Vice Presidents
shall generally assist the Chief Executive Officer and the President in such
manner as the Chief Executive Officer and the President shall direct. Each Vice
President shall have such other powers and perform such other duties as may be
assigned to him from time to time by the Board of Directors or the Chief
Executive Officer.
Section 4.11. Secretary. The Secretary shall act as Secretary of all
meetings of stockholders and of the Board of Directors at which he is present,
shall record all the proceedings of all such meetings in a book to be kept for
that purpose, shall have supervision over the giving and service of notices of
the Corporation, and shall have supervision over the care and custody of the
corporate records and the corporate seal of the Corporation. The Secretary shall
be empowered to affix the corporate seal to documents, the execution of which on
behalf of the Corporation under its seal, is duly authorized, and when so
affixed may attest the same. The Secretary shall have all
<PAGE>
powers and duties usually incident to the office of Secretary, except as
specifically limited by a resolution of the Board of Directors. The Secretary
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors or the Chief Executive Officer.
Section 4.12. Treasurer. The Treasurer shall have general supervision over
the care and custody of the funds and over the receipts and disbursements of the
Corporation and shall cause the funds of the Corporation to be deposited in the
name of the Corporation in such banks or other depositories as the Board of
Directors or the Chief Executive Officer may designate. The Treasurer shall have
supervision over the care and safekeeping of the securities of the Corporation.
The Treasurer shall have all powers and duties usually incident to the office of
Treasurer, including the duties of Controller if none is elected, except as
specifically limited by a resolution of the Board of Directors. The Treasurer
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors or the Chief Executive Officer.
Section 4.13. Controller. The Controller, if one is elected, shall be the
chief accounting officer of the Corporation and shall have supervision over the
maintenance and custody of the accounting operations of the Corporation,
including the keeping of accurate accounts of all receipts and disbursements and
all other financial transactions. The Controller shall have all powers and
duties usually incident to the office of Controller, except as specifically
limited by a resolution of the Board of Directors. The Controller shall have
such other powers and perform such other duties as may be assigned to him from
time to time by the Board of Directors or the Chief Executive Officer.
Section 4.14. Bond. The Board of Directors shall have power, to the extent
permitted by law, to require any officer, agent or employee of the Corporation
to give bond for the faithful discharge of his duties in such form and with such
surety or securities as the Board of Directors may determine.
ARTICLE V - CAPITAL STOCK
Section 5.1. Issuance of Certificates for Stock. Each stockholder of the
Corporation shall be entitled to a certificate or certificates in such form as
shall be approved by the Board of Directors, certifying the number of shares of
capital stock of the Corporation owned by such stockholder.
Section 5.2. Signatures on Stock Certificates. Certificates for shares of
capital stock of the Corporation shall be signed by, or in the name of the
Corporation by, (i) the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and by (ii) the Secretary, the Treasurer, an
Assistant Secretary or an Assistant Treasurer, and shall bear the corporate seal
of the Corporation or a printed or engraved facsimile thereof.
If any such certificate is countersigned by a transfer agent or registered
by a register, other than the Corporation or its employee, any other signature
on the certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, such certificate may be
issued by the Corporation with the same effect as if such signer were such
officer at the date of issue.
<PAGE>
Section 5.3. Stock Ledger. A record of all certificates for capital stock
issued by the Corporation shall be kept by the Secretary or any other officer,
employee or agent designated by the Board of Directors. Such record shall show
the name and address of each stockholder, the number and class of shares held by
each and the date when each became the owner of record thereof, and, in the case
of certificates which have been canceled, the dates of cancellation thereof.
The Corporation shall be entitled to treat the holder of record of shares
of capital stock as shown on the stock ledger as the owner thereof and as the
person entitled to receive dividends thereon, to vote such shares, to receive
notice of meetings, and for all other purposes. Prior to due presentment for
registration of transfer of any certificate for shares of capital stock of the
Corporation, the Corporation shall not be bound to recognize any equitable or
other claim to or interest in any share of capital stock represented by such
certificate on the part of any other person whether or not the Corporation shall
have express or other notice thereof.
Section 5.4. Regulations Relating to Transfer. The Board of Directors may
make such rules and regulations as it may deem expedient, not inconsistent with
law, the Certificate of Incorporation or these By-Laws, concerning issuance,
transfer and registration of certificates for shares of capital stock of the
Corporation. The Board of Directors may appoint, or authorize any principal
officer to appoint, one (1) or more transfer clerks or one (1) or more transfer
agents and one (1) or more registers and may require all certificates for
capital stock to bear the signature or signatures of any of them.
Section 5.5. Transfers. Transfers of capital stock shall be made on the
books of the Corporation only upon delivery to the Corporation or its transfer
agent of (i) a written direction of the registered holder named in the
certificate or such holder's attorney lawfully constituted in writing, (ii) the
certificate for the shares of capital stock being transferred, and (iii) a
written assignment of the shares of capital stock evidenced thereby.
Section 5.6. Cancellation. Each certificate for capital stock surrendered
to the Corporation for exchange or transfer shall be canceled and no new
certificate or certificates shall be issued in exchange for any existing
certificate (other than pursuant to Section 5.7) until such existing certificate
shall have been canceled.
Section 5.7. Lost, Destroyed, Stolen and Mutilated Certificates. In the
event that any certificate for shares of capital stock of the Corporation shall
be mutilated, the Corporation shall issue a new certificate in place of such
mutilated certificate. In case any such certificate shall be lost, stolen or
destroyed, the Corporation may, in the discretion of the Board of Directors or a
committee designated thereby with power so to act, issue a new certificate for
capital stock in the place of any such lost, stolen or destroyed certificate.
The applicant for any substituted certificate or certificates shall surrender
any mutilated certificate or, in the case of any lost, stolen or destroyed
certificate, furnish satisfactory proof of such loss, theft or destruction of
such certificate and of the ownership thereof. The Board of Directors or such
committee may, in its discretion, require the owner of a lost, stolen or
destroyed certificate, or his representatives, to furnish to the Corporation a
bond with an acceptable surety or sureties and in such sum as will be sufficient
to indemnify the Corporation against any claim that may be made against it on
account of the lost, stolen or destroyed certificate or the issuance of such new
certificate. A new certificate may be issued without requiring a bond when, in
the judgment of the Board of Directors, it is proper to do so.
<PAGE>
Section 5.8. Fixing of Record Date. (a) 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 any meeting of stockholders, nor more than
sixty (60) days prior to any other action, for the purpose of determining
stockholders entitled to notice of or to vote at such meeting of stockholders or
any adjournment thereof, or to express consent or dissent to corporate action in
writing without a meeting, or to receive payment of any dividend or allotment of
any rights, or for the purpose of any other action, except that where the matter
to be acted on is a merger or consolidation of the Corporation or a sale, lease
or exchange of all or substantially all of its assets, such date shall be not
less than twenty nor more than sixty days prior to such meeting.
(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the next day preceding the day on which notice is given, or if no notice is
given, the day on which the meeting is held;
(ii) The record date for determining stockholders for any purpose
other than that specified in subparagraph (i) shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
(c) 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 that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE VI - INDEMNIFICATION
Section 6.1. Indemnification. The Corporation shall indemnify any person
made, or threatened to be made, a party to an action or proceeding (including
one by or in the right of the Corporation to procure a judgment in its favor),
whether civil or criminal, including, but not limited to, an action by or in the
right of any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which any director or officer of the Corporation served in any capacity at the
request of the Corporation, by reason of the fact that he, his testator or
intestate, was a director or officer of the Corporation, or served such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in settlement
and reasonable expenses, including, but not limited to, attorneys' fees incurred
as a result of such action or proceeding, or any appeal therein, provided that
no indemnification shall be made to or on behalf of any director or officer of
the Corporation if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
The Corporation shall he deemed to have requested a person to serve an
employee benefit plan where the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
Expenses incurred in connection with a civil or criminal action or
proceeding may be paid by the Corporation in advance of the final disposition of
any such action or proceeding upon
<PAGE>
receipt of an undertaking by or on behalf of the director or officer to repay
the expenses so advanced, if the director or officer is ultimately found not to
be entitled to indemnification, and where the director or officer is ultimately
found to be entitled to some indemnification, to the extent the expenses so
advanced exceed the indemnification to which the director or officer ultimately
is found to be entitled.
Notwithstanding the failure of the Corporation to provide indemnification,
and despite any contrary resolution of the Corporation's Board of Directors or
of the Corporation's stockholders in any specific case arising under the
Delaware General Corporation Law, indemnification shall be awarded by a court to
the maximum extent permitted under these By-laws. Application therefor may be
made, in every case, either:
(i) In. the civil action or proceeding in which the expenses were
incurred or other amounts were paid, or
(ii) To a court in a separate proceeding, in which case the
application shall set forth the disposition of any previous application made to
any court for the same or similar relief and also reasonable cause for the
failure to make application for such relief in the action or proceeding in which
the expenses were incurred or other amounts were paid.
(a) The application shall be made in such manner and form as may be
required by the applicable rules of court or, in the absence thereof, by
direction of a court to which it is made. Such application shall be upon notice
to the Corporation. The court may also direct that notice be given at the
expense of the Corporation to the Corporation's stockholders and such other
persons as it may designate in such manner as it may require.
(b) Where indemnification is sought by judicial action, the court may
allow a person such reasonable expenses, including attorneys' fees, during the
pendency of the litigation as are necessary in connection with his defense
therein.
All expenses incurred defending a civil or criminal action or proceeding
which are allowed by a court under paragraph (b) above, shall be repaid in case
the director or officer receiving such allowance is ultimately found not to be
entitled to indemnification, and where the director or officer is ultimately
found to be entitled to some indemnification, to the extent the expenses so
allowed by the court exceed the indemnification to which the director or officer
ultimately is found to be entitled.
Any indemnification by the Corporation pursuant hereto shall only be made
in the manner and to the extent authorized by applicable law, but shall be made
to the maximum extent permitted by applicable law, and such indemnification
shall not be deemed exclusive of any other rights to which those seeking
indemnification may otherwise be entitled.
Section 6.2. Indemnification Insurance. To the extent permitted by law,
the Corporation shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such.
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ARTICLE VII - MISCELLANEOUS PROVISIONS
Section 7.1. Corporate Seal. The seal of the Corporation shall be circular
in form with the name of the Corporation in the circumference and the words and
figures "Corporate Seal - 1994, Delaware" in the center. The seal may be used by
causing it to be affixed or impressed, or a facsimile thereof may be reproduced
or otherwise used in such manner as the Board of Directors may determine.
Section 7.2. Fiscal Year. The fiscal year of the Corporation shall end on
June 30 of each year, or such other twelve (12) consecutive months as the Board
of Directors may designate.
Section 7.3. Execution of Instruments, Contracts, etc. All checks, drafts,
bill so exchange, notes or other obligations or orders for the payment of money
shall be signed in the name of the Corporation by such officer or officers or
person or persons, as the Board of Directors may from time to time designate.
Except as otherwise provided by law, the Board of Directors, any committee given
specific authority in the premises by the Board of Directors, or any committee
given authority to exercise generally the powers of the Board of Directors,
during the intervals between meetings of the Board of Directors, may authorize
any officer, employee or agent, in the name of and on behalf of the Corporation,
to enter into or execute and deliver deeds, bonds, mortgages, contracts and
other obligations or instruments, and such authority may be general or confined
to specific instances.
All applications, written instruments and papers required by any
department of the United States Government or by any state, county, municipal or
other governmental authority, may be executed in the name of the Corporation by
any principal officer or subordinate officer of the Corporation, or, to the
extent designated for such purpose from time to time by the Board of Directors,
by an employee or agent of the Corporation. Such designation may contain the
powers to substitute, in the discretion of the person named, one (1) or more
other persons.
ARTICLE VIII - AMENDMENTS
Section 8.1. By Stockholders. These By-Laws may be amended or repealed, or
new By-Laws may be adopted, at any meeting of stockholders.
Section 8.2. By Directors. These By-Laws may be amended or repealed, or
new By-Laws may be adopted, by the Board of Directors.
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Exhibit 3.4
AMENDED AND RESTATED
BY-LAWS
OF
WORLDCOMM SYSTEMS INC.
a Delaware corporation (the "Corporation")
ARTICLE I - OFFICES
Section 1.1. Location. The address of the Corporation's registered office
in the State of Delaware shall be 3422 Old Capitol Trail, Suite 700, in the City
of Wilmington, County of New Castle, 19808-6192, or such other address as is
designated by resolution of the Board of Directors. The Corporation may also
have other offices at such places within or without the State of Delaware as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II - MEETING OF STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall he held at the principal
office of the Corporation in the State of New York, or at such other place
within or without the State of Delaware as the Board of Directors may fix, at 10
o'clock a.m., local time, on August 15 of each year, commencing with the year
1995, or at such other time and date as the Board of Directors may fix.
Section 2.2. Special Meetings. Special meetings of stockholders,
unless otherwise prescribed by law, may be called at any time by the Board of
Directors, by the Chief Executive Officer or by order of the Board of Directors
pursuant to the written request of the holders of at least fifty percent (50%)
of the outstanding stock of the Corporation. At any special meeting, only such
business may be transacted as is related to the purpose or purposes set forth in
the notice required by Section 2.4. Special meetings of stockholders shall be
held at such place within or without the State of Delaware as shall be
designated in the notice of meeting.
Section 2.3. List of Stockholders Entitled to Vote. A list of stockholders
as of the record date, determined pursuant to Section 5.8 and certified by the
corporate officer responsible for its preparation or by the Corporation's
transfer agent, shall be produced at any meeting of stockholders upon request of
any stockholder thereat or prior thereto. If the right to vote at any meeting is
challenged, the inspectors of election, or person presiding thereat, shall
require such list of stockholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be stockholders entitled to vote thereat may vote at such meeting.
Section 2.4. Notice of Meetings. Written notice of each annual and special
meeting of stockholders, other than any meeting for which the giving of notice
is otherwise prescribed by law, stating the place, date and hour of the meeting,
and, in the case of a special meeting, indicating that it is being issued by or
at the direction of the person or persons calling the meeting and stating the
purpose or purposes for which it is called, shall be given, personally or by
mail, not less than ten (10) nor more than sixty (60) days before such meeting,
to each stockholder entitled to vote at such meeting, except that where the
matter to be acted on is a merger or consolidation of the Corporation or a sale,
lease or exchange of all or substantially all
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of its assets, such notice shall be given not less than twenty (20) nor more
than sixty (60) days before such meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, directed to
such stockholder at his address as it appears on the record of stockholders of
the Corporation. An affidavit of the Secretary or other person giving the notice
or of the transfer agent of the Corporation that notice has been given shall be
evidence of the facts stated therein.
Notice of any meeting need not be given to any stockholder who submits a
signed waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of any stockholder at a meeting, in person or by proxy,
shall constitute a waiver of notice by him except where the person is attending
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of stockholders, directors or committee of directors
need be specified in any written waiver of notice.
Section 2.5. Adjourned Meeting and Notice Thereof. Any meeting of
stockholders may be adjourned to another time or place, and the Corporation may
transact at any adjourned meeting any business which might have been transacted
on the original date of the meeting. Notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, unless a new record date is fixed for the adjourned
meeting by the Board of Directors. If notice of the adjourned meeting is given,
such notice shall be given to each stockholder of record entitled to vote at the
adjourned meeting in the manner prescribed in Section 2.4.
Section 2.6. Quorum. At any meeting of stockholders, except as otherwise
expressly required by law or the Certificate of Incorporation, the holders of a
majority of the shares entitled to vote at such meeting shall constitute a
quorum for the transaction of any business, provided that when a specified item
of business is required to be voted on by a class or series, voting as a class,
the holders of a majority of the shares of such class or series shall constitute
a quorum for the transaction of such specified item of business. In the absence
of a quorum, the stockholders present may adjourn such meeting. When a quorum is
once present to organize a meeting, the quorum is not broken by the subsequent
withdrawal of any stockholders.
Section 2.7. Business At Annual Meeting. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (c) otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation no later than the date designated
for receipt of stockholders' proposals in a prior public disclosure made by the
Corporation. If there has been no such prior public disclosure, then to be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the annual meeting;
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provided, however, that in the event that less than 60 days' notice of the date
of the annual meeting is given to stockholders or prior public disclosure of the
date of the meeting is made, notice by the stockholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, (d) any material
interest of the stockholder in such business and (e) the same information
required by clauses (b), (c) and (d) above with respect to any other stockholder
that, to the knowledge of the stockholder proposing such business, supports such
proposal. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 2.7. The Chairman shall, if the facts warrant,
determine that a matter of business was not properly brought before the meeting
in accordance with the provisions of this Section 2.7, and if the Chairman
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 2.8. Voting. Every stockholder of record shall be entitled, at
every meeting of stockholders, to one (1) vote for every share standing in his
name on the record of stockholders of the Corporation unless otherwise provided
in the Certificate of Incorporation. Directors shall, unless otherwise required
by law or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of stockholders by the holders of shares entitled to
vote thereon. Whenever any corporate action, other than the election of
directors, is to be taken by vote of the stockholders, it shall, except as
otherwise required by law or by the Certificate of Incorporation, be authorized
by a majority of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote thereon.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy. Every proxy must be signed by the stockholder
or his attorney-in-fact. No proxy shall be valid after the expiration of three
(3) years from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder executing it, except
as otherwise provided by law.
The Board of Directors, in advance of any stockholders, meeting, may
appoint one (1) or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
stockholders, meeting may, and on the request of any stockholder entitled to
vote thereat shall, appoint one (1) or more inspectors. In case any person
appointed fails to appear or act, the vacancy may be filled by appointment made
in advance of the meeting by the Board of Directors or at the meeting by the
person presiding thereat.
Section 2.9. Voting Rights of Certain Shares. Neither treasury shares nor
shares held by another corporation, if a majority of the shares entitled to vote
in the election of directors of such other corporation is held by the
Corporation, shall be counted for quorum purposes or entitled to vote. Shares
held by an administrator, executor, guardian, conservator, committee, or other
fiduciary, except a trustee, may be voted by him, either in person or by proxy,
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without transfer of such shares into his name. Shares held by a trustee may be
voted by him, either in person or by proxy, only after the shares have been
transferred into his name as trustee or into the name of his nominee. A
stockholder whose shares are pledged shall be entitled to vote such until the
shares have been transferred into the name of the pledgee, or a nominee of the
pledgee.
Section 2.10. Action by Consent of Stockholders. Whenever a vote of
stockholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of statute or of the
Certificate of Incorporation or these By-Laws, the meeting, prior notice thereof
and vote of stockholders may be dispensed with if the holders of shares having
not less than the minimum number of votes that would have been necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted shall consent in writing to the taking of such
action. Where corporate action is taken in such manner by less than unanimous
written consent, prompt written notice of the taking of such action shall be
given to all stockholders who have not consented in writing thereto.
ARTICLE III - BOARD OF DIRECTORS
Section 3.1. General Powers. The business of the Corporation shall be
managed by the Board of Directors. The Board of Directors may exercise all such
powers of the Corporation and have such authority and do all such lawful acts
and things as are permitted by law, the Certificate of Incorporation or these
Bylaws.
Section 3.2. Number of Directors. The number of directors constituting the
entire Board of Directors shall be the number, not more than ten, as fixed from
time to time by a majority of the total number of directors which the
Corporation would have, prior to any increase or decrease, if there were no
vacancies, provided, however, that no decrease shall shorten the term of an
incumbent director. Until otherwise fixed by the directors, the number of
directors constituting the entire Board shall be five (5).
Section 3.3. Election. Directors of the Corporation shall be elected to
hold office until the next annual meeting. At each annual meeting of
stockholders or at a special meeting in lieu of the annual meeting called for
such purpose, a new Board of Directors of the Corporation shall be elected.
Section 3.4. Term. Each director shall hold office until the expiration of
the term for which he is elected and until his successor is duly elected and
qualified, except in the event of the earlier termination of his term of office
by reason of death, resignation, removal or other person.
Section 3.5. Resignation and Removal. Any director may resign at any time
upon written notice to the Board of Directors, the Chief Executive Officer, the
President or the Secretary. The resignation of any director shall take effect
upon receipt of notice thereof or at such later time as shall be specified in
such notice, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Any director may be removed for cause by vote of the stockholders or the
Board of Directors. Any director may be removed without cause by vote of the
stockholders.
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Section 3.6. Vacancies. Newly created directorships resulting from an
increase in the number of directors and vacancies occurring in the Board of
Directors for any reason except the removal of directors without cause may be
filled by vote of a majority of the directors then in office, although less than
a quorum exists. Vacancies occurring in the Board of Directors by reason of the
removal of directors without cause may be filled only by vote of the
stockholders.
A director elected to fill a vacancy shall be elected to hold office for
the unexpired term of his predecessor.
Section 3.7. Nomination Of Directors. Nominations of persons for election
to the Board of Directors may be made by the Board of Directors, or by any
stockholder of the Corporation entitled to vote for the election of directors at
the annual meeting who complies with the notice procedures set forth in this
Section 3.7. Nominations by stockholders shall be made pursuant to timely notice
in writing to the Secretary. To be timely, a stockholder's notice shall be
received at the principal executive offices of the Corporation no later than the
date designated for receipt of stockholders' proposals in a prior public
disclosure made by the Corporation. If there has been no such prior public
disclosure, then to be timely, a stockholder's nomination must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the annual meeting; provided,
however, that in the event that less than 60 days' notice of the date of the
meeting is given to stockholders or prior public disclosure of the date of the
meeting is made, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of the Corporation which are beneficially owned by such person,
and (iv) any other 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 (including without limitation such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); and (b) as to the stockholder giving notice (i) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such nomination, and (ii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.7. The Chairman
shall, if the facts warrant, determine and declare to the annual meeting that a
nomination was not made in accordance with the provisions of this Section 3.7,
and if the Chairman should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
Section 3.8. Quorum and Voting. Unless the Certificate of Incorporation
provides otherwise, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business or of any specified item of business. A director interested in a
contract or transaction may be counted in determining the presence of a quorum
at a meeting of the Board of Directors which authorizes the contract or
transaction. In the absence of a quorum, a majority of the directors present may
adjourn the meeting until a quorum shall be present.
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The vote of the majority of the directors present at the time of a vote at
a meeting at which a quorum is present shall be the act of the Board of
Directors unless the Certificate of Incorporation shall require the vote of a
greater number.
Section 3.9. Regulations. The Board of Directors may adopt such rules and
regulations for the conduct of the business and management of the Corporation,
not inconsistent with the law or the Certificate of Incorporation or these
By-Laws, as the Board of Directors may deem proper.
The Board of Directors may hold its meetings at any place within or
without the State of Delaware as the Board of Directors may from time to time
determine.
Section 3.10. Annual Meeting of Board of Directors. An annual meeting of
the Board of Directors shall be called and held for the purpose of organization,
election of officers and transaction of any other business. If such meeting is
held promptly after and at the place specified for the annual meeting of
stockholders, no notice of the annual meeting of the Board of Directors need be
given. Otherwise such annual meeting shall be held at such time (not more than
thirty (30) days after the annual meeting of stockholders) and place as may be
specified in a notice of the meeting.
Section 3.11. Regular Meetings. Regular meetings of the Board of Directors
shall be held at the time and place as shall from time to time be determined by
the Board of Directors. After there has been such determination and notice
thereof has been given to each member of the Board of Directors, no further
notice shall be required for any such regular meeting. Except as otherwise
provided by law, any business may be transacted at any regular meeting.
Section 3.12. Special Meetings. Special meetings of the Board of Directors
may, unless otherwise prescribed by law, be called from time to time by the
Chief Executive officer, and shall be called by the President or the Secretary
upon the written request of a majority of the Board of Directors then in office
directed to the President or the Secretary. Except as provided below, notice of
any special meeting of the Board of Directors, stating the time and place of
such special meeting, shall be given to each director.
Section 3.13. Notice of Meeting; Waiver of Notice. Notice of any meeting
of the Board of Directors shall be deemed to be duly given to a director (i) if
mailed to such director, addressed to him at his address as it appears upon the
books of the Corporation, or at the address last made known in writing to the
Corporation by such director as the address to which such notices are to be
sent, at least four (4) days before the day on which such meeting is to be held,
or (ii) if sent to him at such address by telegraph, cable, radio or wireless
not later than two (2) days before the day on which such meeting is to be held,
or (iii) if delivered to him personally or orally, by telephone or otherwise,
not later than the day before the day on which such meeting is to held. Each
such notice shall state the time and place of the meeting.
Notice of any meeting of the Board of Directors need not be given to any
director who submits a signed waiver of notice whether before or after the
holding of such meeting, or who attends such meeting without protesting, prior
thereto or at its commencement, the lack of notice to him.
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Section 3.14. Committees of Directors. The Board of Directors may, by
resolution or resolutions, designate from among its members one (1) or more
committees.
The Board of Directors may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. Members of a committee shall hold office for such
period as may be fixed by a resolution adopted by the Board of Directors,
subject, however, to removal at any time by the vote of the Board of Directors.
Section 3.15. Powers and Duties of Committees. Except as otherwise
provided by law, any committee, to the extent provided in the resolution of
resolutions creating such committee, shall have all the authority of the Board
of Directors, except that no such committee shall have authority as to the
following matters: (a) amending the Certificate of Incorporation, (b) adopting
an agreement of merger or consolidation, (c) recommending to the stockholders
the sale, lease or exchange of all or substantially all of the Corporation's
property and assets, (d) recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, or (e) amending these By-Laws, and,
unless expressly so provided by resolution of the Board, no such committee shall
have power or authority in reference to (f) declaring a dividend, or (g)
authorizing the issuance of share of the Corporation of any class.
Each committee may adopt its own rules of procedure and may meet at stated
times or on such notice as such committee may determine. Except as otherwise
permitted by these By-Laws, each committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors and the Chief
Executive Officer when required.
Section 3.16. Compensation of Directors. The Board of Directors may from
time to time, in its discretion, fix the amounts, if any, which shall be payable
to directors and to members of any committee of the Board of Directors for
attendance at the meetings of the Board of Directors or of such committee and
for services rendered to the Corporation.
Section 3.17. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or the committee consent in writing to
the adoption of a resolution authorizing the action. The resolution and written
consents thereto by the members of the Board of Directors or committee shall be
filed with the minutes of the proceedings of the Board of Directors or the
committee.
Section 3.18. Participation by Telephone Conference. Any one or more
members of the board or committee may participate in a meeting of the Board or
committee by means of a conference telephone or similar communication equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE IV - OFFICERS
Section 4.1. Principal Officers. The principal officers of the Corporation
shall be elected by the Board of Directors and may include a Chairman of the
Board, a Chief Executive Officer, a President, a Secretary and a Treasurer and
may, at the discretion of the Board of
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Directors, also include one or more Vice Presidents and a Controller. Any two
(2) or more principal offices may be held by the same person.
Section 4.2. Election of Principal Officers; Term of Office. The principal
officers of the Corporation shall be elected annually by the Board of Directors
at each annual meeting of the Board of Directors.
If the Board of Directors shall fall to fill any principal office at an
annual meeting, or if any vacancy in any principal office shall occur, or if any
principal office shall be newly created, such principal office may be filled at
any regular or special meeting of the Board of Directors.
Each principal officer shall hold office until his successor is duly
elected and qualified, or until his earlier death, resignation or removal.
Section 4.3. Subordinate Officers, Agents and Employees. In addition to
the principal officers, the Corporation may have one or more Assistant
Treasurers, Assistant Secretaries and such other subordinate officers, agents
and employees as the Board of Directors may deem advisable, each of whom shall
hold office for such period and have such authority and perform such duties as
the Board of Directors, the Chief Executive Officer, or any officer designated
by the Board of Directors, may from time to time determine. The Board of
Directors at any time may appoint and remove, or may delegate to any principal
officer the power to appoint and to remove, any subordinate officer, agent or
employee of the Corporation.
Section 4.4. Delegation of Duties of Officers. The Board of Directors may
delegate the duties and powers of any officer of the Corporation to any other
officer or to any director for a specified period of time for any reason that
the Board of Directors may deem sufficient.
Section 4.5. Removal of Officers. Any officer of the Corporation may be
removed with or without cause by resolution of the Board of Directors.
Section 4.6. Resignation. Any officer may resign at any time by giving
written notice of his resignation to the Board of Directors, to the Chief
Executive Officer, to the President or to the Secretary. Any such resignation
shall take effect upon receipt of such notice or at any later time specified
therein. Unless otherwise specified in the notice, the acceptance of a
resignation shall not be necessary to make the resignation effective.
Section 4.7. Chairman of the Board. The Chairman of the Board, if one is
elected, will preside at all meetings of the stockholders and of the Board of
Directors at which he is present. The Chairman of the Board shall have such
other powers and perform such other duties as may be assigned to him from time
to time by the Board of Directors.
Section 4.8. Chief Executive Officer. The Chief Executive Officer shall be
the chief executive officer of the Corporation and shall have general
supervision over the business of the Corporation. The Chief Executive Officer
shall have all powers and duties usually incident to the office of Chief
Executive Officer except as specifically limited by a resolution of the Board of
Directors. The Chief Executive Officer shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors.
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Section 4.9. President. The President shall be the chief operating officer
of the Corporation and shall have general supervision over the business of the
Corporation. The President shall have all powers and duties usually incident to
the office of the President, except as specifically limited by a resolution of
the Board of Directors. The President shall have such other powers and perform
such other duties as may be assigned to him from time to time by the Board of
Directors.
Section 4.10. Vice President. In the absence or disability of the
President or if the office of President be vacant, the Vice Presidents in the
order determined by the Chief Executive officer or the Board of Directors, or if
no such determination has been made, in the order of their seniority, shall
perform the duties and exercise the powers of the President, subject to the
right of the Chief Executive officer or the Board of Directors at any time to
extend or confine such powers and duties or to assign them to others. Any Vice
President may have such additional designation in his title as the Chief
Executive Officer or the Board of Directors may determine. The Vice Presidents
shall generally assist the Chief Executive Officer and the President in such
manner as the Chief Executive Officer and the President shall direct. Each Vice
President shall have such other powers and perform such other duties as may be
assigned to him from time to time by the Board of Directors or the Chief
Executive Officer.
Section 4.11. Secretary. The Secretary shall act as Secretary of all
meetings of stockholders and of the Board of Directors at which he is present,
shall record all the proceedings of all such meetings in a book to be kept for
that purpose, shall have supervision over the giving and service of notices of
the Corporation, and shall have supervision over the care and custody of the
corporate records and the corporate seal of the Corporation. The Secretary shall
be empowered to affix the corporate seal to documents, the execution of which on
behalf of the Corporation under its seal, is duly authorized, and when so
affixed may attest the same. The Secretary shall have all powers and duties
usually incident to the office of Secretary, except as specifically limited by a
resolution of the Board of Directors. The Secretary shall have such other powers
and perform such other duties as may be assigned to him from time to time by the
Board of Directors or the Chief Executive Officer.
Section 4.12. Treasurer. The Treasurer shall have general supervision over
the care and custody of the funds and over the receipts and disbursements of the
Corporation and shall cause the funds of the Corporation to be deposited in the
name of the Corporation in such banks or other depositories as the Board of
Directors or the Chief Executive Officer may designate. The Treasurer shall have
supervision over the care and safekeeping of the securities of the Corporation.
The Treasurer shall have all powers and duties usually incident to the office of
Treasurer, including the duties of Controller if none is elected, except as
specifically limited by a resolution of the Board of Directors. The Treasurer
shall have such other powers and perform such other duties as may be assigned to
him from time to time by the Board of Directors or the Chief Executive Officer.
Section 4.13. Controller. The Controller, if one is elected, shall be the
chief accounting officer of the Corporation and shall have supervision over the
maintenance and custody of the accounting operations of the Corporation,
including the keeping of accurate accounts of all receipts and disbursements and
all other financial transactions. The Controller shall have all powers and
duties usually incident to the office of Controller, except as specifically
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limited by a resolution of the Board of Directors. The Controller shall have
such other powers and perform such other duties as may be assigned to him from
time to time by the Board of Directors or the Chief Executive Officer.
Section 4.14. Bond. The Board of Directors shall have power, to the extent
permitted by law, to require any officer, agent or employee of the Corporation
to give bond for the faithful discharge of his duties in such form and with such
surety or securities as the Board of Directors may determine.
ARTICLE V - CAPITAL STOCK
Section 5.1. Issuance of Certificates for Stock. Each stockholder of the
Corporation shall be entitled to a certificate or certificates in such form as
shall be approved by the Board of Directors, certifying the number of shares of
capital stock of the Corporation owned by such stockholder.
Section 5.2. Signatures on Stock Certificates. Certificates for shares of
capital stock of the Corporation shall be signed by, or in the name of the
Corporation by, (i) the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and by (ii) the Secretary, the Treasurer, an
Assistant Secretary or an Assistant Treasurer, and shall bear the corporate seal
of the Corporation or a printed or engraved facsimile thereof.
If any such certificate is countersigned by a transfer agent or registered
by a register, other than the Corporation or its employee, any other signature
on the certificate may be a facsimile. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, such certificate may be
issued by the Corporation with the same effect as if such signer were such
officer at the date of issue.
Section 5.3. Stock Ledger. A record of all certificates for capital stock
issued by the Corporation shall be kept by the Secretary or any other officer,
employee or agent designated by the Board of Directors. Such record shall show
the name and address of each stockholder, the number and class of shares held by
each and the date when each became the owner of record thereof, and, in the case
of certificates which have been canceled, the dates of cancellation thereof.
The Corporation shall be entitled to treat the holder of record of shares
of capital stock as shown on the stock ledger as the owner thereof and as the
person entitled to receive dividends thereon, to vote such shares, to receive
notice of meetings, and for all other purposes. Prior to due presentment for
registration of transfer of any certificate for shares of capital stock of the
Corporation, the Corporation shall not be bound to recognize any equitable or
other claim to or interest in any share of capital stock represented by such
certificate on the part of any other person whether or not the Corporation shall
have express or other notice thereof.
Section 5.4. Regulations Relating to Transfer. The Board of Directors may
make such rules and regulations as it may deem expedient, not inconsistent with
law, the Certificate of Incorporation or these By-Laws, concerning issuance,
transfer and registration of certificates for shares of capital stock of the
Corporation. The Board of Directors may appoint, or authorize any principal
officer to appoint, one (1) or more transfer clerks or one (1) or more
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transfer agents and one (1) or more registers and may require all certificates
for capital stock to bear the signature or signatures of any of them.
Section 5.5. Transfers. Transfers of capital stock shall be made on the
books of the Corporation only upon delivery to the Corporation or its transfer
agent of (i) a written direction of the registered holder named in the
certificate or such holder's attorney lawfully constituted in writing, (ii) the
certificate for the shares of capital stock being transferred, and (iii) a
written assignment of the shares of capital stock evidenced thereby.
Section 5.6. Cancellation. Each certificate for capital stock surrendered
to the Corporation for exchange or transfer shall be canceled and no new
certificate or certificates shall be issued in exchange for any existing
certificate (other than pursuant to Section 5.7) until such existing certificate
shall have been canceled.
Section 5.7. Lost, Destroyed, Stolen and Mutilated Certificates. In the
event that any certificate for shares of capital stock of the Corporation shall
be mutilated, the Corporation shall issue a new certificate in place of such
mutilated certificate. In case any such certificate shall be lost, stolen or
destroyed, the Corporation may, in the discretion of the Board of Directors or a
committee designated thereby with power so to act, issue a new certificate for
capital stock in the place of any such lost, stolen or destroyed certificate.
The applicant for any substituted certificate or certificates shall surrender
any mutilated certificate or, in the case of any lost, stolen or destroyed
certificate, furnish satisfactory proof of such loss, theft or destruction of
such certificate and of the ownership thereof. The Board of Directors or such
committee may, in its discretion, require the owner of a lost, stolen or
destroyed certificate, or his representatives, to furnish to the Corporation a
bond with an acceptable surety or sureties and in such sum as will be sufficient
to indemnify the Corporation against any claim that may be made against it on
account of the lost, stolen or destroyed certificate or the issuance of such new
certificate. A new certificate may be issued without requiring a bond when, in
the judgment of the Board of Directors, it is proper to do so.
Section 5.8. Fixing of Record Date. (a) 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 any meeting of stockholders, nor more than
sixty (60) days prior to any other action, for the purpose of determining
stockholders entitled to notice of or to vote at such meeting of stockholders or
any adjournment thereof, or to express consent or dissent to corporate action in
writing without a meeting, or to receive payment of any dividend or allotment of
any rights, or for the purpose of any other action, except that where the matter
to be acted on is a merger or consolidation of the Corporation or a sale, lease
or exchange of all or substantially all of its assets, such date shall be not
less than twenty nor more than sixty days prior to such meeting.
(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the next day preceding the day on which notice is given, or if no notice is
given, the day on which the meeting is held;
(ii) The record date for determining stockholders for any purpose
other than that specified in subparagraph (i) shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
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(c) 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 that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE VI - INDEMNIFICATION
Section 6.1. Indemnification. The Corporation shall indemnify any person
made, or threatened to be made, a party to an action or proceeding (including
one by or in the right of the Corporation to procure a judgment in its favor),
whether civil or criminal, including, but not limited to, an action by or in the
right of any other corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which any director or officer of the Corporation served in any capacity at the
request of the Corporation, by reason of the fact that he, his testator or
intestate, was a director or officer of the Corporation, or served such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in settlement
and reasonable expenses, including, but not limited to, attorneys' fees incurred
as a result of such action or proceeding, or any appeal therein, provided that
no indemnification shall be made to or on behalf of any director or officer of
the Corporation if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled.
The Corporation shall he deemed to have requested a person to serve an
employee benefit plan where the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
Expenses incurred in connection with a civil or criminal action or
proceeding may be paid by the Corporation in advance of the final disposition of
any such action or proceeding upon receipt of an undertaking by or on behalf of
the director or officer to repay the expenses so advanced, if the director or
officer is ultimately found not to be entitled to indemnification, and where the
director or officer is ultimately found to be entitled to some indemnification,
to the extent the expenses so advanced exceed the indemnification to which the
director or officer ultimately is found to be entitled.
Notwithstanding the failure of the Corporation to provide indemnification,
and despite any contrary resolution of the Corporation's Board of Directors or
of the Corporation's stockholders in any specific case arising under the
Delaware General Corporation Law, indemnification shall be awarded by a court to
the maximum extent permitted under these By-laws. Application therefor may be
made, in every case, either:
(i) In. the civil action or proceeding in which the expenses were
incurred or other amounts were paid, or
(ii) To a court in a separate proceeding, in which case the
application shall set forth the disposition of any previous application made to
any court for the same or similar relief and also reasonable cause for the
failure to make application for such relief in the action or proceeding in which
the expenses were incurred or other amounts were paid.
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(a) The application shall be made in such manner and form as may be
required by the applicable rules of court or, in the absence thereof, by
direction of a court to which it is made. Such application shall be upon notice
to the Corporation. The court may also direct that notice be given at the
expense of the Corporation to the Corporation's stockholders and such other
persons as it may designate in such manner as it may require.
(b) Where indemnification is sought by judicial action, the court may
allow a person such reasonable expenses, including attorneys' fees, during the
pendency of the litigation as are necessary in connection with his defense
therein.
All expenses incurred defending a civil or criminal action or proceeding
which are allowed by a court under paragraph (b) above, shall be repaid in case
the director or officer receiving such allowance is ultimately found not to be
entitled to indemnification, and where the director or officer is ultimately
found to be entitled to some indemnification, to the extent the expenses so
allowed by the court exceed the indemnification to which the director or officer
ultimately is found to be entitled.
Any indemnification by the Corporation pursuant hereto shall only be made
in the manner and to the extent authorized by applicable law, but shall be made
to the maximum extent permitted by applicable law, and such indemnification
shall not be deemed exclusive of any other rights to which those seeking
indemnification may otherwise be entitled.
Section 6.2. Indemnification Insurance. To the extent permitted by law,
the Corporation shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such.
ARTICLE VII - MISCELLANEOUS PROVISIONS
Section 7.1. Corporate Seal. The seal of the Corporation shall be circular
in form with the name of the Corporation in the circumference and the words and
figures "Corporate Seal - 1994, Delaware" in the center. The seal may be used by
causing it to be affixed or impressed, or a facsimile thereof may be reproduced
or otherwise used in such manner as the Board of Directors may determine.
Section 7.2. Fiscal Year. The fiscal year of the Corporation shall end on
June 30 of each year, or such other twelve (12) consecutive months as the Board
of Directors may designate.
Section 7.3. Execution of Instruments, Contracts, etc. All checks, drafts,
bill so exchange, notes or other obligations or orders for the payment of money
shall be signed in the name of the Corporation by such officer or officers or
person or persons, as the Board of Directors may from time to time designate.
Except as otherwise provided by law, the Board of Directors, any committee given
specific authority in the premises by the Board of Directors, or any committee
given authority to exercise generally the powers of the Board of Directors,
during the intervals between meetings of the Board of Directors, may authorize
any officer, employee or agent, in the name of and on behalf of the Corporation,
to enter into or execute and deliver deeds,
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bonds, mortgages, contracts and other obligations or instruments, and such
authority may be general or confined to specific instances.
All applications, written instruments and papers required by any
department of the United States Government or by any state, county, municipal or
other governmental authority, may be executed in the name of the Corporation by
any principal officer or subordinate officer of the Corporation, or, to the
extent designated for such purpose from time to time by the Board of Directors,
by an employee or agent of the Corporation. Such designation may contain the
powers to substitute, in the discretion of the person named, one (1) or more
other persons.
ARTICLE VIII - AMENDMENTS
Section 8.1. By Stockholders. These By-Laws may be amended or repealed, or
new By-Laws may be adopted, at any meeting of stockholders.
Section 8.2. By Directors. These By-Laws may be amended or repealed, or
new By-Laws may be adopted, by the Board of Directors.
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT is made as of February ___, 1997, by and among WORLDCOMM
SYSTEMS INC, a Delaware corporation (hereinafter referred to as the
"Company"), and those persons listed on Exhibit A attached hereto.
RECITALS
Each of the Holders (as defined below) is the owner of shares of (i) the
Company's Class A Preferred Stock, par value $.01 per share, (ii) the Company's
Class B Preferred Stock, par value $.01 per share or (iii) the Company's Common
Stock, par value $.01 per share. Upon the closing of the Company's initial
public offering of its Common Stock, (i) the shares of such Preferred Stock held
by holders thereof will be automatically converted into shares of the Company's
Common Stock, par value $.001 per share pursuant to the terms of the
certificates of designation with respect to such Preferred Stock and to an
amendment and restatement of the Company's certificate of incorporation which is
being effected as of the effective date of the registration statement for such
public offering, and (iii) the shares of Common Stock, par value $.01 per share
held by Holders will be converted into shares of Common Stock, par value $.001
per share by the amendment and restatement referred to above. The shares of
Common Stock which will be held by the Holders following such transactions are
referred to in this Agreement as the "Shares."
Each of the Holders is also a party to one or more stockholders' agreements or
registration rights agreements pursuant to which such Holder has been granted
certain rights with respect to the Shares. In connection with the Company's
initial public offering of its Common Stock, the underwriter has required each
Holder to enter into an agreement pursuant to which such Holder is agreeing that
he will not sell or otherwise dispose of any of the Shares for periods ranging
from 6 to 12 months from the effective date of the registration statement for
such offering. The stockholders' agreements referred to above will terminate
upon the effectiveness of such offering. The parties deem it to be in their best
interests, and in the best interests of the Company that the registration rights
of the Holders with respect to the Shares be set forth clearly in a separate
agreement which will survive the initial public offering, and that such
registration rights be identical for each Holder.
The parties therefore agree as follows.
1. Registration Rights.
(a) Definitions. For purposes of this Section 1:
(i) The term "Act" means the Securities Act of 1933, as amended, or
any other statute in effect from time to time corresponding to such act.
(ii) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement.
(iii) The term "Registrable Securities" means (i) the Shares, (ii) any
securities of the Company issued as a dividend or other distribution with
respect to, or in exchange or in replacement of, the Shares and (iii) shares of
Common Stock the holders of which are entitled to registration rights pursuant
to other agreements of like tenor with the Company. Registrable Securities, if
transferred pursuant to an exemption from registration under the Act, will
remain Registrable Securities.
(iv) The term "Holder" means (i) any stockholder holding Registrable
Securities originally acquired by such person, and (ii) any other person holding
Registrable Securities to whom these registration rights have been transferred.
(v) The term "Initial Public Offering" means the first underwritten
public offering of the Company's securities amounting to not less than
$3,000,000.
(b) Demand Registration.
(i) Request for Registration. If, at any time after the Initial Public
Offering, the Company shall receive a written request (specifying that it is
being made pursuant to this Section 1(b)) from the Holders holding more than
twenty-five percent (25%) of the Registrable Securities held by all Holders at
that time outstanding that the Company file a registration statement or similar
document under the Act, covering the registration of not less than twenty-five
percent 25% of the Registrable Securities held by all the Holders, the expected
aggregate price to the public of which exceeds $3,000,000, net of underwriting
discounts and commissions, then the Company shall promptly notify all other
Holders of such request and shall use its best efforts to cause all Registrable
Securities that Holders have requested be so registered to be registered under
the Act.
(ii) Right to Defer Registration. Notwithstanding the foregoing,
<PAGE>
(A) the Company shall not be obligated to effect a registration
pursuant to this Section 1(b) during the period starting with the effective date
of the Initial Public Offering and extending for a period of twelve months
thereafter, and
(B) the Company shall not be obligated to effect a registration
pursuant to this Section 1(b) 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, provided that (x) the Company is actively employing in good faith,
all reasonable efforts to cause such registration statement to become effective
and that the Company's estimate of the date of filing of such registration
statement is made in good faith, and (y) the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its stockholders for a registration statement to be filed
prior to a date certain in the near future. If postponed, the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed the earlier of six (6) months after the
effective date of the registration statement or nine (9) months from the
estimated filing date of the registration statement
(iii) Limit on Demand Registrations. The Company shall be obligated to
effect only one registration pursuant to this Section 1(b) initiated by Holders.
Further, each Holder shall be ineligible to request registration of any of his
Shares which may be sold without registration and without limitation as to
amount pursuant to Rule 144 or any successor or similar regulation or statute.
Any request for registration under this Section 1(b) must be for an underwritten
public offering to be managed by an underwriter or underwriters of recognized
national standing reasonably acceptable to the Company.
(c) Piggy-back Registration. Subject to Sections 1(g) and 1(h) if at any time or
from time to time the Company proposes to register any of its equity securities
under the Act in connection with a primary or secondary public offering of such
securities solely for cash on a form that would also permit the registration of
the Registrable Securities, the Company shall, each such time, promptly give
each Holder written notice of such determination. Upon the written request of
any Holder given within twenty (20) days after mailing of any such notice by the
Company, the Company shall use its best efforts to cause to be registered under
the Act all of the common stock of the Company that each such Holder has
requested be registered.
(d) Obligations of the Company. Whenever required under Sections 1(b), or 1(c)
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and remain
effective; provided, however, that in connection with any proposed registration
intended to permit an offering of any securities from time to time (i.e., a
so-called "shelf registration"), the Company shall in no event be obligated to
cause any such registration to remain effective for more than ninety (90) days.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to the Holders and deliver as directed such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them
(iv) Use its best efforts to take such steps as may reasonably be
required to permits the sale the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as
shall be reasonably appropriate for the distribution of the securities covered
by the registration statement, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions, and further provided that (anything in this Agreement to the
contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in that
jurisdiction be borne by selling Stockholders, then such expenses shall be
payable by selling Stockholders pro rata, to the extent required by such
jurisdiction.
(e) Furnish Information. It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 1 that the Holders shall
furnish to the Company such information regarding them, the
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Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
(f) Expenses of Demand Registration. All expenses incurred in connection with a
registration pursuant to Section 1(b) (excluding underwriters' discounts and
commissions), including without limitation all registration and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company, provided, however, that the
Company shall not be required to pay for any of any registration proceeding
begun pursuant to Section 1(b) if the registration request is subsequently
withdrawn, unless the initiating Holders agree to forfeit their right to the
demand registration pursuant to Section 1(b); and provided further that the
initiating Holders may withdraw a request if the audited financial statements of
the Company materially and adversely differ from the information known to the
Holders at the time of their request, in which event the Holders shall not be
required to pay any of the expenses and shall retain the right to require the
Company to register Registrable Securities pursuant to Section 1(b).
(g) Piggy-back Registration Expenses. In the case of any registration effected
pursuant to Section 1(c), the Company shall bear all registration and state
filing fees and (excluding underwriters' discounts and commissions), including
any additional costs and disbursements of counsel for the Company that result
from the inclusion of securities held by the Holders in such registration. Each
selling Holder shall bear the fees and costs of its own counsel in connection
with any registration effected pursuant to Section 1(c).
(h) Underwriting Requirements. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required to include any of the Holders' Registrable Securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it. If the total amount of
Registrable Securities that all Holders request to be included in an offering
pursuant to Sections 1(b) and 1(c) above exceeds the amount of securities that
the underwriters reasonably believe compatible with the success of the offering,
the Company shall only be required to include in the offering such number of
shares as the underwriters believe are compatible with the success of the
offering (the securities so included to be apportioned pro rata among the
selling Holders according to the total amount of Common Stock held by the
selling Holders as if all options and warrants held by them had been exercised,
or in such other proportions as shall mutually be agreed to by such selling
Holders). In the event a pro rata apportionment is required for purposes of a
registration pursuant to Section 1(c), securities shall be included in the
offering in the following priority and the pro rata apportionment shall occur in
the class after the last class which can be included in the offering without
apportionment: (1) all securities being offered by the Company or for its own
account; (2) Registrable Securities of Holders; and (3) Common Stock of
executive officers of the Company.
(i) Delay of Registration. No Holder shall have any right to take any action to
restrain, enjoin, or otherwise delay any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 1.
(j) Indemnification and Contribution, Subject to Section l(g) in the event any
Registrable Securities are included in a registration statement under Section 1:
(i) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the Act) for it, and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934 (the "1934 Act") against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Act, the 1934 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or arise out of any violation by the Company of any rule or
regulation promulgated under the Act or the 1934 Act applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration; and will reimburse each such Holder, such underwriter, or
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 1(j)(i) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld) nor shall the Company be liable in
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any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(ii) To the extent permitted by law, each Holder requesting or joining
in a registration will severally indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act or the 1934 Act, and each agent and any underwriter for the Company
(within the meaning of the Act or the 1934 Act) against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director, officer, controlling person, agent or underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, agent or underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
indemnity agreement contained in this Section 1(j)(ii) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof and (unless the interest of the indemnifying party conflicts with that
of the indemnified party) the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party, to the extent that he is prejudiced thereby, of any
liability to the indemnified party under this Section, but the omission so to
notify the indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this Section
(iv) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which either (i) any Holder exercising
rights under this Agreement, or any controlling person of any such Holder, makes
a claim for indemnification pursuant to this Section 1(j) but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 1(j) provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 1(j); then, and in each such
case, the Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; provided, however, that, in
any such case, (A) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable Securities offered
by it pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 1(f) of
the Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
2. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the
4
<PAGE>
benefits of Rule 144 promulgated under the Act and any other rule or regulation
of the SEC that may at any time permit a Holder to sell securities of the
Company to the public without registration, the Company agrees to use its best
efforts to:
(a) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times subsequent to ninety (90) days after the
effective date of the first registration statement covering an underwritten
public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1934 Act, and
(c) furnish to any Holder so long as such Holder owns any of the Registrable
Securities forthwith upon request a written statement by the Company that it has
complied with the reporting requirements of Rule 144 (at any time after ninety
(90) days after the effective date of said first registration statement filed by
the Company), and of the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
by the Company as may be reasonably requested in availing any Holder of any rule
or regulation of the SEC permitting the selling of any such securities without
registration.
3. Lockup Agreement. The Holders shall, in connection with any registration of
the Company's Common Stock for sale to the general public, upon the request of
the Company or the underwriters managing any underwritten offering of the
Company's securities, not sell, make short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the effective date of such
registration as the Company or the underwriters may specify; provided, however,
that the Company may not discriminate among the Holders with respect to any
lockup arrangements pursuant to this Section 3.
4. Certain Limitations in Connection with future Grants of Registration Rights.
From and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of registration rights unless: (a)
such agreement includes the equivalent of Section 3 as a term; and (b) such
registration rights, if more favorable than those granted herein, are extended
to the Holders or their transferees permitted under Section 5
5. Transfer of Registration Rights. The registration rights of a Holder under
Sections 1(b) and 1(c) may be transferred to a transferee who acquires at least
20% of the Registrable Securities originally issued to the Holder, or to a
partner or affiliated partnership of such Holder without restriction as to
minimum transfer amount. The Company shall be given written notice by the Holder
at the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under Section 1 are
being assigned.
6. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be deemed to have been properly given
when delivered by hand or mailed by registered or certified mail, return receipt
requested, with postage prepaid, to the party or parties to whom such notice is
intended to be given at the address of such party first above written or such
other address as such party may designate by notice given hereunder
7. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New York. If
any provision or provisions of this Agreement is found to be void or
unenforceable, the remaining provisions of this Agreement shall remain binding
and in full force and effect
(b) Wherever appropriate, the singular shall be deemed also to mean the plural,
and visa versa, and the male gender shall comprehend the female and neuter. The
captions in this Agreement are for convenience only, and shall not affect the
construction of the provisions hereof.
(c) This Agreement may be terminated, waived or modified only by a written
agreement executed by the party against which enforcement of such termination,
waiver or modification is sought. This Agreement merges all prior understandings
of the parties with respect to the subject matter hereof:
(d) This Agreement may be executed in several counterparts, each of which shall
constitute an original, but all counterparts shall constitute but one and the
same Agreement.
(e) This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective heirs, executors, administrators, legal
representatives, successors and permitted assigns.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: WORLDCOMM SYSTEMS INC.
____________________________ By: _____________________________________
Thomas DiCicco David E. Hershberg, Chairman & CEO
______________________________
By: _________________________________
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT is made May 30, 1996, by and among WORLDCOMM SYSTEMS
INC, a Delaware corporation (hereinafter referred to as the "Company"), and
those persons listed on Exhibit A attached hereto.
RECITALS
Each of the Holders (as defined below) is the owner of shares of the
Company's Class A Preferred Stock, par value $.01 per share. The shares of such
Preferred Stock held by such Holders are referred to in this Agreement as the
"Shares."
1. Registration Rights.
(a) Definitions. For purposes of this Section 1:
(i) The term "Act" means the Securities Act of 1933, as amended, or
any other statute in effect from time to time corresponding to such act.
(ii) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement.
(iii) The term "Registrable Securities" means (i) the shares of Common
Stock issuable upon conversion of the Shares, (ii) any securities of the Company
issued as a dividend or other distribution with respect to, or in exchange or in
replacement of, the Shares and (iii) shares of Common Stock the holders of which
are entitled to registration rights pursuant to other agreements of like tenor
with the Company. Registrable Securities, if transferred pursuant to an
exemption from registration under the Act, will remain Registrable Securities.
(iv) The term "Holder" means (i) any stockholder holding Registrable
Securities originally acquired by such person, and (ii) any other person holding
Registrable Securities to whom these registration rights have been transferred.
(v) The term "Initial Public Offering" means the first underwritten
public offering of the Company's securities amounting to not less than
$3,000,000.
(b) Demand Registration.
(i) Request for Registration. If, at any time after the Initial Public
Offering, the Company shall receive a written request (specifying that it is
being made pursuant to this Section 1(b)) from the Holders holding more than
twenty-five percent (25%) of the Registrable Securities held by all Holders at
that time outstanding that the Company file a registration statement or similar
document under the Act, covering the registration of not less than twenty-five
percent 25% of the Registrable Securities held by all the Holders, the expected
aggregate price to the public of which exceeds $3,000,000, net of underwriting
discounts and commissions, then the Company shall promptly notify all other
Holders of such request and shall use its best efforts to cause all Registrable
Securities that Holders have requested be so registered to be registered under
the Act.
(ii) Right to Defer Registration. Notwithstanding the foregoing,
(A) the Company shall not be obligated to effect a registration
pursuant to this Section 1(b) during the period starting with the effective date
of the Initial Public Offering and extending for a period of six months
thereafter, and
(B) Company shall not be obligated to effect a registration
pursuant to this Section 1(b) 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, provided that (x) the Company is actively employing in good faith,
all reasonable efforts to cause such registration statement to become effective
and that the Company's estimate of the date of filing of such registration
statement is made in good faith, and (y) the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors it would be seriously detrimental
to the Company or its stockholders for a registration statement to be filed
prior to a date certain in the near future. If postponed, the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed the earlier of six (6) months after the
effective date of the registration statement or nine (9) months from the
estimated filing date of the registration statement
(iii) Limit on Demand Registrations. The Company shall be obligated to
effect only one registration pursuant to this Section 1(b) initiated by Holders.
Any request for registration under this Section 1(b)
<PAGE>
must be for an underwritten public offering to be managed by an underwriter or
underwriters of recognized national standing reasonably acceptable to the
Company.
(c) Piggy-back Registration. Subject to Sections 1(g) and 1(h) if at any
time or from time to time the Company proposes to register any of its equity
securities under the Act in connection with a primary or secondary public
offering of such securities solely for cash on a form that would also permit the
registration of the Registrable Securities, the Company shall, each such time,
promptly give each Holder written notice of such determination. Upon the written
request of any Holder given within twenty (20) days after mailing of any such
notice by the Company, the Company shall use its best efforts to cause to be
registered under the Act all of the common stock of the Company that each such
Holder has requested be registered.
(d) Obligations of the Company. Whenever required under Sections 1(b), or
1(c) to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and remain
effective; provided, however, that in connection with any proposed registration
intended to permit an offering of any securities from time to time (i.e., a
so-called "shelf registration"), the Company shall in no event be obligated to
cause any such registration to remain effective for more than ninety (90) days.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to the Holders and deliver as directed such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and further provided that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling Stockholders, then such
expenses shall be payable by selling Stockholders pro rata, to the extent
required by such jurisdiction.
(e) Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 1 that the
Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
(f) Expenses of Demand Registration. All expenses incurred in connection
with a registration pursuant to Section 1(b) (excluding underwriters' discounts
and commissions), including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders shall be borne by the Company, provided,
however, that the Company shall not be required to pay for any of any
registration proceeding begun pursuant to Section 1(b) if the registration
request is subsequently withdrawn, unless the initiating Holders agree to
forfeit their right to the demand registration pursuant to Section 1(b); and
provided further that the initiating Holders may withdraw a request if the
audited financial statements of the Company materially and adversely differ from
the information known to the Holders at the time of their request, in which
event the Holders shall not be required to pay any of the expenses and shall
retain the right to require the Company to register Registrable Securities
pursuant to Section 1(b).
(g) Piggy-back Registration Expenses. In the case of any registration
effected pursuant to Section 1(c), the Company shall bear all registration and
qualification fees and (excluding underwriters' discounts and commissions),
including any additional costs and disbursements of counsel for the Company that
result from the inclusion of securities held by the Holders in such
registration. Each selling Holder shall bear the fees and costs of its own
counsel in connection with any registration effected pursuant to Section 1(c).
<PAGE>
(h) Underwriting Requirements. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required to include any of the Holders' Registrable Securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it. If the total amount of
Registrable Securities that all Holders request to be included in an offering
pursuant to Sections 1(b) and 1(c) above exceeds the amount of securities that
the underwriters reasonably believe compatible with the success of the offering,
the Company shall only be required to include in the offering such number of
shares as the underwriters believe are compatible with the success of the
offering (the securities so included to be apportioned pro rata among the
selling Holders according to the total amount of Common Stock held by the
selling Holders as if all options and warrants held by them had been exercised,
or in such other proportions as shall mutually be agreed to by such selling
Holders). In the event a pro rata apportionment is required for purposes of a
registration pursuant to Section 1(c), securities shall be included in the
offering in the following priority and the pro rata apportionment shall occur in
the class after the last class which can be included in the offering without
apportionment: (1) all securities being offered by the Company or for its own
account; (2) Registrable Securities of Holders; and (3) Common Stock of
executive officers of the Company.
(i) Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
(j) Indemnification and Contribution, Subject to Section l(g) in the event
any Registrable Securities are included in a registration statement under
Section 1:
(i) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the Act) for it, and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934 (the "1934 Act") against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Act, the 1934 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or arise out of any violation by the Company of any rule or
regulation promulgated under the Act or the 1934 Act applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration; and will reimburse each such Holder, such underwriter, or
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 1(j)(i) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld) nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter or
controlling person
(ii) To the extent permitted by law, each Holder requesting or joining
in a registration will severally indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act or the 1934 Act, and each agent and any underwriter for the Company
(within the meaning of the Act or the 1934 Act) against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director, officer, controlling person, agent or underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or
<PAGE>
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, agent or underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the indemnity agreement contained in this Section
1(j)(ii) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of such Holder (which consent shall not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof and (unless the interest of the indemnifying party conflicts with that
of the indemnified party) the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party, to the extent that he is prejudiced thereby, of any
liability to the indemnified party under this Section, but the omission so to
notify the indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this Section
(iv) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which either (i) any Holder exercising
rights under this Agreement, or any controlling person of any such Holder, makes
a claim for indemnification pursuant to this Section 1(j) but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 1(j) provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 1(j); then, and in each such
case, the Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; provided, however. that, in
any such case, (A) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable Securities offered
by it pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 1(f) of
the Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
2. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to ninety (90) days
after the effective date of the first registration statement covering an
underwritten public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1934 Act, and
(c) furnish to any Holder so long as such Holder owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of said first registration
statement filed by the Company), and of the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC permitting the selling of any such
securities without registration.
3. Lockup Agreement. The Holders shall, in connection with any registration of
the Company's Common Stock for sale to the general public, upon the request of
the Company or the underwriters managing any
<PAGE>
underwritten offering of the Company's securities, not sell, make short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed one hundred twenty (120) days) from
the effective date of such registration as the Company or the underwriters may
specify; provided, however, that the Company may not discriminate among the
Holders with respect to any lockup arrangements pursuant to this Section 3.
4. Certain Limitations in Connection with future Grants of Registration Rights.
From and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of registration rights unless:
(a) such agreement includes the equivalent of Section 3 as a term; and
(b) such registration rights, if more favorable than those granted herein,
are extended to the Holders or their transferees permitted under Section 5
5. Transfer of Registration Rights. The registration rights of a Holder under
Sections 1(b) and 1(c) may be transferred to a transferee who acquires at least
20% of the Registrable Securities originally issued to the Holder, or to a
partner or affiliated partnership of such Holder without restriction as to
minimum transfer amount. The Company shall be given written notice by the Holder
at the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under Section 1 are
being assigned.
6. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be deemed to have been properly given
when delivered by hand or mailed by registered or certified mail, return receipt
requested, with postage prepaid, to the party or parties to whom such notice is
intended to be given at the address of such party first above written or such
other address as such party may designate by notice given hereunder
7. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New York.
If any provision or provisions of this Agreement is found to be void or
unenforceable, the remaining provisions of this Agreement shall remain binding
and in full force and effect
(b) Wherever appropriate, the singular shall be deemed also to mean the
plural, and visa versa, and the male gender shall comprehend the female and
neuter. The captions in this Agreement are for convenience only, and shall not
affect the construction of the provisions hereof.
(c) This Agreement may be terminated, waived or modified only by a written
agreement executed by the party against which enforcement of such termination,
waiver or modification is sought. This Agreement merges all prior understandings
of the parties with respect to the subject matter hereof:
(d) This Agreement may be executed in several counterparts, each of which
shall constitute an original, but all counterparts shall constitute but one and
the same Agreement.
(e) This Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective heirs, executors, administrators, legal
representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: WORLDCOMM SYSTEMS INC.
____________________________ By: _____________________________________
Thomas DiCicco David E. Hershberg, Chairman & CEO
Vertex Investments (II) Ltd.
By: _________________________________
HWH Investment Pte Ltd.
By: _________________________________
Poly Ventures II, L.P.
By: _________________________________
<PAGE>
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT is made as of December 31, 1996, by and among WORLDCOMM
SYSTEMS INC, a Delaware corporation (hereinafter referred to as the
"Company"), and those persons listed on Exhibit A attached hereto.
RECITALS
Each of the Holders (as defined below) is the owner of shares of the
Company's Class B Preferred Stock, par value $.01 per share. The shares of such
Preferred Stock held by such Holders are referred to in this Agreement as the
"Shares."
1. Registration Rights.
(a) Definitions. For purposes of this Section 1:
(i) The term "Act" means the Securities Act of 1933, as amended, or
any other statute in effect from time to time corresponding to such act.
(ii) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement.
(iii) The term "Registrable Securities" means (i) the shares of Common
Stock issuable upon conversion of the Shares, (ii) any securities of the Company
issued as a dividend or other distribution with respect to, or in exchange or in
replacement of, Registrable Securities and (iii) shares of Common Stock the
holders of which are entitled to registration rights pursuant to other
agreements of like tenor with the Company. Registrable Securities, if
transferred pursuant to an exemption from registration under the Act, will
remain Registrable Securities.
(iv) The term "Holder" means (i) any stockholder holding Registrable
Securities originally acquired by such person, and (ii) any other person holding
Registrable Securities to whom these registration rights have been transferred.
(v) The term "Initial Public Offering" means the first underwritten
public offering of the Company's securities amounting to not less than
$3,000,000.
(b) Rights to Include Shares in Initial Public Offering. Subject to
Sections 1(f) and 1(g) if at any time or from time to time the Company
determines to register its Common Stock under the Act in connection with an
initial public offering of such securities, the Company shall, each such time,
promptly give each Holder written notice of such determination. Upon the written
request made on behalf of the Holder in accordance with this Section 1(b), and
given within twenty (20) days after mailing of any such notice by the Company,
the Company shall use its best efforts to cause to be included in such
registration statement all of the Registrable Securities owned by such Holder
with respect to which registration has been so requested. A request for
registration in accordance which this Section 1(b) may be made only by Andrew B.
Krieger, as agent and attorney-in-fact for the Holders, and may not be made by
any Holder independently. Each Holder constitutes and appoints Andrew B. Krieger
as his agent and attorney-in-fact for the purpose of making such request, with
full power and authority to determine, subject to the following provisions of
this Section 1(b), (i) whether to make such request, and (ii) if such request is
made, and the number of shares of Holders to be included in such registration.
In determining whether to make such request, and the number of shares with
respect to which registration is to be requested, Mr. Krieger shall consider,
among other things, any adverse impact which the inclusion of Holders' shares
would have on the Company's ability to obtain financing. If required by the
underwriter in connection with such offering, each Holder shall agree to a
"lock-up" of his shares for such period as the underwriter may require. Each
Holder constitutes and appoints Andrew B. Krieger as his agent and
attorney-in-fact to execute and deliver on his behalf a "lock-up" agreement with
such underwriter in such form and upon such terms as Mr. Krieger may, in his
sole discretion, determine. Each Holder further acknowledges that Mr. Krieger is
a Director of the Company, and in that capacity has certain fiduciary
obligations to the Company and its stockholders, and nothing contained herein is
intended to require Mr. Krieger to take any action which he believes to be
inconsistent with such obligations.
(c) Piggyback Registration. Subject to Sections 1(f) and 1(g), if at any
time or from time to time the Company proposes to register any of its equity
securities under the Act in connection with a primary or secondary public
offering of such securities solely for cash on a form that would also permit the
registration of the Registrable Securities, the Company shall, each such time,
promptly give each Holder written notice of such determination. Upon the written
request of any Holder given within twenty (20) days after mailing of any such
notice by the Company, the Company shall use its best efforts to cause to be
registered under the Act all of the Registrable
<PAGE>
Securities that each such Holder has requested be registered. Notwithstanding
the foregoing, the Company shall not be obligated to include shares to be
offered by Holders in a registration statement in accordance with this Section
1(c) on more than two occasions.
(d) Obligations of the Company. Whenever required under Section 1(b) or
1(c) to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and remain
effective; provided, however, that in connection with any proposed registration
intended to permit an offering of any securities from time to time (i.e., a
so-called "shelf registration"), the Company shall in no event be obligated to
cause any such registration to remain effective for more than ninety (90) days.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(iii) Furnish to the Holders and deliver as directed such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and further provided that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling Stockholders, then such
expenses shall be payable by selling Stockholders pro rata, to the extent
required by such jurisdiction.
(e) Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 1 that the
Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
(f) Registration Expenses. In the case of any registration effected
pursuant to Section 1(b) or 1(c), the Company shall bear all registration and
qualification fees and (excluding underwriters' discounts and commissions),
including any additional costs and disbursements of counsel for the Company that
result from the inclusion of securities held by the Holders in such
registration. Each selling Holder shall bear the fees and costs of its own
counsel in connection with any registration effected pursuant to such Sections
(g) Underwriting Requirements. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required to include any of the Holders' Registrable Securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it. If the total amount of
Registrable Securities that all Holders request to be included in an offering
pursuant to Section 1(c) above exceeds the amount of securities that the
underwriters reasonably believe compatible with the success of the offering, the
Company shall only be required to include in the offering such number of shares
as the underwriters believe are compatible with the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
according to the total amount of Common Stock held by the selling Holders as if
all options and warrants held by them had been exercised, or in such other
proportions as shall mutually be agreed to by such selling Holders). In the
event a pro rata apportionment is required for purposes of a registration
pursuant to Section 1(b), securities shall be included in the offering in the
following priority and the pro rata apportionment shall occur in the class after
the last class which can be included in the offering without apportionment: (1)
all securities being offered by the Company for its own account; (2) Registrable
Securities of Holders; and (3) Common Stock of executive officers of the
Company.
(h) Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
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(i) Indemnification and Contribution, Subject to Section 1(f) in the event
any Registrable Securities are included in a registration statement under
Section 1:
(i) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the Act) for it, and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934 (the "1934 Act") against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Act, the 1934 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based on any
untrue or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or arise out of any violation by the Company of any rule or
regulation promulgated under the Act or the 1934 Act applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration; and will reimburse each such Holder, such underwriter, or
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 1(i)(i) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld) nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter or
controlling person
(ii) To the extent permitted by law, each Holder requesting or joining
in a registration will severally indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning of
the Act or the 1934 Act, and each agent and any underwriter for the Company
(within the meaning of the Act or the 1934 Act) against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director, officer, controlling person, agent or underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, agent or underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
indemnity agreement contained in this Section 1(i)(ii) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder (which consent
shall not be unreasonably withheld).
(iii) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof and (unless the interest of the indemnifying party conflicts with that
of the indemnified party) the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party, to the extent that he is prejudiced thereby, of any
liability to the indemnified party under this Section, but the omission so to
notify the indemnifying party will not relieve him of any liability that he may
have to any indemnified party otherwise than under this Section
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(iv) In order to provide for just and equitable contribution to joint
liability under the Act in any case in which either (i) any Holder exercising
rights under this Agreement, or any controlling person of any such Holder, makes
a claim for indemnification pursuant to this Section 1(i) but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 1(i) provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 1(i); then, and in each such
case, the Company and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; provided, however. that, in
any such case, (A) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable Securities offered
by it pursuant to such registration statement; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 1(f) of
the Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
2. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to ninety (90) days
after the effective date of the first registration statement covering an
underwritten public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the 1934 Act, and
(c) furnish to any Holder so long as such Holder owns any of the
Registrable Securities forthwith upon request a written statement by the Company
that it has complied with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of said first registration
statement filed by the Company), and of the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC permitting the selling of any such
securities without registration.
3. Lockup Agreement. The Holders shall, in connection with any registration of
the Company's Common Stock for sale to the general public, upon the request of
the Company or the underwriters managing any underwritten offering of the
Company's securities, not sell, make short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred twenty (120) days) from the effective date of such
registration as the Company or the underwriters may specify; provided, however,
that the Company may not discriminate among the Holders with respect to any
lockup arrangements pursuant to this Section 3.
4. Transfer of Registration Rights. The registration rights of a Holder under
Sections 1(b) may be transferred to a transferee who acquires at least 20% of
the Registrable Securities originally issued to the Holder, or to a partner or
affiliated partnership of such Holder without restriction as to minimum transfer
amount. The Company shall be given written notice by the Holder at the time of
such transfer stating the name and address of the transferee and identifying the
securities with respect to which the rights under Section 1 are being assigned.
5. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be in writing and shall be deemed to have been properly given
when delivered by hand or mailed by registered or certified mail, return receipt
requested, with postage prepaid, to the party or parties to whom such notice is
intended to be given at the address of such party first above written or such
other address as such party may designate by notice given hereunder
6. Miscellaneous.
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(a) This Agreement shall be governed by the laws of the State of New York.
If any provision or provisions of this Agreement is found to be void or
unenforceable, the remaining provisions of this Agreement shall remain binding
and in full force and effect
(b) Wherever appropriate, the singular shall be deemed also to mean the
plural, and visa versa, and the male gender shall comprehend the female and
neuter. The captions in this Agreement are for convenience only, and shall not
affect the construction of the provisions hereof.
(c) This Agreement may be terminated, waived or modified only by a written
agreement executed by the party against which enforcement of such termination,
waiver or modification is sought. This Agreement merges all prior understandings
of the parties with respect to the subject matter hereof:
(d) This Agreement may be executed in several counterparts, each of which
shall constitute an original, but all counterparts shall constitute but one and
the same Agreement.
(e) This Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective heirs, executors, administrators, legal
representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: WORLDCOMM SYSTEMS INC.
_____________________________ By: _____________________________________
Thomas DiCicco David E. Hershberg, Chairman & CEO
_________________________________
Stockholder
By: _________________________________
(Print name and title if signing
on behalf of a corporation,
partnership, trust or other
legal entity)
Andrew B. Krieger joins in this Agreement solely to evidence his agreement
to the provisions of Section 1(b).
_________________________________
Andrew B. Krieger
<PAGE>
[Letterhead of Worldcomm Systems Inc.]
January 28, 1997
Mr. Andrew Krieger
Krieger Associates
45 Bayberry Road
Lawrence, NY 11559
Dear Mr. Krieger:
This will confirm to you that Worldcomm Systems Inc. (WSI) will register all the
shares of the preferred B shareholders from the private offering conducted by
Northeast Securities that closed on 12/31/96.
This registration will become effective within 54 weeks of any IPO of the
company. In the event that the rule 144 sale restriction expires prior to that
time, a registration will not be undertaken for any shares that can be sold
under that rule.
Thank you for your efforts in the company's behalf.
Very truly yours,
WORLDCOMM SYSTEMS INC.
/s/ David E. Hershberg
David E. Hershberg
Chief Executive Officer and Chairman
CC: J. Halperin 212-378-1299
S. Perrone 516-222-53[illegible]
Note: This letter is revised per comments from J. Halperin.
<PAGE>
Exhibit 10.4
Execution Copy
Worldcomm Systems Inc.
375 Oser Avenue
Hauppauge, NY 11788
November 9th, 1995
Gentlemen:
1. Purchase and Sale Commitment. Subject to the terms and conditions set
forth below and in applicable law, Thomson-CSF ("Thomson") agrees to purchase,
and Worldcomm Systems Inc. ("WSI") agrees to issue and sell to Thomson, 70,000
shares of common stock, par value $0.01 per share, of WSI ("Shares") for a total
purchase price of $933,100 ($13.33 per share) to be paid by wire transfer or
check at a closing (the "Closing") to occur at WSI's offices at the address set
forth above no later than November 20th, 1995.
2. General Rights and Obligations of Thomson. Thomson shall have all of the
rights, obligations and transfer restrictions (on a "most favored nation" basis)
of any other investor pursuant to WSI's private offering of Shares (the "Private
Placement"), including, without limitation, all rights and obligations of an
offeree and purchaser pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder. WSI acknowledges that Thomson
was contemplated as, and shall be deemed for all purposes to be, the "corporate
investor" referred to in Sections 1.03(c), 2.05(a) and 2.05(b) of the Group "A"
Shareholders' Agreement, dated March 28th, 1995, among WSI and certain
shareholders of WSI, a copy of which (certified by the Secretary of WSI as true
and correct) is attached hereto as Annex 1 (the "Shareholders' Agreement"), and
in Section 7.3(b) of the form Subscription Agreement to the Private Placement,
executed and delivered by each of the investors in the Private Placement, a copy
of which (certified by the Secretary of WSI as true and correct) is attached
hereto as Annex 2 (the "Subscription Agreement") and that, without prejudice to
WSI's right otherwise to seek further equity financing as approved by its Board
of Directors, there shall be no further "corporate investors" within the meaning
of such sections of the Shareholders' Agreement or such section of the
Subscription Agreement. Pursuant to Section 7.3(b) of the Subscription
Agreement, WSI hereby deems all of the investors in the Private Placement to
have approved and consented to this Agreement.
3. Condition to Closing. The obligation of Thomson to consummate the Closing
is subject to (a) the accuracy as of the closing of the representations and
warranties of WSI herein in all material respects, (b) the performance and
compliance as of the Closing by WSI in all material respects of its undertakings
and agreements herein and (c) the execution and delivery to Thomson, at or prior
to the Closing, by parties to the Shareholders' Agreement set forth in Annex 3
hereto (together with each such party's shareholdings) representing not less
than 59% of the outstanding share capital and voting rights of
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Execution Copy
WSI as of the Closing, of a consent in the form attached hereto as Annex 4.
4. Special Rights of Thomson. WSI hereby agrees that Thomson shall have the
rights provided in Paragraph 2 and certain additional rights set out below in
respect of WSI and each of the shareholders set forth in Annex 3 who executes
and delivers the consent referred to in Paragraph 3. WSI hereby agrees as
follows:
(a) Public Offering Preemptive Right. In the event WSI proposes to issue
securities through a public offering of securities for payment in cash, whether
by decision of the Board of Directors of WSI or a General Meeting of
Shareholders, WSI shall give Thomson prompt written notice of such proposal,
including information regarding (i) the number and class or series of the
securities proposed to be sold, and, if such securities will be of a new class,
the rights, preferences and restrictions applicable to such new class, (ii) the
price or price range at which WSI expects to offer such securities and (iii) the
proposed terms of payment and any other material terms and conditions of the
offering. WSI shall also give Thomson written notice of the public offering
price simultaneously with the final determination thereof. Thomson shall have a
preemptive right (with priority over any rights of any other shareholder) to
purchase up to 15% of the total number of securities offered in such public
offering (or such greater number of securities as the Board of Directors of WSI
may approve) at a price per security equal to the public offering price and on
the other terms and conditions of the public offering. In order to exercise its
preemptive right under this Paragraph 4(a), Thomson must notify WSI thereof in
writing not later than thirty (30) minutes after receipt by Thomson of written
notice of the final public offering price. Such notice shall state the number of
securities which Thomson desires to purchase and shall be deemed to be an
irrevocable commitment on the part of Thomson to purchase the number of
securities set forth therein for the public offering price and upon the other
terms and conditions of the public offering. Thomson agrees to consult,
regularly and on a timely basis, with WSI and the managing underwriter (if any)
of the public offering in connection with its exercise of its preemptive right
pursuant to this Paragraph 4(a).
(b) Private Offering Preemptive Right.
(i) In the event WSI proposes to issue securities through a private
offering of securities for payment in cash, whether by decision of
the Board of Directors of WSI or a General Meeting of Shareholders,
WSI shall give Thomson prompt written notice of such proposal (a
"Private Offering Notice"), including information regarding (A) the
number and class or series of the securities proposed to be sold
(the "Offered Securities"), and, if such securities will be of a new
class, the rights, preferences and restrictions applicable to
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<PAGE>
such new class, (B) if known, the identity of any proposed third
party acquiror or acquirors of the Offered Securities, (C) the price
per security at which WSI proposes to sell the Offered Securities
(the "Offer Price") and (D) the proposed terms of payment and any
other material terms and conditions of the proposed sale. Subject to
the provisions of Paragraph 4(b)(iv), Thomson shall have a
preemptive right with WSI to purchase its Pro Rata Part (as
hereinafter defined) of the Offered Securities at the Offer Price
and on the other terms and conditions set forth in the Private
Offering Notice. "Pro Rata Part" shall mean the proportion which the
number of voting securities of WSI owned by Thomson bears to the
number of voting securities of WSI owned by all shareholders
(including Thomson) immediately prior to the date subscriptions are
opened in such private offering. In order to exercise its preemptive
right under this Paragraph 4(b)(i), Thomson must notify WSI thereof
in writing not later than fifteen (15) days after receipt by Thomson
of the Private Offering Notice. Such notice shall state the number
of securities which Thomson desires to purchase and shall be deemed
to be an irrevocable commitment on the part of Thomson to purchase
the number of securities set forth therein for the Offering Price
upon the other terms and conditions set forth in the Private
Offering Notice.
(ii) To the extent the other shareholders have not elected, prior to the
fifth day preceding the date subscriptions are opened in such
private offering, to purchase, pursuant to their preemptive rights
(if any) existing as of the date hereof, all of the Offered
Securities as to which Thomson has not exercised its preemptive
right under Paragraph 4(b)(i) (the "Remaining Securities"), WSI
shall give Thomson written notice thereof (a "Notice of Remaining
Securities"), not later than the forth day preceding the date
subscriptions are opened in such private offering, including the
number of Remaining Securities. Thomson shall have an additional
preemptive right, subject to the provision of Paragraph 4(b)(iv), to
purchase all or any portion of the Remaining Securities at the Offer
Price and on the other terms and conditions set forth in the Private
Offering Notice. In order to exercise its right under this Paragraph
4(b)(ii), Thomson must notify WSI thereof in writing not later than
three days after receipt by Thomson of the Notice of Remaining
Securities. Such notice shall state the number of Remaining
Securities which Thomson desires to purchase and shall be deemed to
be an irrevocable commitment on the part of Thomson to purchase the
number of securities set forth therein for the Offer Price and upon
the other terms
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Execution Copy
and conditions set forth in the Private Offering Notice.
(iii) To the extent Thomson and the other shareholders do not elect to
purchase all of the Offered Securities pursuant to their respective
preemptive rights, WSI may sell the shares of Offered Securities as
to which such preemptive rights have not been exercised within a
period of six (6) months following the date the subscriptions are
opened in such private offering, at a price per security not less
than the Offer Price and on such other terms and conditions as are
no more favorable to the purchasers than those specified in the
Private Offering Notice. If any such sale of Offered Securities by
WSI is not completed within such six-month period, the provisions of
this Paragraph 4(b) shall again apply.
(iv) Thomson agrees not to exercise its preemptive rights under Paragraph
4(b)(i) and 4(b)(ii) in the case of any private offering of
securities by WSI exclusively to a single industrial entity as part
of a Strategic Business Alliance (as hereinafter defined) with such
entity. "Strategic Business Alliance" shall mean a strategic
business alliance with an industrial entity where (A) the Board of
Directors of WSI has been given a written report outlining in
reasonable detail the business objectives and commercial advantages
to be obtained by WSI and providing a business plan demonstrating
the commercial advantages to WSI in connection with such strategic
business alliance, (B) such strategic business alliance has been
approved by a majority vote of the Board of Directors of WSI after
full consideration of any strong and well reasoned objection thereto
by any director on the Board of Directors or any shareholder owning
at least 5% of the share capital of WSI and (C) the industrial
entity with which such strategic business alliance is proposed is
not a competitor of Thomson, as set out in Annex 5 hereto.
(c) Board Seat. Subject to Paragraph 7(a), the Board of Directors of WSI
shall at all times include as a director such person as Thomson may from time to
time notify to WSI, provided (i) for the period from the Closing to the date of
the next Annual Shareholders Meeting of WSI (September 1996), the Thomson
nominee shall be appointed to the Board of Directors of WSI by action of the
Board of Directors and (ii) thereafter at each Annual Shareholders Meeting, the
Board of Directors of WSI shall nominate the nominee designated by Thomson and
shall recommend the election of such nominee to the shareholders of WSI.
(d) Shares for Orders. Thomson shall receive Shares in consideration for
Orders in accordance with Paragraph 9(c) below.
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Execution Copy
(e) Survival of Rights. Thomson's rights under Paragraphs 4, 5 and 9(c) of
this Agreement shall not be affected by the termination of the Shareholders'
Agreement.
5. Assignment of Priority Right of First Refusal. Subject to Paragraph 7(a),
WSI hereby irrevocably assigns and transfers to Thomson, effective as of the
Closing, its priority right of first refusal under Sections 1.03(c) and
1.03(e)(i) of the Shareholders' Agreement. WSI represents and warrants that, as
a result of such assignment, Thomson shall have a right of first refusal (with
priority over the rights of first refusal of the other shareholders) to purchase
any Shares proposed to be transferred by any shareholder, at a price per Share
equal to the bona fide third party purchase price offered to such shareholder.
Thomson's rights under this Paragraph 5 shall not cover Shares which are
encumbered, sold or otherwise disposed of (a) to a shareholder of WSI by any
other shareholder of WSI with the prior written consent of the Board of
Directors of WSI pursuant to Section 1.03(a) of the Shareholders' Agreement, (b)
by an investor in the Private Placement who is not a party to the Shareholders'
Agreement, or (c) pursuant to Section 1.01(b) of the Shareholders' Agreement.
6. Representations and Warranties of WSI. WSI hereby represents, warrants and
covenants to Thomson as follows:
(a) the Shares to be purchased by Thomson pursuant to Paragraph 1 above
shall represent approximately 5.4%, but in no event less than 5%, of the
outstanding share capital and voting rights of WSI as of the Closing, and WSI
shall certify to Thomson, on or prior to the Closing, the exact percentage of
the outstanding share capital and voting rights of WSI represented by 70,000
Shares;
(b) to WSI's best knowledge as of the Closing, there are no restrictions
under applicable law on (i) the ability of Thomson to exercise its right to
nominate a director to the Board of Directors of WSI as contemplated under
Paragraph 4(c) above and (ii) the ability of Thomson's nominee to the Board of
Directors of WSI to participate fully as a director in the management of WSI;
and
(c) under WSI's Certificate of Incorporation and By-Laws and under
applicable law, there is no requirement for greater than a simple majority in
respect of any matter to be submitted to a vote of the shareholders or to a vote
of the Board of Directors of WSI.
7. Representations and Warranties of Thomson. Thomson hereby represents,
warrants and covenants to WSI, effective as of the Closing, as follows:
(a) Thomson's rights under Paragraphs 4, 5, and 9(c) of this Agreement
shall immediately terminate if (i) Thomson or any of its permitted transferees
sells or otherwise disposes of Shares and (ii) as a result of such sale(s) or
other disposition(s), Thomson and its permitted transferees shall
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Execution Copy
collectively own less than 5% of the outstanding share capital of WSI.
(b) Thomson has been provided with or permitted access to all information
regarding WSI which it deems material to formulating an investment decision and
such information (assuming its accuracy and completeness) has been sufficient to
make an informed investment decision.
8. Covenants of WSI. No later than three (3) days following the execution of
this Agreement by WSI, WSI shall furnish to Thomson complete copies of all of
the offering documents furnished or made available to other offerees in
connection with the Private Placement including, without limitation, the
offering memorandum and the Subscription Agreement (the "Offering Documents").
WSI shall use its good faith best efforts to fulfil or obtain the fulfilment of
the condition to Closing set forth in Paragraph 3 above.
9. Business Cooperation. The parties intend for this Agreement to result in
short- and long-term business cooperation between them. Thomson further intends
to offer business opportunities to WSI after the Closing. In order to facilitate
the achievement of the foregoing objectives, the parties agree, effective as of
the Closing, as follows:
(a) Thomson shall make a good faith effort to provide WSI with business
and marketing assistance in the field of satellite communications.
(b) WSI shall make good faith effort to support Thomson's activities and
endeavors in the field of satellite communications.
(c) In consideration for Orders awarded by Thomson to WSI during the
period commencing on the date of the Closing and ending on the date which is two
years and 183 days following the date of the Closing (the "Award Period"), WSI
shall issue to Thomson newly-issued Shares as follows:
(i) when the aggregate value of all Orders awarded by Thomson to WSI
during the Award Period equals or exceeds $1.5 million, WSI shall
issue to Thomson a number of Shares equal to 1% of the then
outstanding share capital of WSI, excluding employee and other
incentive stock options (collectively, "Employee ISOs"); and
(ii) for each of the first four subsequent increments of $3 million of
aggregate value of all Orders in excess of $1.5 million awarded by
Thomson to WSI during the Award Period, WSI shall issue to Thomson
an additional number of Shares equal to 1% of the then outstanding
share capital of WSI, excluding Employee ISOs.
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Execution Copy
For purposes of this Paragraph 9(c), the term "Order" means a confirmed, legally
binding order for goods or services that has been duly awarded by Thomson and
duly accepted in writing by WSI; provided, however, that, except for orders in
connection with the Triband Project, orders for goods or services procured
exclusively in connection with research and development projects shall not be
considered "Orders" for the purposes hereof. Any Shares issued to Thomson
pursuant to this Paragraph 9(c) shall be limited to a maximum of five "1%"
grants, where "1%" is determined as 1% of the outstanding share capital at the
time of the grant, excluding Employee ISOs. These "1%" grants are not
retroactive and therefore will not result in the readjustment of previously
granted "1%" share amounts. The parties acknowledge that previously granted "1%"
amounts may no longer represent exactly 1% of the outstanding share capital of
WSI at the time of additional 1% grants since the outstanding share capital of
WSI will change by virtue of these grants and other authorized changes.
(d) The obligations of good faith effort set forth in Paragraphs 9(a) and
9(b) above shall not give rise to a right to recover damages in favor of WSI,
Thomson or any other person.
10. Termination. This Agreement shall terminate on November 15, 1995 if it
has not been accepted and agreed to by WSI prior thereto and may be terminated
by Thomson, without any liability or other obligation of Thomson, by written
notice delivered by WSI at its address set forth at the head of this Agreement
at any time prior to the Closing, in the event Thomson is not satisfied with the
information regarding WSI contained in the Offering Documents or otherwise
disclosed to Thomson in the course of Thomson's due diligence as a private
investor in accordance with applicable law. In the event that, not later than
the day prior to the Closing, Thomson has not provided WSI with written
acknowledgement that (i) it has satisfied its due diligence investigation for
purposes of Paragraphs 9(a) and 9(b) above (without prejudice to the survival of
the representations and warranties of WSI hereunder pursuant to Paragraph 11)
and (ii) the conditions to the Closing set out in Paragraph 9(c) above has been
satisfied, this Agreement may be terminated by WSI at anytime thereafter prior
to or at the Closing, without any liability or other obligation headquarters
address in Paris.
11. Miscellaneous. All of the respective representations and warranties of
WSI and Thomson hereunder shall survive the Closing. This Agreement shall be
governed by, and construed in accordance with, the law of the State of New York
without reference to choice of law principles. This Agreement constitutes the
entire understanding of the parties hereto with respect to the subject matter
contained herein. Time shall be of the essence in this Agreement. All disputes
relating to money damages arising in connection with this Agreement shall be
finally resolved under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three
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Execution Copy
arbitrators appointed according to such Rules. Such arbitration shall take place
in New York, New York and shall be conducted in English. Any other disputes
shall be brought and finally resolved in any Federal or State court located
within the State of New York.
12. Assignment. Notwithstanding anything to the contrary contained in this
Agreement, Thomson shall have the right, upon ten (10) days' prior written
notice to WSI, whether before or after the Closing, (i) to assign or delegate
all or any portion of its rights and obligations under this Agreement, and (ii)
to assign, sell or otherwise transfer Shares, to any of its affiliates that are
owned, directly or indirectly, 100% by Thomson. Thomson's rights of assignment
pursuant to this Paragraph 12 shall be subject to the approval of the Board of
Directors of WSI pursuant to this Agreement and Section 1.03(a) of the
Shareholders' Agreement, which approval shall not be denied or delayed provided
WSI shall have received from Thomson and its assignee(s) the written agreement,
in form and substance reasonably acceptable to the Board of Directors of WSI, of
Thomson and such assignee(s) to the terms and conditions of this Agreement,
which written agreement shall provide for the rescission of the assignment in
the event Thomson sells, directly or indirectly, 20% or more of its equity
interest in such assignee(s).
Please confirm your agreement with the terms hereof by executing this
Agreement in the space indicated below.
Very truly yours,
THOMSON-CSF
By: /s/ Roger Chevel
----------------------------
Title: Senior Vice President
Accepted and Agreed to:
WORLDCOMM SYSTEMS, INC.
By: /s/ David E. Hershberg
--------------------------
Title: Chairman & CEO
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Exhibit 10.5
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is made the 12 day of February 1996 BY AND
BETWEEN:
Shiron Satellite Communications (1996) Ltd., located at 14 Kiryat Sefer,
Tel Aviv, Israel, a company registered in Israel, (the "Company") and
Worldcomm Systems, Inc., located at 375 Oser Avenue, Hauppauge, N.Y., a
company incorporated under the laws of the State of Delaware ("WSI").
WHEREAS the Company is in the business of developing, producing and
marketing modems for satellite communications; and
WHEREAS Shiron Advanced Communication Ltd. ("Shiron"), an affiliate of the
Company, has received a grant from the BIRD foundation to develop and
market a satellite modem (the "Modem") in accordance with the details
set forth in the grant application, and
WHEREAS the Company shall acquire from Shiron the full ownership in certain
know-how related to the developement of a satellite modem in exchange
for shares in the Company, and shall receive the rights granted to
Shiron pursuant to its portion in the BIRD Foundation grant
application; and
WHEREAS WSI wishes to invest in the Company, and the Company wishes to
accept such investment, in each case subject to the terms and
conditions set forth herein.
NOW THEREFORE IT IS ACCORDINGLY AGREED AS FOLLOWS:
1. SUBSCRIPTION
1.1 Subject to the terms and conditions of this Agreement, at the Closing
the Company shall issue and allot to WSI such number of Ordinary
Shares of the Company (the "Shares") which, upon issuance, shall
constitute 10% (ten percent) of the issued share capital of the
Company, free and clear of all liens, charges, claims, encumbrances,
security interest or third party rights.
1.2 Upon the Company completing a first laboratory prototype (the
"Prototype") of the Modem, WSI will subscribe for an additional 9%
(nine percent) of the issued Shares, free and clear of all liens,
charges, claims, encumbrances, security interest or third party
rights.
1.3 WSI will also have an option to subscribe for an additional 1% (one
percent) of the issued shares at any time during the 18 month period
following the second subscription under Section 1.2, free and clear of
all liens, charges, claims, Encumbrances, security interest or third
party rights.
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2
1.4 WSI will also have an option to subscribe for an additional 10% (ten
percent) of the issued Shares, free and clear of all liens, charges,
claims, encumbrances, security interest or third party rights, at the
same price per Share as paid for the first subscription, at any time
during the 18 months period following the first subscription under
Section 1.2 if WSI purchases and pays for at least $750,000 worth of
products from SatMod during the 18 months period, or at a Share price
to be negotiated during the 24 months period following the first
subscription under Section 1.2, if WSI purchases and pays for at least
$1,500,000 worth of products from SatMod during the 24 months period.
1.5 In the event that the Company decides to issue additional Shares in
the Company to other investors, the Company shall so inform WSI.
Shares issued to other investors, during the 12 months period
following the first subscription under Section 1.2, shall come from
Shiron's percentage. After the 12 months period following the first
subscription, Shares issued to other investors will dilute all
shareholders and WSI shall have the option to purchase that number of
additional Shares at the same price as the price to be paid by the
other investors, in order to maintain WSI's holdings in the Company at
20% (twenty percent). The foregoing notwithstanding, the Company shall
be entitled to issue Shares constituting up to 10% (ten percent) of
its Share capital to its employees. Shares issued to employees within
the first 18 months shall come from Shiron's percentage. After 18
months, Shares issued to employees will dilute all shareholdings.
However, WSI will have the option to purchase additional Shares to
maintain its percentage, within 3 months after such 18 month period.
The price per Share in this case will be the same as the price paid by
the last non-strategic investor.
1.6 WSI shall hold its Shares in the Company, and shall not sell or
transfer them, in whole or in part, for at least three (3) years from
the date of this Agreement.
2. THE SUBSCRIPTION PRICE
The subscription price to be paid by WSI for the Shares shall be equal to
the sum of (a) US $150,000 (one hundred and fifty thousand dollars) at
Closing, (b) US $135,000 (one hundred and thirty five thousand dollars)
upon presentation to WSI of the Prototype and (c) US15,000 (fifteen
thousand dollars) upon exercise of the option to subscribe for 1% of the
shares.
3. DIRECTORS
Immediately upon payment of that portion of the subscription price, as set
forth in Section 2(a) above, WSI shall be entitled to appoint one (I)
director to the board of directors of the Company and Shiron shall be
entitled to appoint four (4) directors to the board of directors of the
Company. If WSI chooses not to appoint a director at such time, it shall be
entitled to have a representative attend board meetings as an observer
until such time as it chooses to appoint a director. In the event that WSI
fails to meet any of its additional investment obligations thereafter,
pursuant to Section 2(b) above or to the Articles of Association, then WSI
shall lose the right to appoint a director or an observer.
4. MANAGEMENT
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3
4.1 The executive officers of the Company shall be responsible for
carrying out the day-to-day management of the Company and shall hire
those additional employees, on a full or part time schedule, as they
deem necessary and in the best interests of the Company.
4.2 The executive officers of the Company shall personally commit to
continuing their active participation in the Company for at least
three (3) years from the date of this Agreement. The company will
adopt a noncompete agreement with the executive officers.
4.3 Mr. Shaul Laufer shall serve as Chairman of the Board and President of
the Company.
4.4 WSI acknowledges that the Company will likely need to raise additional
capital in the future, and agrees to assist the Company in its efforts
to raise such capital, subject to its rights under Section 1.4. WSI
agrees to support any increase in the authorized share capital of the
Company in connection with any such additional investment in the
Company.
4.5 The capital and operating costs incurred, which are shared between the
Company and Shiron shall be allocated on a pro rata basis.
4.6 The Company shall at all times comply with the laws of the State of
Israel and applicable international laws.
5. CLOSING
The closing of the transactions described herein (the "Closing") shall take
place at the offices of _________________________, on ____ December, 1995,
or on such other date as shall be agreed among the parties hereto.
At Closing:
5.1 The Company shall deliver to WSI a certified copy of a resolution of
the Board of Directors of the Company authorizing the execution of
this Agreement and the issue of the Shares to WSI.
5.2 The Company shall deliver to WSI the opinion of Z. Laufer, counsel to
the Company, in the form attached hereto as Exhibit "A".
5.3 The Company shall deliver to WSI all permits, approvals, waivers and
consents necessary for the execution delivery and performance of this
Agreement in accordance with the terms hereof.
5.4 The Company will issue the Shares to WSI and deliver a share
certificate in respect to the Shares to WSI.
5.5 WSI shall pay to the Company the subscription price set forth in
accordance with Section 2. The subscription price shall be paid
through an account set up with an authorized dealer bank.
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4
All transactions occurring at the Closing shall be deemed to take place
simultaneously, and no transaction shall be deemed to have been completed
and no document shall be deemed to have been delivered, until all
transactions are completed and all documents delivered.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and undertakes to WSI that, as of the
date hereof and as of Closing:
6.1 The Company is a limited company duly organized and validly existing
under the laws of the State of Israel. The Company has all requisite
corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted and as proposed to be
conducted.
6.2 The Company has all requisite corporate power to execute and deliver
this Agreement to issue the Shares hereunder and to carry out and
perform its obligations under this Agreement.
6.3 The authorized capital of the Company is NIS 28,000 (twenty eight
thousand) divided into 28,000 (twenty eight thousand) Ordinary Shares
of NIS 1 per share. The Company has issued 9000 (nine thousand)
Ordinary Shares to Shiron Advanced Communications, Ltd. ("Shiron"),
one (1) Ordinary Share to Mr. Shaul Laufer and one (1) Ordinary Share
to Mr. Arie Reichman. Except as set forth in this Section 6.3, there
are no other shares of capital stock of the Company issued or
outstanding, nor has the Company obligated itself to issue any shares
of capital stock in the future. There are no options, warrants or
convertible securities of the Company outstanding, nor has the Company
entered into any contractual commitment to issue any such options,
warrants or convertible securities.
6.4 All corporate action on the part of the Company, its directors, and
its shareholders necessary for the authorization, execution, delivery,
and performance of this Agreement by the Company, the authorization,
sale, issuance, and delivery of the Shares and the performance of all
of the executed and delivered by the Company, will constitute a valid
and legally binding obligation of the Company, enforceable in
accordance with its terms. The Shares, when issued in accordance with
this Agreement, will be duly authorized, validly issued, fully paid
and nonassessable, and will have the rights, preferences, privileges,
and restrictions as set forth in the Articles of Association of the
Company and this Agreement.
6.5 The Memorandum and Articles of Association of the Company, attached
hereto as Exhibit "B", are complete and accurate.
6.6 The Company has no debts to banks or other creditors of any kind,
absolute, accrued, or contingent.
6.7 The Company is under no obligation to pay any money or to grant any
benefit whatsoever to any of its affiliates and there exist no
agreements or arrangements between the Company and any related
parties.
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5
6.8 There exist no charges, collaterals or other security interests
against the Company or its assets.
6.9 All the orders and undertakings of the Company have been issued or
undertaken under arms length conditions.
6.10 There are no assets owned by or under lease to or under possession of
the Company, no claims have been made under any such lease, and no
demands or claims have been asserted under any guarantees provided in
connection therewith.
6.11 There are no claims or lawsuits or other proceedings pending against
the Company or by the Company against others, and there are no threats
or notices regarding legal proceedings against the Company.
6.12 The Company shall execute a separate agreement with Shiron whereby the
Company shall acquire from Shiron the full ownership in certain
know-how related to the development of a satellite modem, in exchange
for Shares in the Company, and shall receive the rights granted to
Shiron pursuant to its portion in the BIRD Foundation grant
application, Shiron shall agree that it will not sell satellite modems
that compete with the Modem except through the Company. The Company
will not be required to make any payments for licenses of intellectual
property rights which are owned by Shiron and granted by Shiron to the
Company for the purpose of developing the Modem. Such intellectual
property rights granted by Shiron to the Company, shall be free and
clear of all liens, charges, claims and restrictions, and without any
conflict with or infringement of rights of others. There are not
outstanding any options, licenses or agreements of any kind relating
to the foregoing except for certain limited mutual rights given to
members of the Consortium For Digital Communications supported by the
Chief Scientist's Office, and the Company is not a party to or bound
by any options, licenses or agreements with respect to the
intellectual property rights of any other person or entity other than
the Consortium Agreement. The Company has not received any
communications alleging that the Company has violated, or by
conducting its business as proposed would violate any of the patents
trademarks, service marks, trade names, copyrights, licenses or other
intellectual property rights of any other person or entity.
6.13 The Company is not in violation of any term of its Articles of
Association, or in any material respect of any term or provision of
any mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree, and is not in violation of any order,
statute, rule or regulation applicable to the Company. The execution,
delivery and performance of and compliance with this Agreement and the
issuance of the Shares, have not resulted and will not result in any
violation of, or conflict with or constitute a default under any such
term or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the
Company.
6.14 Other than the consent of the BIRD Foundation, no consent, approval or
authorization of or designation, declaration or filing with any
governmental authority on the part of the Company is required in
connection with the valid
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6
signing of this Agreement, or the offer, sale, or issuance of the
Shares, or the consummation of any other transaction contemplated
hereby.
6.15 Since its incorporation, there has been no declaration or payment by
the Company of dividends, or any distribution by the Company of any
assets of any kind to any of its shareholders in redemption of or as
the purchase price for any of the Company's securities.
6.16 Neither this Agreement, nor any document, certificate or schedule
furnished or to be furnished by or on behalf of the Company to WSI
contains any untrue statement of a material fact or omits or shall
omit to state a material fact necessary to make the statements
contained herein not misleading in light of the circumstances under
which they were made.
7. REPRESENTATIONS AND WARRANTIES OF WSI
WSI hereby represents and warrants to the Company that:
7.1 It is duly organized and validly existing under the laws of the State
of Delaware.
7.2 It has full corporate power and authority to execute this Agreement.
7.3 This Agreement is valid, binding and enforceable against it in
accordance with its terms.
7.4 The execution, delivery and performance of this Agreement will not
result in the breach or violation by it of any law or regulation
applicable to it or any contract or commitment by which it is bound.
8. COVENANTS PRIOR TO CLOSING
Except with the prior written consent of WSI, the Company agrees, prior to
Closing, not to:
8.1 Create, extend, grant or issue or agree to create, extend, grant or
issue any mortgages, charges, debentures or other securities.
8.2 Issue, or agree to issue any shares of the Company or give or agree to
give any option in respect of any share capital.
8.3 Enter into any contract or capital commitment.
8.4 Do or acquiesce in anything whereby its financial position shall be
rendered less favorable than at the date hereof.
8.5 Pass any resolution by its members in a general meeting or make any
alteration to the provisions of its Memorandum or Articles of
Association.
8.6 In any way depart from the ordinary course of its day to day business
either as regard to the nature, scope, or manner of conducting the
same.
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7
8.7 Dispose of any part of its assets or permit any liens to arise on any
of its assets.
8.8 Enter into any agreement or commitment.
8.9 Change any employment benefits currently received by any of the
employees of the Company.
9. COVENANTS OF NONDISCLOSURE AND NONCOMPETE
The Company shall execute a separate standard nondisclosure agreement with
WSI.
10. PUBLIC OFFERINGS
In the event that the Company anticipates a public offering of its Shares,
WSI agrees to enter into a voting agreement with the other shareholders of
the Company pursuant to which all such shareholders will agree to
coordinate their votes on all matters put before the shareholders of the
Company in accordance with the wishes of the majority of shareholders who
are party to such voting agreement.
11. SOURCE CODE AND DOCUMENTATION
The Company will established an escrow arrangement with an agreed upon
escrow company for the Modem's source code, designs, engineering drawings
and maskworks (collectively the "Intellectual Property"), whereby the
Intellectual Property for the Modem will be placed in escrow and may be
obtained by registered beneficiaries upon the occurrence of any of the
following release conditions: (a) the discontinuance of the Company's
business or b) Chapter 7 bankruptcy or liquidation of the Company's assets
under similar statutes in other jurisdictions. WSI will be entitled to
become a beneficiary under such escrow arrangement provided that WSI pays
the required annual fees to the escrow company to register and remain a
beneficiary thereunder. Any beneficiary of the source code or documentation
shall be required to pay royalties to the Company or to the Company's
shareholders, for any revenues produced as a result of their use of the
source code or documentation in accordance with this Section 11.
12. REPORTS AND ACCOUNTING
12.1 The Company shall send WSI quarterly technical progress reports
reviewing its progress with the development of the Modem and any
relevant changes or advances. WSI shall be entitled to give its input
to the product development plans.
12.2 Quarterly financial reports will be provided to WSI within 60 days
unaudited. Annual financial reports will be provided to WSI within 90
days audited.
12.3 WSI may inspect the Company's records and notebooks at any time during
regular business hours, upon reasonable prior, written notice.
13. CONDITIONS TO CLOSING
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8
13.1 The obligations of WSI hereunder are subject to the satisfaction as of
the Closing Date of the following conditions:
13.1.1 The representations and warranties of the Company hereunder
shall be true and correct as of the date of this Agreement and
as of the Closing Date.
13.1.2 The Company shall not be in default under and shall not have
breached this Agreement.
13.1.3 All documents required to be delivered by the Company at the
closing pursuant to Section 5 shall have been delivered and
shall be satisfactory to WSI in form and substance.
13.2 The obligations of the Company hereunder are subject to the Company's
satisfaction that the representations and warranties of WSI hereunder
shall be true and correct as of the date of this Agreement and as of
the Closing Date.
14. NOTICES
Any notice, declaration or other communication required or authorized to be
given by any party under this Agreement to any other party shall be in
writing and shall be personally delivered, sent by facsimile transmission
(with a copy by ordinary mail in either case) or dispatched by courier
addressed to the other party at the address stated below or such other
address as shall be specified by the parties hereto by notice in accordance
with the provisions of this Section. Any notice shall operate and be deemed
to have been served, if personally delivered or sent by fax, on the next
following business day and if courier, on the third following business day.
Addresses for the purposes of this section are as follows:
The Company: Shiron Satellite Communications, Ltd.
14 Kiryat Sefer
Tel Aviv, Israel
WSI: Worldcomm Systems, Inc.
375 Oser Avenue
Hauppauge, N.Y. 11788
USA
15. SEVERABILITY
If any provision of this Agreement is held to be unenforceable under
applicable law, then such provision shall be excluded from this Agreement
and the balance of this Agreement shall be interpreted as if such provision
were so excluded and shall be enforceable in accordance with its terms. The
court in its discretion may substitute for excluded provision an
enforceable provision which in economic substance reasonably approximates
the excluded provision.
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9
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of Israel.
17. ARBITRATION
17.1 Any dispute between the parties in connection with this Agreement or
the terms thereof shall be referred to an arbitrator agreed between
the parties and, if the parties cannot agree upon an arbitrator within
14 days of notification of a claim by any party to this Agreement to
the other parties hereto, then the arbitrator shall be chosen by the
President for the time being of the Israel Bar Association at the
request of any party hereto. The arbitrator appointed hereunder shall
be an attorney admitted to practice in the State of Israel.
17.2 Any hearing of the dispute shall take place in Israel and shall be in
the English language.
17.3 The decision of the arbitrator shall be final and binding upon the
parties thereto and judgment upon the award rendered may be entered in
any court having jurisdiction.
17.4 The arbitrator shall not be bound by the rules of procedure of any
jurisdiction.
17.5 The arbitrator shall provide a reasoned decision.
17.6 All the costs of the arbitration shall be borne by the losing party,
together with reasonable legal expenses of the other party.
17.7 The provisions of this Section 12 shall be a binding arbitration
agreement in accordance with the Arbitration Law, 5728-1968.
18. MISCELLANEOUS
18.1 All costs in respect of this transaction, including the stamping of
this Agreement or any other document required to give effect hereto,
shall be borne by the Company.
18.2 This Agreement may be executed in two counterparts each of which shall
be deemed an original but all of which constitute one and the same
instrument. This Agreement constitutes the entire agreement between
the parties with regard to the subject matter hereof and supersedes
any previous agreement among the parties with respect to such subject
matter.
18.3 The parties hereto agree to execute documents and perform such further
acts as may be necessary to bring this Agreement into full force and
effect.
18.4 The headings of paragraphs herein are for convenient reference only
and shall in no way affect the meaning of this Agreement. Section
references herein are to the paragraphs of this Agreement unless
explicitly stated otherwise.
18.5 Save as expressly provided herein, this Agreement may be amended or
terminated, and any of the terms hereof waived, only by a document in
writing
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10
specifically referring to this Agreement and executed by the parties
hereto or, in the case of a waiver, by the party waiving compliance.
The failure or delay of either party hereto at any time or times to
require performance of any provisions hereof shall in no manner affect
this right at a later time. No waiver by any party hereto of a breach
of any term contained in this Agreement, in any one or more instance,
shall be deemed or construed as a further or continuing waiver of any
such breach or a waiver of a breach of any other form.
AS WITNESS the signatures of the parties hereto the day and year first
before written.
[stamp] /s/ David E. Hershberg
- ------------------------------- ---------------------------------
Shiron Satellite Communications Worldcomm Systems, Inc.
(1996) Ltd.
In order to induce WSI to enter into the foregoing agreement, Shiron Advanced
Communications Ltd. joins in the representations set forth in Section 6.12 of
the Agreement and confirms to and for the benefit of WSI its agreement to the
matters set forth therein as to which it is to agree with the Company.
Shiron Advanced Communications Ltd. hereby confirms that it will not sell
satellite modems that compete with the Modem except through the Company.
/s/ [stamp]
-----------------------------------
Shiron Advanced Communications Ltd.
<PAGE>
Exhibit 10.6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of August 30, 1996 by and between C-Grams Unlimited Inc., a New Hampshire
corporation, with offices at 68 State Route 125, Kingston, New Hampshire 03848
(the "Company") and Worldcomm Systems Inc., a Delaware corporation, with offices
at 375 Oser Avenue, Hauppauge, New York 11788 ("Investor").
WITNESSETH:
WHEREAS, the authorized capital stock of the Company consists of Four
Million (4,000,000) shares of common stock, no par value per share (the "Common
Stock");
WHEREAS, there are Two Million Ten Thousand (2,010,000) shares of Common
Stock issued and outstanding as of the date hereof prior to giving effect to the
transactions contemplated hereby; and
WHEREAS, the Company desires to issue and sell to Investor One Hundred
Thirty-Two Thousand One Hundred Five (132,105) shares of the authorized but
unissued Common Stock of the Company, which share constitute exactly Five
Percent (5.0%) of the outstanding shares of the Company on an after acquired
basis (after giving effect to the issuance of all shares reserved for issuance
pursuant to the Equity Incentive Plan of the Company), and Investor desires to
purchase said shares upon the terms and conditions set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
1.1 Authorization. As of the Closing (as defined below) the Company
will have authorized the issuance of, pursuant to the terms and conditions of
this Agreement, One Hundred Thirty-Two Thousand One Hundred Five (132,105)
shares of the Company's Common Stock, no par value per share, having the rights,
preferences, privileges and restrictions set forth in the Articles of
Incorporation of the Company attached to this Agreement as Exhibit A (the
"Articles of Incorporation").
1.2 Agreement to Purchase and Sell. The Company agrees to sell to the
Investor at the Closing, and the Investor agrees to purchase from the Company at
the Closing, One Hundred Thirty-Two Thousand One Hundred Five (132,105) shares
of Common Stock, at a price of Three and 03/100 Dollars ($3.03) per share for an
aggregate purchase price of Four Hundred Thousand Two Hundred Seventy-Eight and
15/100 Dollars ($400,278.15). The shares of Common Stock purchased and sold
pursuant to this Agreement will be collectively hereinafter referred to as the
"Purchased Shares".
2. CLOSING.
2.1 The Closing. The purchase and sale of the Purchased Shares will
take place at the offices of Hale and Dorr at 10:00 a.m. on August 30, 1996 or
such other time, place and date as the Company and Investor mutually agree upon,
such date to be no later than thirty
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(30) days after the date of this Agreement (which time, place and date are
referred to in this Agreement as the "Closing"). At the Closing and thereafter
as provided below, the Company will deliver to the Investor certificates
representing the number of Purchased Shares and the Investor will deliver to the
Company the Purchase Price therefore, paid by wire transfer of funds to the
Company, pursuant to the following schedule. The Company and Investor will also
deliver to each other a copy of their respective Board of Director resolutions
authorizing this Agreement and the transactions contemplated hereby in the form
annexed hereto as Exhibit B.
Payment Amount Date Shares
-------------- ----
$150,000.00 August 30, 1996 48,879
$100,000.00 September 13, 1996 33,026
$100,000.00 September 27, 1996 33,026
$ 50,278.15 October 11, 1996 17,174
----------- ---------------- -------
$400,278.15 TOTALS 132,105
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that, except as set forth in the
Schedule of Exceptions ("Schedule of Exceptions") attached to this Agreement as
Exhibit C (which Schedule of Exceptions shall be deemed to be representations
and warranties to the Investor by the Company under this Section 3), the
statements in the following paragraphs of this Section 3 are all true, complete
and correct:
3.1 Organization. Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Hampshire and has all requisite corporate power and
authority to own its properties and assets and to carry on its business as now
conducted and as presently proposed to be conducted. The Company is qualified to
do business as a foreign corporation in each jurisdiction where failure to be so
qualified would have a material adverse effect on its financial condition,
business, prospects or operations.
3.2 Capitalization. Immediately prior to the Closing the
capitalization of the Company will consist of the following:
(a) Outstanding Capital Stock and Ownership Thereof. Prior to the
Closing of the transactions contemplated hereby, a total of 4,000,000 shares of
Common Stock are authorized, of which 2,010,000 shares are issued and
outstanding and 500,000 shares are reserved for issuance pursuant to the Equity
Incentive Plan of the Company (of such 500,000 shares, options for 248,000
shares are currently outstanding). There are no other classes of stock
authorized or issued. The Purchased Shares will constitute exactly Five Percent
(5.0%) of the outstanding shares of the Company on an after acquired basis
(after giving effect to the issuance of all shares reserved for issuance
pursuant to the Equity Incentive Plan of the Company).
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(b) Options, Warrants Reserved Shares. Except for options to
purchase 248,000 shares of Common Stock, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock
or any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. No shares of the Company's
outstanding capital stock, or stock issuable upon exercise or exchange of any
outstanding options, warrants or rights, or other stock issuable by the Company,
are subject to any rights of first refusal or other rights to purchase such
stock (whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company.
3.3 Due Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution, delivery, and the performance of all obligations of
the Company under this Agreement, and the authorization, issuance, reservation
for issuance and delivery of all of the Purchased Shares being sold under this
Agreement have been taken or will be taken prior to the Closing, and this
Agreement constitutes a valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization or others laws of general
application relating to or affecting the enforcement of creditors' rights
generally and (ii) the effect of rules of law governing the availability of
equitable remedies.
3.4 Valid Issuance of Stock. The Purchased Shares, when issued, sold
and delivered in accordance with the terms of this Agreement for the
consideration provided for herein, will be duly and validly issued, fully paid
and nonassessable.
3.5 Governmental Consents. No consent approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
U.S. federal, state or local governmental authority on the part of the Company
is required in connection with the consummation of the transactions contemplated
by this Agreement.
3.6 Litigation. There is no material action. suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, its activities,
properties or assets or, to the best of the Company's knowledge, against any
officer, director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company. To the best of the Company's knowledge, there is no factual or legal
basis for any such Action that might result, individually or in the aggregate,
in any material adverse change in the business, properties, assets, financial
condition, affairs or prospects of the Company. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality and there is no Action by the
Company currently pending or which the Company intends to initiate.
3.7 Status of Intellectual Property. Attached hereto as Exhibit D is a
true and correct schedule which describes all of the patents, patent
applications, registered trademarks, trademark applications, copyright
registrations and applications therefor and all licenses, franchises, permits,
authorizations, agreements and arrangements that concern any of the foregoing or
that concern like items owned by others and used by the Company. Except as
indicated on such Exhibit:
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(a) The patents and patent applications (collectively, "Patent
Rights") shown on Exhibit D are owned by the Company free and clear of all
mortgages, liens, charges or encumbrances whatsoever. No licenses have been
granted with respect to such Patent Rights (except for product licenses to
customers) and the Company has not received notice of any claim, nor is the
Company aware of any basis for such a claim, by a third party suggesting that
its practice of the inventions covered by such Patents Rights would infringe
upon the patent rights of any third party.
(b) The copyright registrations and pending applications shown on
Exhibit D are owned by the Company free and clear of all mortgages, liens,
charges or encumbrances whatsoever. Except for licenses granted to end users in
accordance with the Company's standard terms, no licenses have been granted with
respect to any of the Company's copyrighted material and the Company has not
received notice of any claim, nor is the Company aware of any basis for such a
claim, by a third party suggesting that any of its activities in the conduct of
its business as presently conducted infringe upon the copyrights of any third
party.
(c) The trademark registrations and pending applications shown on
Exhibit D are owned by the Company free and clear of all mortgages, liens,
charges or encumbrances whatsoever. No licenses have been granted with respect
to any of such trademarks or applications and the Company has not received
notice of any claim, nor is the Company aware of any basis for such a claim, by
a third party suggesting that any of its activities in the conduct of its
business as presently conducted infringe upon the trademarks, trade names or
trade dress of any third party.
(d) All technical information and know-how in possession of the
Company relating to the design or manufacture of products sold and services
performed by it, including without limitation methods of manufacture, lab
journals, manufacturing, engineering and other drawings, design and engineering
specifications and similar items recording or evidencing such information is
owned by the Company free and clear of all mortgages, liens, charges or
encumbrances whatsoever. The Company has no obligation to pay any royalty to any
third party with respect to such information. The Company has not granted any
license or other permission with respect to the use of such information and has
not received notice of any claim, nor is the Company aware of any basis for such
a claim, by a third party suggesting that the Company's use of such information
would infringe upon or misappropriate the rights of any third party.
3.8 Compliance with Law and Charter Documents. The Company is not in
violation or default of any provision of its Articles of Incorporation or
By-laws, both as amended, and to the best of the Company's knowledge, except for
any violations that individually and in the aggregate would have no material
adverse impact on the Company's business, properties, financial condition,
results of operations, affairs or prospects, the Company is in compliance with
all applicable statutes, laws (including tax laws), regulations and executive
orders of the United States of America and all states, foreign countries or
other governmental bodies and agencies having jurisdiction over the Company's
business or properties. The Company has not received any notice of any violation
of such statutes, laws, regulations or orders which has not been remedied prior
to the date hereof. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby
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or thereby will not result in any such violation or default, or be in conflict
with or constitute, with or without the passage of time or the giving of notice
or both, either a default under the Company's Articles of Incorporation or
By-laws, or any agreement or contract of the Company, or, to the best of the
Company's knowledge, a violation of any statutes, laws, regulations or orders,
or an event which results in the creation of any material lien, charge or
encumbrance upon any asset of the Company.
3.9 Material Agreements. The Company has not breached, nor does the
Company have any knowledge of any claim or threat that the Company has breached,
any term or condition of any agreement that, individually or in the aggregate,
would have a material adverse effect on the business, properties, financial
condition, results of operations, affairs or prospects of the Company. Annexed
hereto as Exhibit E is a list of all material agreements to which the Company is
a party.
3.10 Registration Rights. Except as provided for herein, the Company
has not granted or agreed to grant to any person or entity any rights (including
piggyback registration rights) to have any securities of the Company registered
with the United States Securities and Exchange Commission ("SEC") or any other
governmental authority.
3.11 Articles: By-laws. The Articles of Incorporation and the By-laws
of the Company are currently in the form provided to the Investor.
3.12 Title to Property and Assets. The Company owns its properties and
assets free and clear of all mortgages, deeds of trust, liens, encumbrances,
security interests and claims except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and security
interests which arise in the ordinary course of business and which do not affect
material properties and assets of the Company. With respect to the property and
assets it leases, the Company is in compliance with such leases and, to the best
of the Company's knowledge, the Company holds valid leasehold interests in such
assets free of any liens, encumbrances, security interests or claims of any
party other than the lessors of such property and assets.
3.13 Financial Statements. Attached to this Agreement as Exhibit F is
an unaudited balance sheet of the Company as of May 31, 1995 and 1996 and
unaudited statements of operations and cash flows for the years ended May 31,
1994, 1995 and 1996 (all such financial statements being collectively referred
to herein as the "Financial Statements"). Financial statements for period ending
May 31, 1996 will be provided to Investor upon receipt from Ernst and Young.
Investor acknowledges that statements may be provided subsequent to the August
30, 1996 Closing. Such Financial Statements (i) are in accordance with the books
and records of the Company, (ii) present fairly in all material respects the
financial condition of the Company at the date or dates therein indicated and
the results of operations for the period or periods therein specified, and (iii)
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except that the unaudited Financial Statements do
not include footnotes and are subject to year-end audit adjustments). The
Company has good and marketable title to all assets set forth on the balance
sheet of the Financial Statements, except for such assets as have been spent,
sold or transferred in the ordinary course of business since their respective
dates.
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<PAGE>
3.14 Disclosure. This Agreement and the Exhibits hereto (when read
together) do not contain any untrue statement of a material fact and do not omit
to state a material fact necessary to make the statements therein or herein not
misleading.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS. The
Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. This Agreement constitutes Investor's valid and
legally binding obligation, enforceable in accordance with its terms except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (ii) the effect of rules of law governing the
availability of equitable remedies. Investor represents that Investor has full
corporate power and authority to enter into this Agreement.
4.2 Due Authorization. All corporate action on the part of the
Investor, its officers, directors and shareholders necessary for the
authorization, execution, delivery, and the performance of their obligations
under, this Agreement have been taken or will be taken prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the
Investor enforceable in accordance with its terms, except as may be limited by
(i) applicable bankruptcy, insolvency, reorganization or others laws of general
application relating to or affecting the enforcement of creditors' rights
generally, and (ii) the effect of rules of law governing the availability of
equitable remedies.
4.3 Purchase for Own Account. The Purchased Shares to be purchased by
the Investor hereunder will be acquired for investment for the Investor's own
account, not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Act"), and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. Investor also
represents that Investor has not been formed for the specific purpose of
acquiring Purchased Shares.
4.4 Disclosure of Information. Investor has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Purchased Shares to be
purchased by Investor under this Agreement. Investor further has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the purchase and sale of the Purchased Shares and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to Investor or to which Investor
had access. The foregoing, however, does not in any way limit or modify the
representations and warranties made by the Company in Section 3.
4.5 Investment Experience. Investor understands that the purchase of
the Purchased Shares involves substantial risk. Investor: (i) has experience as
an investor in securities of companies in the development stage and acknowledges
that Investor is able to fend for itself, can bear the economic risk of
Investor's investment in the Purchased Shares and has such knowledge and
experience in financial or business matters that Investor is capable of
evaluating the merits and risks of this investment in the Purchased Shares and
protecting its own
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interests in connection with this investment and/or (ii) has a preexisting
personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables Investor
to be aware of the character, business acumen and financial circumstances of
such persons.
4.6 Accredited Investor Status. Unless otherwise expressly indicated
on this Agreement, Investor is an "accredited investor" within the meaning of
Regulation D promulgated under the Act.
4.7 Restricted Securities. Investor understands that the Purchased
Shares are characterized as "restricted securities" under the Act inasmuch as
they are being acquired from the Company in a transaction not involving a public
offering and that, under the Act and applicable regulations thereunder, such
securities may be resold without registration under the Act only in certain
limited circumstances. In this connection, Investor represents that Investor is
familiar with Rule 144 of the SEC, as presently in effect, and understands the
resale limitations imposed thereby and by the Act. Investor understands that the
Company is under no obligation to register any of the securities sold hereunder
except as provided herein. Investor understands that no public market now exists
for any of the Purchased Shares and that it is uncertain whether a public market
will ever exist for the Purchased Shares.
4.8 Legends. It is understood that the certificates evidencing the
Purchased Shares will bear the legends set forth below and any others as may be
required by law:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed by the Company from any certificate
evidencing Purchased Shares upon delivery to the Company of an opinion by
counsel, reasonably satisfactory to the Company, that a registration statement
under the Act is at that time in effect with respect to the legended security or
that such security can be freely transferred in a public sale without such a
registration statement being in effect and that such transfer will not
jeopardize the exemption or exemptions from registration pursuant to which the
Company issued the Purchased Shares.
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5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of the
Investor under Section 1 and Section 2 of this Agreement are subject to the
fulfillment or waiver, on or before the Closing, of each of the following
conditions precedent or concurrent, the waiver of which shall not be effective
against Investor, unless given by written communication to the Company:
5.1 Representations and Warranties True. Each of the representations
and warranties of the Company contained in Section 3 shall be true, complete and
correct in all material respects on and as of the Closing with the same effect
as though such representations and warranties had been made on and as of the
date of the Closing.
5.2 Approval of Agreement. This Agreement shall have been duly adopted
by the Company by all necessary corporate action of its Board of Directors and
shareholders.
5.3 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investor and to the Investor's legal counsel, and they shall have received all
such counterpart originals and certified or other copies of such documents as
they may reasonably request including but not limited to documents demonstrating
the payment of past due taxes.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
or waiver on or before the Closing of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties
of Investor contained in Section 4 shall be true and correct in all material
respects on the date of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investor shall have delivered to
the Company the purchase price specified in accordance with the provisions of
Section 2.
6.3 Securities Exemptions. The offer and sale of the Purchased Shares
to the Investor pursuant to this Agreement shall be exempt from the registration
requirements of the Act and the registration and/or qualification requirements
of all applicable state securities laws.
7. OPTION TO PURCHASE SHARES
7.1 Grant of Option. The Company does hereby grant to Investor an
irrevocable option (the "Option") to purchase an additional Fifteen Percent
(15%) of the then issued and outstanding shares of the Company's Common Stock,
on an after acquired basis (the "Option Shares"), pursuant to the terms and
conditions of this Agreement. It being the intention of the parties that
investor shall have the right to acquire and maintain, should Investor so elect,
a Twenty Percent (20%) ownership interest in the Company.
7.2 Option Term. The Option term shall commence on the date hereof and
shall continue for a period of two (2) years from the date hereof (the "Option
Term").
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7.3 Option Exercise. (a) Investor may exercise the Option at any time
during the Option Term by giving written notice (the "Option Notice") of its
intention to do so to the Company. The date notice is given shall be referred to
as the "Exercise Date".
(b) Within thirty (30) days after the Option Notice has been
delivered by Investor to the Company, the Company shall issue, transfer and
deliver to Investor certificates representing Fifteen Percent (15%) of the then
issued and outstanding shares of Common Stock of the Company, on an after
acquired basis. The Option Shares shall be free and clear of all liens, security
interests and other encumbrances, and upon payment as provided in Section 7.4
below, such Option Shares shall be duly and validly issued, fully paid and
nonassessable. Such Option Shares shall be recorded on the books of the Company
in the name of Investor.
7.4 Purchase Price. (a) The purchase price for the Option shares shall
be based upon the Company's projected Fiscal Year 1998 net income of Three
Hundred Eighty Three Thousand Nine Hundred Ninety-Eight Dollars ($383,998) as
illustrated in Exhibit G. Such projected net income shall then be multiplied by
a price to earnings multiplier of twenty (20) times, which product shall be
multiplied by the percentage of the Company being acquired by Investor pursuant
to the Option, and which product will then be subject to a twenty percent (20%)
discount (the "Purchase Price"). This aforementioned purchase term applies to
shares purchased on or prior to August 30, 1997. The Purchase Price shall be
paid by Investor to the Company at the closing in cash or by certified check.
(b) Option shares acquired after August 30, 1997, but no later
than August 30, 1998, will be based upon the Company's then most recent
projected Fiscal Year 1999 net income, which in no case shall be less than the
Purchase Price set forth in Section 7.4(a) above or greater than One Million
Thirty Three Thousand Five Hundred Thirty Eight Dollars ($1,033,538), as
illustrated in Exhibit G. The net income projected in Exhibit G will serve as
the basis for the maximum possible purchase price. Such projected net income
shall then be multiplied by a price to earnings multiplier of twenty (20) times,
which product shall be multiplied by the percentage of the Company being
acquired by Investor pursuant to the Option, and which product will then be
subject to a twenty percent (20%) discount (the "Secondary Purchase Price"). The
Secondary Purchase Price shall be paid by Investor to the Company at the closing
in cash or by certified check.
7.5 Closing. The Option Notice shall specify a date (the "Closing
Date") not less than thirty (30) and not more than forty-five (45) days
subsequent to the date of the Option Notice for the closing (the "Closing");
provided that, if no Closing Date is specified in the Option Notice, the Closing
Date shall be the first business day that is at least forty-five (45) days after
the Exercise Date. The Closing shall occur at the offices of the Company at
10:00 a.m. or at such other time, place and date as may be agreed upon by the
Company and Investor.
7.6 Cooperation. At the Closing and thereafter, each party shall
execute and deliver to the other party such instruments and documents as are
reasonably required to accomplish and conclude the transactions contemplated
under this Section 7; and the Company shall also provide copies of any corporate
books and records reasonably requested by Investor on or prior to Closing.
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7.7 Conditions to Closing. Investor's obligation to close following
the exercise of the Option shall be subject to there having been no material
adverse change in the condition, value or prospects of the Company between the
Exercise Date and the Closing Date.
8. RIGHT OF FIRST REFUSAL.
8.1 General. Investor shall have the right of first refusal to
purchase its "Pro Rata Share" (as defined below), of all (or any part) of any
"New Securities" (as defined in Section 8.2) that the Company may from time to
time issue after the date of this Agreement. Investor's "Pro Rata Share" for
purposes of this right of first refusal is the ratio of (a) the number of shares
of Common Stock held by Investor to (b) the total number of shares of Common
Stock of the Company then outstanding prior to the issuance of the subject New
Securities.
8.2 New Securities. (a) "New Securities" shall mean any Common Stock
or preferred stock of the Company, whether now authorized or not and rights,
options or warrants to purchase such Common Stock or preferred stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or preferred stock; provided however, that
the term "New Securities" does not include:
(i) shares of the Company's Common Stock issued in
connection with any stock split or stock dividend;
(ii) securities offered by the Company to the public
pursuant to a registration statement filed under the Act;
(iii) shares of common stock, or options exercisable
therefor, issuable to officers, directors, consultants and employees of the
Company or any subsidiary pursuant to any plan, agreement or arrangement
approved by a vote of not less than a majority of the Board of Directors of the
Company; and
(iv) securities issued solely in consideration for the
acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity.
(b) In the event securities of the Company are issued in the
manner contemplated by Section 8.2(a)(iii) (in excess of the 500,000 shares
reserved for issuance under the Equity Incentive Plan) or Section 8.2(a)(iv),
then in such event Investor shall have the right of first refusal to purchase
unissued shares of the Company's securities sufficient for Investor to maintain
its Pro Rata Share.
8.3 Procedures. In the event that the Company proposes to undertake an
issuance of New Securities or an issuance pursuant to Section 8.2(a)(iii) (in
excess of the 500,000 shares reserved for issuance under the Equity Incentive
Plan) or Section 8.2(a)(iv), it shall give to Investor written notice of its
intention to issue such securities (the "Notice"), describing the type of such
securities and the price and the general terms upon which the Company proposes
to issue such securities. Investor shall have thirty (30) days from the date of
mailing of any such Notice to agree in writing to purchase Investor's Pro Rata
Share of such securities for the price and upon the general terms specified in
the Notice (which shall be the
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same price and terms as are offered to third parties) by giving written notice
to the Company and stating therein the quantity of such securities to be
purchased (not to exceed Investor's Pro Rata Share). If Investor fails to so
agree in writing within such thirty (30) day period to purchase Investor's full
or partial Pro Rata Share of an offering of such securities, then Investor shall
forfeit the right hereunder to purchase that part of its Pro Rata Share of such
securities that it did not so agree to purchase.
8.4 Failure of Exercise. In the event that Investor fails to exercise
in full the right of first refusal within such thirty (30) day period, then the
Company shall have one hundred twenty (120) days thereafter to sell the New
Securities or the securities described in Section 8.2(a)(iii) or Section
8.2(a)(iv) with respect to which the Investor's rights of first refusal
hereunder were not exercised, at a price and upon general terms not more
favorable to the purchasers thereof than specified in the Company's Notice to
Investor. In the event that the Company has not issued and sold the New
Securities or the securities described in Section 8.2(a)(iii) or Section
8.2(a)(iv) within such one hundred twenty (120) day period, then the Company
shall not thereafter issue or sell any such securities without again first
offering such securities to Investor pursuant to this Section 8.
9. CERTAIN COVENANTS AND AGREEMENTS
9.1 Indemnification by the Company. The Company agrees to indemnify,
defend and hold Investor harmless, at any time after the Closing, from and
against all losses, costs, damages, liabilities, interest, penalties,
settlements, judgments or expenses, including, but not limited to, reasonable
attorney's fees and expenses, asserted against, resulting from, imposed upon or
incurred by Investor directly or indirectly, arising out of or in connection
with (i) the breach or inaccuracy of any of the representations or warranties of
the Company made in or pursuant to this Agreement; and/or (ii) any breach or
non-fulfillment of any covenant or agreement of the Company contained in this
Agreement.
9.2 Registration Rights. The Company has agreed that, in the event of
the Company's undertaking an initial public offering, it will permit Investor to
include in the registration statement filed by the Company in connection with
such initial public offering all of the Common Stock of the Company that
Investor holds and has requested be registered, subject to the right of the
Company to limit the number of such shares to be included in such registration
statement if the managing underwriter of such initial public offering reasonably
determines that the inclusion of such shares in such offering would materially
adversely affect the marketability of such offering by the Company.
10. MISCELLANEOUS.
10.1 Board Rights. Upon the written request of Investor, the Board of
Directors of the Company shall at all times thereafter include as a director
such person as Investor may from time to time designate, provide (i) for the
period from such written request to the date of the next annual shareholders'
meeting of the Company, Investor's nominee shall be appointed to the Board of
Directors by action of the Board of Directors, and (ii) thereafter, at each
annual shareholders' meeting, the Board of Directors of the Company shall
nominate the Investor's nominee and shall recommend the election of such nominee
to the shareholders of the
11
<PAGE>
Company. The Company shall provide such representative with the same notice of
Board meetings and materials provided to members of the Company's Board of
Directors. This provision shall terminate upon the closing of the Company's
initial public offering of stock registered under the Act.
10.2 Survival of Warranties. The representations, warranties and
covenants of the Company and the Investor contained in, or made pursuant to,
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of Investor, its counsel or the Company, as
the case may be.
10.3 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
10.4 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of New York without reference to principles
of conflict of laws or choice of laws.
10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.6 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party or at such other address as any party or the Company
may designate by giving ten (10) days advance written notice to all other
parties.
10.7 No Finder's Fees. Each party represents that it neither is nor
will be obligated for any finder's or broker's fee or commission in connection
with this transaction. The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' or broker's fee (and any asserted liability) for which the Investor or
any of its officers, directors, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, directors, employees or representatives is responsible.
10.8 Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
10.9 Costs Expenses. The Company shall pay in connection with the
preparation, execution and delivery of this Agreement and the issuance of the
Purchased Shares, the reasonable fees and out-of-pocket expenses of legal
counsel to the Investor, not to exceed Two Thousand Dollars ($2,000.00).
12
<PAGE>
10.10 Amendments and Waivers. Except as specified in Section 2.2, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investor. Any amendment or waiver effected in accordance with this Section
shall be binding upon the holder of any Purchased Shares at the time
outstanding, each future holder of such securities, and the Company.
10.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
10.12 Entire Agreement. This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties with respect to the subject matter hereof.
10.13 Further Assurances. From and after the date of this Agreement,
upon the request of the Investor or the Company, the Company and the Investor
shall execute and deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
10.14 Representation. This Agreement has been drafted on the basis of
mutual contribution of language, the parties each having been represented by
independent counsel of their own choosing, and is not to be construed against
any party as being the drafter or causing the same to be drafted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: THE INVESTOR:
C-GRAM UNLIMITED, INC. WORLDCOMM SYSTEMS, INC.
By: /s/ Daniel Ostrouch By: /s/ Kenneth A. Miller
------------------------------- ----------------------------------
Daniel Ostrouch, Vice President Kenneth A. Miller, President
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<PAGE>
EXHIBIT A
State of New Hampshire
Department of State
CERTIFICATE OF AMENDMENT OF
C-GRAMS UNLIMITED, INC.
The undersigned, as Deputy Secretary of State of the State of New Hampshire,
hereby certifies that Articles of Amendment to the Articles of Incorporation of
C-GRAMS UNLIMITED, INC., duly signed pursuant to the provisions of the New
Hampshire Business Corporation Act, have been received in this office.
ACCORDINGLY, the undersigned, as such Deputy Secretary of State, and by virtue
of the authority vested in him by law, hereby issues this Certificate of
Amendment to the Articles of Incorporation of C-GRAMS UNLIMITED, INC. and
attaches hereto a copy of the Articles of Amendment.
IN TESTIMONY WHEREOF, I hereto set my
hand and cause to be affixed the Seal
of the State of New Hampshire, this
4th day of April A.D. 1995
[SEAL] /s/ Robert P. Ambrose
Robert P. Ambrose
Deputy Secretary of State
<PAGE>
STATE OF NEW HAMPSHIRE
Filing fee: $35.00 Form No. 14
Use black print or type. RSA 293-A:10.06
Leave 1" margins both sides
FILED
APR 04 1995
ARTICLES OF AMENDMENT WILLIAM M. GARDNER
to the NEW HAMPSHIRE
ARTICLES OF INCORPORATION SECRETARY OF STATE
PURSUANT TO THE PROVISIONS OF THE NEW HAMPSHIRE BUSINESS CORPORATION ACT, THE
UNDERSIGNED CORPORATION ADOPTS THE FOLLOWING ARTICLES OF AMENDMENT TO ITS
ARTICLES OF INCORPORATION:
FIRST: The name of the corporation is C-GRAMS UNLIMITED INC.
- --------------------------------------------------------------------------------
SECOND: The text of each amendment adopted is:
THAT THE ARTICLES OF INCORPORATION OF THE CORPORATION, AS AMENDED, BE
FURTHER AMENDED BY INCREASING THE NUMBER OF SHARES OF COMMON STOCK WHICH THE
CORPORATION SHALL HAVE AUTHORITY TO ISSUE TO 4,000,000 SHARES.
THIRD: If the amendment provides for an exchange, reclassification, or
cancellation of issued shares the provisions for implementing the amendment(s)
if not contained in the above amendment are:
FOURTH: The amendment(s) were adopted on (date) 2/28/95
[if more space is needed, attach additional sheet(s)].
page 1 of 3
<PAGE>
MINUTES
AND
BY LAWS
OF
C-GRAMS UNLIMITED, INC.
INCORPORATED UNDER THE LAWS OF
STATE OF NEW HAMPSHIRE
<PAGE>
BY-LAWS
OF
C-GRAMS UNLIMITED, INC.
ARTICLE I - OFFICES
The principal office of the corporation in the State of New Hampshire shall
be located in the Town of Sandown, County of Rockingham. The corporation may
have such other offices, either within or without the State of incorporation, as
the board of directors may designate or as the business of the corporation may
from time to time require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on the 1st Fri. of May
in each year, beginning with the year 1986 at the hour ten o'clock A.M., for the
purpose of electing directors and for the transaction of such other business as
may come before the meeting. If the day fixed for the annual meeting shall be a
legal holiday such meeting shall be held on the next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than two per cent of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate
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any place, either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than seven nor more than thirty days
before the date of the meeting, either personally or by mail, by or at the
direction of the president, or the secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, thirty days. If the stock transfer books shall
be closed for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, such books shall be closed for at least
thirty days immediately preceding such meeting. In lieu of closing the stock
transfer books, the directors may fix in advance a date as the record date for
any such determination of stockholders, such date in any case to be not more
than thirty days and, in case of a meeting of stockholders, not less than thirty
days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders
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has been made as provided in this section, such determination shall apply to any
adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares
of the corporation shall make, at least two days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
two days prior to such meeting, shall be kept on file at the principal office of
the corporation and shall be subject to inspection by any stockholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at the meeting of
stockholders.
7. QUORUM.
At any meeting of stockholders, 25% of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than said number of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. 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. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the stockholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by
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<PAGE>
proxy, for each share of stock entitled to vote held by such stockholders. Upon
the demand of any stockholder, the vote for directors and upon any question
before the meeting shall be by ballot. All elections for directors shall be
decided by plurality vote; all other questions shall be decided by majority vote
except as otherwise provided by the Certificate of Incorporation or the laws of
this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
By-Laws 4
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board
of directors. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be one __________________.
Each director shall hold office until the next annual meeting of stockholders
and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without other notice than
this by-law immediately after, and at the same place as, the annual meeting of
stockholders. The directors may provide, by resolution, the time and place for
the holding of additional regular meetings without other notice than such
resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of the
president or any two directors. The person or persons authorized to call special
meetings of the directors may fix the place for holding any special meeting of
the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least two days previously
thereto by written notice delivered personally, or by telegram or mailed to each
director at his business address. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
By-Laws 5
<PAGE>
6. QUORUM.
At any meeting of the directors one shall constitute a quorum for the
transaction of business, but if less than said number is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of the directors without cause shall be
filled by vote of the stockholders. A director elected to fill a vacancy caused
by resignation, death or removal shall be elected to hold office for the
unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance at
each regular or special meeting of the board may be authorized. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
By-Laws 6
<PAGE>
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an executive
committee and other committees, each consisting of three or more directors. Each
such committee shall serve at the pleasure of the board.
By-Laws 7
<PAGE>
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a president, a vice-president, a
secretary and a treasurer, each of whom shall be elected by the directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed
by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the corporation
and, subject to the control of the directors, shall in general supervise and
control all of the business and affairs of the corporation. He shall, when
present, preside at all meetings of the stockholders and of the directors. He
may sign, with the secretary or any other proper officer of the corporation
thereunto authorized by the directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the directors have authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the directors or by these
by-laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall
By-Laws 8
<PAGE>
perform all duties incident to the office of president and such other duties as
may be prescribed by the directors from time to time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death, inability or
refusal to act, the vice-president 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 vice-president shall perform such other
duties as from time to time may be assigned to him by the President or by the
directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these by-laws or as
required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
By-Laws 9
<PAGE>
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and any such authority may be general or confined
to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the directors. Such authority may be general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form
as shall be determined by the directors. Such certificates shall be signed by
the president and by the secretary or by such other officers authorized by law
and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the corporation. All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the
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<PAGE>
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) 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, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equipment or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of April __
in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal".
By-Laws 11
<PAGE>
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by a vote of the stockholders representing a majority of all the shares
issued and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting when the proposed amendment has been set out in the notice
of such meeting.
By-Laws 12
<PAGE>
[LETTERHEAD OF C/GRAMS]
- --------------------------------------------------------------------------------
Exhibit B
C-GRAMS UNLIMITED, INC.
Written Action of Directors
The undersigned, being all of the directors of C-Grams Unlimited, Inc., a
New Hampshire corporation (the "Company"), and acting pursuant to Section 8.21
of the New Hampshire Business Corporation Act, hereby consent to the following
resolutions:
RESOLVED: That the Company is hereby authorized to issue and sell
135,105 shares of its authorized, but unissued, common stock
to WorldComm Systems Inc., for a purchase price of $3.03 per
share; that, in connection therewith, the Company is hereby
authorized to enter into a Stock Purchase Agreement with
WorldComm Systems Inc. providing for such issuance and sale
and such other terms as the President of any Vice President of
the Company may approve (such approval to be conclusively
evidenced by his execution thereof); and that the President
and any Vice President of the Company is hereby authorized to
execute and deliver such Stock Purchase Agreement on behalf of
the Company.
FURTHER
RESOLVED: That the President and any Vice President of the Company are
each hereby authorized to execute and deliver any all
instruments, and to take any and all actions, as any of them
deem necessary of appropriate in connection with the
transaction contemplated by the foregoing resolution.
Executed as of this 27 day of August, 1996.
/s/ Robert Hill
----------------------------------
Robert Hill
/s/ Daniel Ostrouch
----------------------------------
Daniel Ostrouch
<PAGE>
MEETING
OF THE BOARD OF DIRECTORS
OF
WORLDCOMM SYSTEMS, INC.
----------------------------
July 11, 1996
----------------------------
A regular meeting of the Board of Directors of Worldcomm Systems, Inc. (the
"Corporation") was held at 10:00 A.M. on Thursday, July 11, 1996, at the
Corporation's offices at 375 Oser Avenue, Hauppauge, New York. The following
Directors of the Corporation, constituting all of the Directors of the
Corporation, were present at the meeting:
Messrs: David E. Hershberg
Kenneth A. Miller
Stephen E. Yablonski
Thomas A. DiCicco
Donald G. Woodring
Herman Fialkov
Andrew B. Krieger
Benjamin Duhov
Shelly Harrison
Mr. Hershberg, Chairman of the Board of Directors of the Corporation, acted
as Chairman of the meeting and called the meeting to order at 10:10 A.M. Mr.
DiCicco, Secretary of the Corporation, acted as Secretary of the meeting and
recorded the minutes.
Mr. Hershberg noted that an agenda for this meeting and the minutes of the
meeting held on May 23, 1996, had been distributed to the Directors prior to the
meeting.
A motion was made to accept the minutes of the meeting held on May 23,
1996, as amended, and to waive the reading of such minutes, which motion was
unanimously carried.
The Board then turned to a discussion of the Corporation's joint venture
opportunities. Mr. Miller gave a report on the proposed investment in C-Grams
Unlimited, Inc. ("C-Grams") and the preliminary investment agreement reached.
After discussion, Mr. Fialkov recommended that the Board approve the
Corporation's investment in C-Grams, and, upon motion duly made and seconded,
the following resolutions were unanimously adopted:
<PAGE>
RESOLVED, that the terms and provisions of that certain letter agreement by
and between this Corporation and C-Grams (the "Investment Letter"), dated July
10, 1996, be, and the same hereby is, in all respects approved; and be it
further
RESOLVED, that the CEO and President of the Corporation be, and they hereby
are, authorized, empowered and directed to negotiate, execute and deliver any
and all other documents and certificates required or desirable in connection
therewith, in the name and on behalf of this Corporation, as the CEO and
President of this Corporation deem necessary or advisable, for purposes of
formalizing and finalizing the Corporations Investment in C-Grams as
contemplated by the Investment Letter; and be it further
RESOLVED, that each of the Officers of the Corporation be, and each of them
acting along hereby is, authorized and directed to take all such further action
in the name and on behalf of the Corporation as shall be necessary or
appropriate to carry out the intent and purposes of the foregoing resolutions.
There being no further business to come before the meeting, it was, upon
motion duly made and seconded, unanimously adjourned.
-------------------------------------
Thomas A. DiCicco, Secretary
<PAGE>
C-Grams Unlimited/WorldComm Systems
Rules of Engagement
Agreement
Exhibit C
* Rights of first refusal agreement between C-Grams Principals, Mr. Daniel
Ostrouch and Mr. Robert Hill (individually a "Founder" and collectively the
"Founders", will take precedence for right of first refusal.
<PAGE>
RIGHT OF FIRST REFUSAL AGREEMENT
Agreement dated as of February 28, 1995, by and among Robert Hill and
Daniel Oustrouch (individually, a "Founder" and collectively, the "Founders").
Recitals
A. As used in this Agreement, the term "Shares" shall include all shares of
capital stock of C-Grams Unlimited, Inc., a New Hampshire corporation (the
"Company") held by the Founders, whether now owned or hereafter acquired.
B. The purpose of this Agreement is to provide for certain rights and
procedures upon sales of the Company's securities and to protect the management
and control of the Company from influence by any person not acceptable to the
Founders.
NOW, THEREFORE, for valuable consideration, it is agreed as follows:
1. Restrictions on Transfer.
1.1 Any sale or other disposition of any of the Shares by a Founder,
other than according to the terms of this Agreement, shall be void and transfer
no right, title, or interest in or to any of such Shares to the purported
transferee.
1.2 Each Founder agrees to present the certificates representing the
Shares presently owned or hereafter acquired by him to the Secretary of the
Company and cause the Secretary to stamp on the certificate in a prominent
manner the following legend:
"The sale or other disposition of any of the shares represented by this
certificate is restricted by a Right of First Refusal Agreement, dated as
of February 28, 1995, among certain of the shareholders of this
corporation."
<PAGE>
2. Transfers Not Subject to Restrictions.
Subject to Section 7 of this Agreement, any Founder may sell, assign
or transfer Shares to his spouse or children or to a trust established for the
benefit of his spouse, children or himself, or dispose of them under his will,
without compliance with Sections 3 through 5 hereof.
3. Offer of Sale; Notice of Proposed Sale.
If any Founder desires to sell, transfer or otherwise dispose of any
of his Shares, or of any interest in such Shares, whether voluntarily or by
operation of law, in any transaction other than pursuant to Section 2 of this
Agreement, such Founder (the "Selling Founder") shall first deliver written
notice of his desire to do so (the "Notice") to the other Founder (the
"Purchaser"), in the manner prescribed in Section 8.3 of this Agreement. The
Notice must specify: (i) the number of Shares the Selling Founder proposes to
sell or otherwise dispose of (the "Offered Shares"), (ii) the consideration per
Share to be delivered to the Selling Founder for the proposed sale, transfer or
disposition, and (iii) all other material terms and conditions of the proposed
transaction.
4. Founder's Option to Purchase.
4.1 Subject to Section 5, the Purchaser shall have the first option to
purchase all or any part of the Offered Shares for the consideration per share
and on the terms and conditions specified in the Notice. The Purchaser must
exercise such option, no later than 45 days after such Notice is deemed under
Section 8.4 hereof to have been delivered to it, by written notice to the
Selling Founder.
4.2 In the event the Purchaser duly exercises his option to purchase
all or part of the Offered Shares, the closing of such purchase shall take place
at the offices of the Company on the date five days after the expiration of such
45-day period.
4.3 To the extend that the consideration proposed to be paid by the
Purchaser for the Offered Shares consists of property other than cash or a
promissory note, the consideration required to be paid by the Purchaser
exercising his option under Section 4 hereof may consist of cash equal to the
value of such property, as determined in good faith by agreement of the Selling
Founder and the Purchaser.
-2-
<PAGE>
5. Failure to Fully Exercise Options.
If the Purchaser does not exercise his option to purchase all of the
Offered Shares within the period described in this Agreement (the "Option
Period"), then the option of the Purchaser to purchase the Offered Shares,
whether exercised or not, shall terminate.
6. Termination of Agreement.
6.1 This Agreement shall terminate upon the earliest of the following
events:
(a) The written agreement of both Founders to terminate the
Agreement;
(b) The sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise; or
(c) The closing of the Company's initial public offering of
shares of Common Stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), resulting in at
least $7,500,000 of gross proceeds to the Company.
6.2 The provisions of Sections 3 and 4 hereof shall not apply to any
sale of Shares pursuant to a transaction referred to in Sections 6.1(b) or
6.1(c) above.
7. Transfers of Rights.
This Agreement, and the rights and obligations of each Founder
hereunder, shall be assigned by such Founder to any person or entity to which
Shares are transferred by such Founder, and such transferee shall be deemed a
"Founder" for purposes of this Agreement. As a condition to such transfer, such
transferee shall deliver a written instrument to the other Founder agreeing to
be bound by the terms of this Agreement.
8. General.
8.1 Specific Performance. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Founder shall be entitled to specific performance of the agreements and
obligations of the
-3-
<PAGE>
Founders hereunder and to such other injunctive or other equitable relief as may
be granted by a court of competent jurisdiction.
8.2 Governing Law.This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New Hampshire.
8.3 Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If to Robert Hill, at 5 Tamworth Road, Sandown, N.H. 03873; or
If to Daniel Ousrouch, at 202 Oak Ridge Road, Plaistow, N.H. 03865.
Notices provided in accordance with this Section 8.4 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
8.4 Complete Agreement; Amendments. This Agreement constitutes the
full and complete agreement of the parties hereto with respect to the subject
matter hereof. No amendment, modification or termination of any provision of
this Agreement shall be valid unless in writing and signed by both Founders.
8.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute one Agreement binding on all the
parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
FOUNDERS:
/s/ Robert M. Hill
-----------------------------------
Robert Hill
/s/ Daniel Ostrouch
-----------------------------------
Daniel Ostrouch
-4-
<PAGE>
Stock Purchase Agreement
C-Grams Unlimited Inc. and Worldcomm Systems
Intellectual Property
Exhibit D
* Registered Product
* Interpretive Math and Logic with Reports and Recipes
* Early Warning System Alarm
* CimPix
* SQLACS
* Pending Copyrights
* Interpretive Math and Logic
* Front End Processor
* Front End Server
<PAGE>
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b Eric Holter 1969
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TX TXU
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Interpretive Math and Logic with Reports and Recipes (RRIML)
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Early Warning System Alarm (EWSA)
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SQLACS
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a C-Grams Unlimited, Inc. 1985
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Interpretive Math and Logic (IML)
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<PAGE>
C-Grams Unlimited/WorldComm Systems
Rules of Engagement
Agreement
Exhibit E
List of Material Agreements
* Alliance Agreement, Rules of Engagement between WorldComm Systems and
C-Grams Unlimited, Inc. dated, 8/31/95
<PAGE>
C-Grams Unlimited/WorldComm Systems
Rules Of Engagement
Agreement
This Agreement is entered into this 31st day of August, 1995 between C-Grams
Unlimited Inc., 68 Highway 125, Kingston, N.H. 03842 and WorldComm Systems Inc.,
375 Oser Avenue, Hauppauge, N.Y. 11788-3607.
The following practices will serve as the basis for conducting business in the
Earth Station market and operating guidelines which will ensure a consistent
message to customers and prospective customers as well as to our respective
organizations and employees. These rules will serve as the reference point, and
decision maker in any matters which may create or be perceived to create market
channel conflicts in conducting business either independently or jointly.
1. WorldComm will be the prime contractor for any proposal activity which
results from WorldComm's introduction of C-Grams into the preparation of
specifications, and or proposals for any project. Further, WorldComm will
be the primary contractor for any resultant contract. C-Grams will act in
behalf of WorldComm Systems whether or not WorldComm Systems is present for
meetings, or other interactions with WorldComm's customers.
2. WorldComm will assign C-Gram's as it's sole source supplier under the
following conditions:
o C-Grams offers a competitive technical and price solution.
o The C-Grams' system is appropriate to the application
o The customer has not yet specified another system
3. WorldComm maintains the right to be prime contractor for all market
opportunities with it's customers who require only M&C systems or any
C-Gram's capability which WorldComm's may not possess an internaal
capability. WorldComm will assess market price and provide appropriate
mark-up or
4. WorldComm will elect C-Gram's to be the prime contractor based upon several
considerations outlined in Attachment 'A'. C-Grams may provide compensation
in the form of a pre-established commission structure if desired.
5. *
6. Based upon the results of either 3, 4, or 5 above, a Memorandum of
Understanding will be signed establishing prime contractors.
7. C-Grams reserves the right to (1) maintain its existent customers and (2)
solicit additional customers engaged in Earth Station Management Systems
who require M&C Systems.
* Confidential treatment requested of the redacted material pursuant to Rule
406 of the Securities Act of 1933, as amended.
<PAGE>
8. Conflicts which may arise inadverently as a result of marketing activity
will be communicated immediatly between both companies. Resolutions will be
governed by the specific market condition, customer requirement/content and
the agreement here-in.
9. C-Grams reserves the right to also submit any solicited bid for M&C
capability which WorldComm may also be quoting. C-Gram's will submit the
exact price for the requirements at all times and in no way will attempt to
influence it's pricing. (This should not be an issue in light of the
'material' content of M&C to the total Earth Station.)
10. C-Grams and WorldComm will be responsible for their respective cost and
expenses associated with attaining market opportunities unless otherwise
agreed to share or apportion.
11. WorldComm will private label C-Grams M&C products sold to WorldComm
Systems.
12. WorldComm and C-Grams will establish it's individual sales channels
including distributors, sales representatives and other independent sales
units. In cases where their is an inadvertent conflict with the
representatives, both company's will exercise it's best effort to ensure
the respective representatives are compensated. These potential conditions
will be addressed as required.
13. C-Gram's and WorldComm will maintain in full force and effect it's
individual corporate existence, rights and franchises and all licenses and
other rights to use patents, processes, licenses, trademarks, tradenames or
copyrights owned by or by it and deemed by WorldComm and C-Grams to be
significant to the conduct of it's business. 14. Term of Agreement: The
term of this agreement will be two years from the first date shown above
with options to renew for an additional two years. Any changes to this
agreement will be mutually agreed to by both companies and be revised and
signed by a company officer.
IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of
the date first shown above.
WorldComm Systems C-Grams Unlimited
By: Kenneth A. Miller By: P. M. Howle
- ---------------------------- -------------------------------
/s/ Kenneth A. Miller /s/ Paul M. Howle
- ---------------------------- -------------------------------
Name: Name:
President V.P.CFO.
- ---------------------------- -------------------------------
Title Title
<PAGE>
Prime & Sub-Contractor Determination
Considerations
The following is an outline of considerations when establishing prime &
sub-contractor roles. It's intent is that of a checklist in the decision
process, and does not attempt to substitute for good business practices,
relations and each company's mission statements.
o Technical expertise to satisfy the customer's requirements
o Largest content and value to the opportunity
o Market price sensitivity
o Purchase Order Agreements providing volume purchases discounts
o Equipment and Product Staging Facilities
o Company Financial Statements (Going Concern/Performance)
o Borrowing Capacity
o Influence in market place, and specifically personal relations established
(creditability)
o Customer's preference
o Resource Capacity
o Geography
o Investment & Capability
o Resources
<PAGE>
C-Grams Unlimited/WorldComm Systems
Rules of Engagement
Agreement
Exhibit F
Financial Statements
o Period ending 5/31/94 including balance sheet, income statement, and
statement of cash flows. Independent review prepared by A.R. Pappalardo and
company.
o Period ending 5/31/95 including balance sheet, income statement, and
statement of cash flows. Independent review prepared by A.R. Pappalardo and
company.
o Period ending 5/31/96 including balance sheet, income statement, and
statement of cash flows. Prepared by Ernst and Young.
<PAGE>
C-GRAMS REVIEW 94-95
FINANCIAL STATEMENTS
FOR THE PERIOD: 06/01/94 TO 05/31/95
*
* Confidential treatment requested pursuant to Rule 406 under the Securities
Act of 1933, as amended, for the proceeding pages of the exhibit to the Stock
Purchase Agreement, dated as of August 30, 1996, by and between C-Grams
Unlimited Inc. ("C-Grams") and WorldComm Systems Inc., such exhibit
constituting the financial statements of C-Grams.
<PAGE>
C-GRAMS UNLIMITED INC.
FINANCIAL STATEMENTS
FOR THE PERIOD 6/01/93-5/31/94
** UNAUDITED **
for internal purposes only
*
* Confidential treatment requested pursuant to Rule 406 under the Securities
Act of 1933, as amended, for the proceeding pages of the exhibit to the Stock
Purchase Agreement, dated as of August 30, 1996, by and between C-Grams
Unlimited Inc. ("C-Grams") and WorldComm Systems Inc., such exhibit
constituting the financial statements of C-Grams.
<PAGE>
C-GRAMS UNLIMITED INC.
PROJECTED NET INCOME STATEMENT
EXHIBIT G
*
* Confidential treatment requested of the redacted material pursuant to Rule
406 of the Securities Act of 1933, as amended.
<PAGE>
Exhibit 10.7
Memorandum of Understanding
BETWEEN
NetSat Express, Inc. and Applied Theory Communications, Inc.
- --------------------------------------------------------------------------------
This Memorandum of Understanding is made this 18 day of December, 1996 by and
between NetSat Express, Inc., a corporation organized under the laws of the
State of Delaware, with a principal place of business at 400 OSER AVE, Suite
300, HAUPPAUGE, NY 11788 (hereinafter referred to as NSX).
And
Applied Theory Communications Inc., a corporation organized under the laws of
the State of New York, with a principal place of business at 40 Cutter Mill
Road, Suite 405, Great Neck, New York 11021 (hereinafter referred to as
AppliedTheory).
Hereinafter referred to individually as "Party" and collectively as "the
Parties".
WITNESSETH:
WHEREAS NSX wishes to be a full service International Satellite Internet
Provider (SIP) and AppliedTheory is an experienced Internet Provider and
Internet Solutions partner,
NSX and AppliedTheory want to expand in the domestic and International satellite
Internet market through strategic alliance with each other which is intended to
result in a joint venture.
NOW THEREFORE IT IS AGREED AS FOLLOWS:-
1. Definitions
o "Commencement Date" shall mean the date of the Memorandum.
o "Project" shall mean any venture falling within the mission of either
Party where opportunity for joint participation seems to exist.
o "Proposal" shall mean a formal and written document providing
technical, financial and commercial information and conditions to a
Customer for fulfilling a specific requirement.
2. General Scope of Responsibilities
The purpose of this MOU is to delineate an initial service and engineering
<PAGE>
scope of responsibilities for the NSX/AppliedTheory relationship which will
include the following:
A. Internet Network Operations Center (NOC)
B. Internet Access
C. Internet Backbone
D. Support of Regional Customer Locations
E. Web Services
F. Intraneting Services
G. Training Services.
The details of these elements are described in Appendix A.
3. Joint Marketing and Bidding
3.1 The parties will market their capabilities individually and jointly to all
their existing and potential customers wherever such a capability is
interpreted as having a potential for applications. The services provided
Internationally shall be marketed under the NetSat name but with full and
proper disclosure of the strategic alliance between NSX and AppliedTheory
as a major benefit to the customer.
3.2 The Parties will jointly investigate and analyze requirements and prepare
Proposals on a case by case basis.
3.3 The parties may agree to jointly undertake and implement Projects with both
being equally responsible or with them mutually agreeing to divide
responsibility for different aspects of the project.
4. Jointly awarded Contracts
4.1 For each contract jointly awarded to the parties a separate agreement
hereinafter referred to as a Project Agreement) will be concluded
pertaining to the roles and responsibilities of each Party, the
organizational structuring of the individuals involved, financial
arrangements and commercial terms and conditions between the Parties.
4.2 Each of the Parties agrees that if it ("the first Party") is awarded a
prime contract arising from a proposal, the first party shall procure the
participation of the other Party ("the second Party") or the second's
Party's acceptable nominee through a sub-contract or otherwise. The terms
and conditions of all sub-contracts or any other form of sub-participation
shall be negotiated in good faith. In the event that the said sub-contract
or sub~participation is subject to
2
<PAGE>
the approval of the first party's customer/client, the first Party shall
use its best endeavors to secure the participation of the second party.
4.3 The terms of the sub-contract or other participation shall include, along
with other conditions mutually acceptable to the Parties, whatever
provisions are required by law or regulation and the Parties specific
compliance to those clauses of the prime contract that are mandatory for
incorporation in the subcontract.
5. Non Participation
Where the Parties can work jointly on any project or contract, they will do
so. The Parties, however, reserve the right to independently pursue
projects within the scope of their unique expertise.
6. Terms and Termination of Memorandum
This Memorandum shall be deemed effective from the date hereof and shall
continue in force until terminated by one of the following events:
6.1 The parties dissolve this Memorandum by mutual consent expressed in writing.
6.2 Upon one of the Parties serving a notice of termination on the other Party
in the event of such other Party filing a petition for compulsory or
voluntary liquidation or entering into a scheme of arrangement or
compromise with its creditors.
6.3 Upon the execution of a subsequent agreement or contract that is stated to
supersede this Memorandum.
7. Exclusivity
Where the Parties have agreed to pursue a project jointly, neither party shall,
enter into any negotiations, discussions, deliberations, agreements or
arrangements whatsoever with a third party (other than a shareholder of either
Party or a House Account) with respect to any proposal or Project that the said
Party is currently undertaking in collaboration with the other Party or that
would compete with the capabilities, products or stated business objectives of
the Parties except if mutually agreed upon. In the event a Shareholder or House
Account shall suggests a joint project to either party, that party will utilize
its best efforts to ensure the participation of both parties.
8. Costs
3
<PAGE>
Each party shall bear its own costs and expenses incurred in the performance of
this Memorandum unless otherwise previously agreed by both parties in writing.
It is anticipated that any resulting joint venture will provide for profit
sharing between the parties according to a mutually agreed formula after all
expenses have been paid.
9. Publicity
No publicity or advertising relating to this Memorandum shall be released by any
Party hereto without the prior written approval of the other Party.
10. Assignment
Neither party hereto shall be entitled to cede or assign any of its rights, or
delegate any of its obligations hereunder, except to a corporate affiliate,
without the prior written consent of the other Party first being obtained, which
shall not be unreasonably withheld.
11. Non-solicitation
APPLIEDTHEORY and NSX will not seek or offer employment to each others
employee base.
12. Law of the Memorandum
The validity, interpretation and performance of this memorandum shall be
governed by the laws of the State of New York.
13. Dispute Settlement
13.1 The Parties shall first use their best endeavors to resolve through mutual
consultation through such negotiation or conciliation any dispute,
difference or question arising between the Parties or their respective
representatives or assigns which arise out of or in connection with the
validity, interpretation, implementation of alleged breach of this
Agreement.
13.2 In the event that a controversy or claim cannot be resolved within thirty
(30) days subsequent to the commencement of such mutual consultation,
either party may submit such controversy or claim to binding arbitration.
All disputes arising in connection with the present agreement shall be
finally settled under the Rules of Conciliation and Arbitration of the
4
<PAGE>
U.S. Chamber of Commerce in Washington, D.C. by one or more arbitrators
appointed in accordance with said Rules.
14. Notice
The Parties shall each designate a single person in their respective
organizations to receive written disclosures and identifications and to be
responsible for ensuring the observance of this Memorandum.
For NetSat Express, Inc. that address and person shall be: -
Mr. Gerald A. Gutman
President
NetSat Express, Inc.
400 Oser Avenue, Suite 300
Hauppauge, NY 11788
For AppliedTheory that address and person shall be: -
Dr. Richard Mandelbaum
President
AppliedTheory Communications, Inc.
40 Cutter Mill Road, Suite 405
Great Neck, NY 11021
Signed this 18th day of December, 1996 by:
Applied Theory Communications, Inc.
/s/ Richard Mandelbaum
--------------------------------------
Richard Mandelbaum
President
NetSat Express, Inc.
/s/ Gerald A. Gutman
--------------------------------------
Gerald A. Gutman
President
5
<PAGE>
Attachment "A"
to the
NetSat/AppliedTheory MOU
Version 5
04-December-96
General Scope of Responsibilities
The purpose of this document is to outline an initial service and engineering
scope of responsibilities for the NSX/AppliedTheory relationship. This document
does not imply or discuss funding, capital costs or business relationships. The
use of words such as provide, responsible and manage are used to define
functional ownership only.
A. NetSat Express Internet Network Operations Center
The Internet Network Operations Center is multi-function Center that
includes IP server based services, LAN and WAN interconnects and systems,
monitoring and management controls and support services for customers. NOC
functions are described in various sections of this document.
1. AppliedTheory will design the Internet components of the NetSat USA
NOC in the WSI/NSX facility in Hauppauge, New York. This includes
Internet Access, Backbone Connectivity, Router configuration and
maintenance and integration of Internet Services.
2. NSX engineering will take an active role in this design.
3. NSX will be responsible for the building of this facility.
AppliedTheory will advise on the construction of the Internet related
equipment and interfaces.
4. AppliedTheory will be responsible for the initial management and
operations of the Internet aspects of facility until they can train
the NetSat staff for a technology transfer. Both AppliedTheory and NSX
will be responsible for supplying staff during this period. The time
period of this technology transfer has not been determined, but will
primarily focused on handing off the responsibilities to NSX quickly.
5. Upon completing this technology transfer, AppliedTheory will provide
phone support and under emergency situation could supply on-site help.
6. Both Engineering groups believe it is necessary to jointly more
explicitly define the following items before relevant technical design
can progress.
a. Services provided from this NOC such as News, Mail, FTP and
administrative services including the initial and long-term
volume and capacities required.
b. Interfaces to the Hughes Network System DirecpC and PES Networks
Page 1
<PAGE>
c. DNS server responsibilities
d. Distribution of Internet Servers and services (FTP, DNS, etc.)
function between USA NOC and Regional Uplink Facilities.
e. Monitoring, management and trouble tracking systems
B. Internet Access
1. AppliedTheory will provide Internet access from their Deer Park POP to
the NetSat Express/WSI facility. Upgrades and redundancy will be
added as required.
2. AppliedTheory is responsible for solving Internet problems with this
link and other parts of the public Internet.
3. AppliedTheory will provide the Backbone Router at the NetSat Express
facility. The Backbone router will be considered part of the
AppliedTheory Backbone Network.
Both groups agree that CISCO are the routers of choice.
Both AppliedTheory and NSX will jointly engineer the Backbone Router
at the NSX facility. Jim Canniff and Dave Barr will jointly agree on
the details and capabilities of this router. CISCO Series 4000 and
7000 routers will be considered. Sparing and Cisco maintenance will
also be determined at this time.
AppliedTheory will software manage this router. NSX will hardware
manage the router with the help of AppliedTheory. There will be a
joint installation. AppliedTheory and NSX will jointly maintain the
router.
NSX will provide a POTS (phone) line and modem at the router location
so that AppliedTheory can have out-of-band access to the router.
NSX/WSI will have SNMP and read access to this router. AppliedTheory
will have read/write and SNMP access to this router.
AppliedTheory will use this router to train NSX in the use and
configuration of Backbone routers. Both parties should keep in mind
that this router will likely be carrying commercial traffic during
periods of training and the training sessions can not disrupt the
daily operations of the network. (This router will be treated as a
"production" router.)
AppliedTheory will retain long term soffware management of this router
and other AppliedTheory Backbone routers.
Page 2
<PAGE>
4. The Internet Connectivity of the WSI corporate network will be
transitioned from PSI to AppliedTheory. WSI and AppliedTheory will
coordinate this effort. WSI will cut over from PSI to AppliedTheory
during or after the building move. (Estimated date is 01-April-97.)
WSI and NSX will be using this router and Internet link for their
companies' business purposes (in addition to the eventual NOC and
customer Internet traffic).
AppliedTheory will consider WSI to be a NSX customer and the WSI use
will be limited to its corporate Internet business unless mutually
agreed arrangements are addressed. WSI will be limited in bandwidth
based on WSI requirements, NSX management of hardware configuration
and AppliedTheory pricing.
C. NetSat Express Backbone Requirement
1. AppliedTheory will provide the management of both Router to Router
terrestrial and satellite Backbone links between the NSX NOC and their
Regional Uplink Facilities for a period of one year (to be reviewed
quarterly). AppliedTheory will train NSX on the Backbone Circuit
Management for the eventual technology transition.
2. AppliedTheory will provide Backbone router software management,
configurations, monitoring, reporting on all Backbone routers and
their interfaces for a period of one year (to be reviewed quarterly).
NSX/WSI will have SNMP and read access to the Backbone routers.
AppliedTheory will have read/write and SNMP access to the Backbone
Routers. AppliedTheory will train NSX on the Backbone Router
Management for the eventual technology transition.
3. Both AppliedTheory and NSX will jointly engineer the Backbone Routers.
Jim Canniff and Dave Barr will jointly agree on the details and
capabilities of this router. Sparing and Cisco maintenance will also
be determined at this time.
4. NSX is responsible for Router to Router configuration across the
satellite links. AppliedTheory will support NSX with problem solving
and trouble-shooting.
5. Both parties agree that CISCO is the router of choice for the Backbone
network.
6. The responsibility of ordering, payment and "Letter of Agency" for
Backbone routers and terrestrial circuits will be determined.
7. NSX will manage and maintain the Local Area Networks inside the USA
NOC and Regional Uplink Facility. AppliedTheory will provide advise.
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8. Router installation and hardware maintenance inside the Regional
Uplink Facility will be the responsibility of NSX with phone support
from AppliedTheory
9. NSX will provide POTs line and modem to router locations inside the
Regional Uplink Facilities.
10. AppliedTheory will provide routing protocol specifications for both
IGP and EGP routing functions. AppliedTheory will provide a scaleable
network routing plan for the Backbone network
D. NetSat Remote Customer Locations
1. NSX will be responsible for support of the equipment at the customer
sites.
2. In customer locations which have routers, AppliedTheory will advise on
router selection and configurations (set a series of standard hardware
and software configurations).
3. NSX will install, manage and maintain the routers at these sites.
4. NSX is responsible for the satellite links to and from these sites.
5. AppliedTheory should not be responsible for local ISP connectivity
problems when remote DirecPC users select local ISPs as their path
from the customer site to the Internet.
6. AppliedTheory will provide recommendations on the equipment, software
and configurations for routers, Internet servers, terminal servers,
modems and any other components for the proposed "cookie cutter" ISP
sites.
E. Customer Support and NOC Staffing
1. Remote sites are NSX customers.
2. NSX is responsible for billing these customers. AT will help extract
and collect this data.
3. AppliedTheory will provide a NOC Staffing Plan to NSX for 7X24
customer support.
AT will document the "Support Plan" for NSX. The Support Plan will
include:
a. Mission
b. Staffing Plan
c. Equipment and software requirements
d. Job Description
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e. Schedule Plan
f. Training Plan
g. Outline Procedures and Policies
AppliedTheory will provide temporary customer support while NSX builds
its own support infrastructure. This support could be provided out of
the AppliedTheory support headquarters in Syracuse or NYC.
AppliedTheory to NSX customer support can be transitioned on a shift
by shift basis as NSX grows.
NSX strongly desires that all calls directed to this 7x24 customer
support have the phone answered as "NetSat Express". NSX and AT will
jointly address this issue.
In order to support the services and products supplied by
AppliedTheory, even after the above mentioned transition period, the
AppliedTheory customer support facility will be available to NSX
employees. NSX believes this support should also extend to specified
"NSX Teaming Partners" at Regional Uplink Facilities.
NSX and AT will work jointly to develop a support plan that allows the
'NSX Teaming Partners' at the Regional Uplink Facilities to be
supported by the terms and conditions of the MOU and contracts.
Before AppliedTheory can provide any future or temporary customer
support functions for NetSat Express's customers, a definition of the
Products and Services offered and formal procedures and guidelines
relating to this customer service need to be jointly established. Also
these procedures and guideline must address the "escalation pathes"
which must be followed when a customer service issue warrants a level
of support for which the support staff is not normally prepared to
handle.
4. End-user documentation is the responsibility of NSX.
5. AppliedTheory will provide to NSX documentation and specifications for
services that are designed by AppliedTheory or jointly. This
documentation may be incorporated into NSX end-user manuals.
6. AppliedTheory will be responsible for monitoring and trouble-shooting
the entire network segment from the Internet to the Backbone Routers
at the NOC and Regional Uplink Facilities. Since NSX will often have
personnel at these sites, they will be available to provide
assistance.
7. AppliedTheory will provide daily monitoring reports via Web interface
for all AppliedTheory monitored and managed interfaces.
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8. AT has provided NSX with the "Director of Support Services Job
Description" with salary range and "Recruitment Plan". These two
documents are attached.
NSX will hire the Directors of Support Services as quickly as is
possible. As stated in the "Recruitment Plan", AT will actively
participate in the recruitment and hiring.
F. Provisioning
1. AppliedTheory will be responsible for the procurement through InterNic
(or the appropriate authority) of IP addresses and domain names unless
NSX requests otherwise. AppliedTheory may not be able to provide
address and name assignments where countries have independent control
and limitations.
AppliedTheory has obtained from InterNIC the Domain Name "netsatx.net"
for use by NSX.
2. AppliedTheory will supply to NSX a recommendation for test equipment
and tools.
3. Both parties will be responsible for jointly testing new connections
and services.
G. Internet Services
1. DNS, News, Mail and FTP servers need further specification including:
a. Product Description
b. Customer needs and capacities
c. Customer and market differentiation
d. AppliedTheory will design and implementation these services to
specifications.
e. AppliedTheory will train NSX on maintenance and management of
these services.
f. NSX will provide maintenance and management of these services.
g. NSX will take care of the capital costs (hardware and software)
for these services.
2. Web Hosting Services and Products
a. NSX and WSI has agreed to move the NSX and WSI websites (and Home
Page) to the AppliedTheory Facility.
b. NSX will have the option of selling the standard Web Services and
Products. These services and products consists hosting customer
websites at the AppliedTheory facilities in Syracuse and NYC.
c. AppliedTheory will provide Product Description, Marketing
Materials, product training, Sales Broker and order forms for
this product.
d. AppliedTheory may directly provide customer support for these
products.
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e. AppliedTheory emphasizes that these services and products are
tightly integrated and dependent on the current AppliedTheory
facilities and hosting system and can not be easily modified.
f. NSX NO LONGER desires that these services or products have an
exclusive NetSat identity.
g. Both NSX and AppliedTheory recognize that NSX end-users will
require these services and products to be hosted at the Regional
Uplink Facilities. Since this area has significant potential
opportunities for both, this capability will be jointly
addressed.
3. Security
a. Needs better description and definition of customer requirements.
b. Firewall implementation is perceived to be an optional product
c. AppliedTheory has a security product (Gauntlet) that may be
integrated based further requirements study.
4. Access and other IP based NSX product descriptions and services
(Gopher, Archie, Email (POP, SMTP, MIME), Listserv, News, Telnet, etc)
a. AppliedTheory will provide NSX with assistance during initial
product identification, descriptions and design.
b. NSX will document product descriptions.
c. NSX is responsible for all Access based marketing documents.
H. Training
1. AppliedTheory will provide on-going training to meet NSX requirements
and technology transfer.
2. AppliedTheory will offer employees from NSX the opportunity to be an
apprentice in the AppliedTheory Operations Facility in Syracuse.
3. AppliedTheory is offering a three day Internet training program for
their in-house technical staff. This class will be offer from December
19 to 21 in Syracuse. Three NetSat employees will attend. The class
will also be offered from January 6 to 9 in Syracuse. This class will
be repeated two or three times a year.
4. AppliedTheory also offers Internet Service Management courses,
Internet Orientation Users Classes and Internet Awareness Courses for
Managers. These courses will be available for NSX employees.
Two NetSat employees will attend the Internet Service Management
course in White Plains on December 10.
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5. AppliedTheory's Intranet and Training Products will also be available
for NSX for resale (branding is available).
6. NSX will provide employees with the necessary background and
familiarity with network communications over satellite and the
particulars of the HNS DirecPC and Personal Earth Stations.
7. The training of NSX customer service people, agents and regional joint
venture partners will supported by both AT and NSX.
I. Employment
1. AppliedTheory and NSX will not seek or offer employment to each others
employee base.
2. AppliedTheory and NSX may jointly recruit staff for training and or
employment by AppliedTheory and eventual employment by NSX.
J. Partners and Relationships
1. NetSat will be responsible for interfaces with Hughes Network Systems
in matters concerning the DirecPC and PES.
2. AppliedTheory will be responsible for the interface with NYNEX and
Sprint.
3. NSX will be responsible for the technical assistance for the
International Marketing Support. AppliedTheory engineering staff will
be available for advice.
4. NSX Engineering will provide the majority of the technical support for
Proposals to potential customers. AppliedTheory engineering staff will
be available for advice.
5. If necessary, AppliedTheory will provide an Internet technical expert
to accompany NSX to Brazil.
K. Joint Development Team
In order to "jump start" this venture, a "Joint Development Team" will be
formed consisting of members of each organization. This team will initially
be responsible for developing the processes necessary for ensuring the
success of the project. Responsibilities also include system requirements
and product description documents, design documents, schedules, milestones
and project reviews. During the early stages, it is envisioned this team
meet frequently and converse on a daily basis. After which, bimonthly (or a
period to be determined) meeting will be held at alternating offices to
review the progress, direction and future ventures. This JDT will be
directed by a Engineering Team Leader from each group and these individuals
will also serve as
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"points of contact". Mark Oros and Don Gutman will function as the initial
Team Leaders. The size and make up of this Team will be determined.
However, at least two members of each organization should be assigned.
AT has provided NSX with an initial description of the necessary project
tasks required for the implement the above plans. This description was
provided in a Microsoft Project formatted file.
Page 9
<PAGE>
Exhibit 10.8
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of August 28, 1996 by and between NetSat Express Inc., a Delaware Corporation
(the "Company"), and Hughes Network Systems Inc., a unit of Hughes Electronics
Corporation ("Investor").
W I T N E S S E T H:
WHERAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, on the terms and conditions set forth in
this Agreement; shares of the Company's Class A Preferred Stock, par value $.01
per share ("Class A Preferred") having the terms set forth in the form of
Certificate of Amendment of Certificate of Incorporation annexed hereto:
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK. The Company shall sell to the
Investor at the Closing, and the Investor shall purchase from the Company
at the Closing, 190,000 shares of the Class A Preferred, at a price of
$1.32 per share. The shares of Class A Preferred Stock purchased and sold
pursuant to this Agreement will be collectively hereinafter referred to as
the "Purchased Shares."
2. OPTION TO PURCHASE COMMON STOCK. The Company further grants to the Investor
the option to purchase, at any time until 5:00 P.M., New York City time, on
July 31, 2001, up to the number specified below of fully paid and
non-assessable shares of the Company's Common Stock, $.01 par value
("Common Stock") at a price of $1.50 per share of Common Stock (the
"Exercise Price") payable in cash, by certified check or official bank
check or by wire transfer, subject to adjustment as provided below. The
shares of Common Stock which may the purchased upon exercise of such option
are collectively hereinafter referred to as the "Option Shares."
2.1. As used in this paragraph, the term "Partially Diluted Common Stock"
means the sum of (i) the number of shares of common stock actually
outstanding at the time of reference, less any shares of common stock
issued upon exercise of the option granted herein or conversion of the
Class A Preferred Stock plus (ii) the number of shares of common stock
issuable upon conversion of any outstanding convertible securities of
the Company other than the Class A Preferred Stock plus (iii) the
number of shares of common stock issuable upon exercise of all
outstanding warrants, options, or other rights to acquire common stock
other than the option granted herein. The term "Fully Diluted Common
Stock" means the sum of (i) the number of shares of common stock
actually outstanding at the time of reference, including all shares of
common stock issued upon exercise of the option granted herein or upon
conversion of the Class A Preferred Stock plus (i) the number of
shares of common stock issuable upon conversion of any outstanding
convertible securities of the Company including the Class A Preferred
Stock plus (iii) the number of shares of common stock issuable upon
exercise of all outstanding warrants, options, or other rights to
acquire common stock including the option granted herein. If the
option is exercised by the later of (x) 2
<PAGE>
years from the date of this Agreement and (y) the first anniversary of
the commencement of commercial operations at the Company's first
commercial hub serving a multi-national market, then the number of
shares constituting the Option Shares shall be the greater of 100,000
shares and the number of shares produced by the formula specified
below (the "Formula Number"). If the option is not exercised within
the period specified in the preceding sentence, the number of shares
constituting the Option Shares shall be 100,000. The Formula Number
shall be that number which satisfies both of the following two
conditions:
2.1.1. the sum of the Formula Number and the Partially Diluted Common
Stock immediately before exercise of the option shall equal
81% of the Fully Diluted Common Stock immediately following
exercise of the option, and
2.1.2. the Formula Number shall equal 10% of the Fully Diluted Common
Stock immediately following exercises of the option.
Mathematically, the Formula Number shall be the result of solving for
FN the following two equations:
PDCS+FN=0.81*FDCS
FN=0.10*FDCS
where PDCS is Partially Diluted Common Stock immediately before
exercise of the option and FDCS is Fully Diluted Common Stock
immediately following exercise of the option.
2.2. Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
2.3. Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 2, the number of shares of
Common Stock issuable upon the exercise of the option shall be adjusted to
the nearest full share by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of the option immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
2.4. Reclassification, Consolidation, Merger, Etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), the Investor shall
thereafter have the right to purchase the kind and number of shares of
stock and other securities and property which would have been received upon
such reclassification or change if the Investor had exercised the option
granted herein immediately prior to such transaction, at a price equal to
the product of (x) the number of shares issuable upon exercise of the
option and (y) the Exercise Price in effect immediately prior to the record
date for such reclassification or change.
<PAGE>
3. CLOSING. The purchase and sale of the Purchased Shares will take place at
the offices of the Investor on August 2, 1996 or at such time and place as
the Company and Investor mutually agree upon (which time and place are
referred to in this Agreement as the "Closing"). At the Closing, the
Company will deliver to the Investor a certificate representing the number
of Purchased Shares that the Investor has agreed to purchase against
delivery to the Company by such Investor of the full purchase price of such
Purchased Shares paid by wire transfer of funds to the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Investor that the statements in the following paragraphs of
this Section 4 are all true and correct.
4.1. Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite
corporate power and authority to own its properties and assets and to
carry on its business as now conducted and as presently proposed to be
conducted. The Company is qualified to do business as a foreign
corporation in each jurisdiction where failure to be so qualified
would have a material adverse effect on its financial condition,
business, prospects or operations.
4.2. Capitalization. Immediately prior to the Closing the capitalization of
the Company will consist of 2,000,000 authorized shares of stock,
which 1,000,000 shares will be Common Stock, par value $0.01 per share
(the "Common Stock"), and 1,000,000 shares will be Class A Preferred.
Of the authorized capital, 30,000 shares of Common Stock will be
issued and outstanding. There are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any
shares of its capital stock or any securities convertible into or
exchangeable for any shares of the Company's capital stock.
4.3. Due Authorization. All corporate action necessary for the
authorization, execution, and delivery of, and the performance of all
obligations of the Company under this Agreement has been taken or will
be taken prior to the Closing, and this Agreement constitutes the
valid and binding obligation of the Company, enforceable in accordance
with its term.
4.4. Valid Issuance of Stock. The Purchased Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the
consideration provided for herein, the Option Shares, when purchased
upon exercise of the option provided for herein, and the Common Stock
issuable upon conversion of the Purchased Shares will be duly and
validly issued, fully paid and non-assessable.
4.5. Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing
with, any U.S. federal, state or local governmental authority on the
part of the Company is required in connection with the consummation of
the transactions contemplated by this Agreement.
<PAGE>
4.6. Litigation. There is no material action, suit, proceeding, claim,
arbitration or investigation ("Action") pending (or, to the best of
the Company's knowledge, currently threatened) against the Company,
its activities, properties or assets or, to the best of the Company's
knowledge, against any officer, director or employee of the Company in
connection with such officer's, director's or employee's relationship
with, or actions taken on behalf of, the Company. The Company is not a
party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or
instrumentality.
4.7. Status of Intellectual property. Attached hereto as Exhibit A is a
true and correct schedule which describes all of the patents, patent
applications, registered trademarks, trademark applications, copyright
registrations and applications therefor and all licenses, franchises,
permits, authorizations, agreements and arrangements that concern any
of the foregoing or that concern like items owned by others and used
by the Company. Except as indicated on such Exhibit.
4.7.1. The patents and patent applications (collectively, "patent
rights" shown on such Exhibit are owned by the Company free
and clear of all mortgages, liens, charges or encumbrances
whatsoever. No licenses have been granted with respect to
such patent rights and the Company has not received notice
of any claims by a third party suggesting that its practice
of the inventions covered by such patents rights would
infringe the patent rights of any third party.
4.7.2. The copyright registrations and pending applications shown on
such Exhibit are owned by the Company free and clear of all
mortgages, liens, charges or encumbrances whatsoever. Except
for licenses granted to end users in accordance with the
Company's standard terms, no licenses have been granted with
respect to any of the Company's copyrighted material and the
Company has not received notice of any claims by a third
party suggesting that any of its activities in the conduct
of its business as presently conducted infringe the
copyrights of any third party.
4.7.3. The trademark registrations and pending applications shown on
such Exhibit are owned by the Company free and clear of all
mortgages, liens, charges or encumbrances whatsoever. No
licenses have been granted with respect to any of such
trademarks or applications and the Company has not received
notice of any claims by a third party suggesting that any of
its activities in the conduct of its business as presently
conducted infringe the trademarks, trade names or trade
dress of any third party.
4.7.4. All technical information and know-how in possession of the
Company relating to the design or manufacture of products
sold, and services performed, by it, including without
limitation methods of manufacture, lab journals,
manufacturing, engineering and other drawings, design and
engineering specifications and similar items recording or
evidencing such information is owned by the Company free and
clear of all mortgages,
<PAGE>
liens, charges or encumbrances whatsoever. The Company has
no obligation to pay any royalty to any third party with
respect to such information. The Company has not granted any
license or other permission with respect to the use of such
information and has not received notice of any claims by a
third party suggesting that the Company's use of such
information would infringe or misappropriate the rights of
any third party.
4.8. Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended, and except for any
violations that individually and in the aggregate would have no
material adverse impact on the Company's business, the Company is in
compliance with all applicable statutes, laws (including tax laws),
regulations and executive orders of the United States of America and
all states, foreign countries or other governmental bodies and
agencies having jurisdiction over the Company's business or
properties. The Company has not received any notice of any material
violation of such statutes, laws, regulations or orders which has
not been remedied prior to the date hereof. The execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby or thereby will not result in any
such violation or default, or be in conflict with or constitute,
with or without the passage of time or the giving of notice or both,
either a default under the Company's Certificate of Incorporation or
Bylaws, or any agreement or contract of the Company, or, to the best
of the Company's knowledge, a violation of any statutes, laws,
regulations or orders, or an event which results in the creation of
any material lien, charge or encumbrance upon any asset of the
Company.
4.9. Material Agreements. The Company has not breached, nor does the
Company have any knowledge of any claim that the Company has
breached, any term or condition of any agreement that, individually
or in the aggregate, would have a material adverse effect on the
business, properties, financial condition, results of operations or
affairs or prospects of the Company.
4.10. Certificate; Bylaws. The Certificate of Incorporation and the Bylaws
of the Company are in the form previously provided to the Investor.
4.11. Title to Property and Assets. The Company owns its properties and
assets free and clear of all mortgages, deed of trust, liens,
encumbrances, security interests and claims except for statutory
liens for the payment of current taxes that are not yet delinquent
and liens, encumbrances and security interests which arise in the
ordinary course of business and which do not affect material
properties and assets of the Company. With respect to the property
and assets it leases, the Company is in compliance with such leases
and, to the best of the Company's knowledge, the Company holds valid
leasehold interests in such assets free of any liens, encumbrances,
security interests or claims of any party other than the lessors of
such property and assets.
<PAGE>
4.12. Financial Statements. The Company is newly organized, and has no
material assets or liabilities other than current obligations to pay
compensation to certain consultants in an amount not exceeding
$5,000. The Company intends to conduct business in accordance with
the business plan previously delivered to the Investor, and to use
its best efforts to achieve the projected financial results set
forth therein. The Investor understands that such projections are
subject to inherent uncertainties and that there can be no assurance
that such projected results will be obtained.
5. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR. The
Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
5.1. Authorization. This Agreement constitutes such Investor's valid and
legally binding obligation, enforceable in accordance with its
terms. The Investor has full corporate power and authority to enter
into this Agreement.
5.2. Due Authorization. All corporate action on the part of the Investor
necessary for the authorization, execution, and delivery of, and the
performance of its obligations under, this Agreement, has been taken
or will be taken prior to the Closing, and this agreement
constitutes the valid and legally binding obligation of the
Investor, enforceable in accordance with its terms.
5.3. Legends. It is understood that the certificates evidencing the
Purchased Shares, the Option Shares and the shares issuable upon
conversion of the Purchased Shares will bear the legends set forth
below and any others as may be required by law:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed by the Company from any
certificate evidencing Purchased Shares, the Option Shares or the
shares issuable upon conversion of the Purchased Shares upon
delivery to the Company of an opinion by counsel, reasonably
satisfactory to the Company, that a registration statement
<PAGE>
under the 1933 Act is at that time in effect with respect to the
legended security or that such security can be freely transferred in
a public sale without such a registration statement's being in
effect and that such transfer will not jeopardize the exemption or
exemptions from registration pursuant to which the Company issued
any of such shares.
6. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of the
Investor under Section 1 of this Agreement are subject to the fulfillment
on or before the Closing, of each of the following conditions precedent or
concurrent.
6.1. Representations and Warranties True. Each of the representations and
warranties of the Company contained in Section 4 shall be true and
correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date
of the Closing.
6.2. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form
and substance to the Investor and to the Investor's counsel, and
they shall have received all such counterpart originals and
certified or other copies of such documents as they may reasonably
request.
6.3. Creation of Class A Preferred Stock. The Company shall have duly
filed a certificate of amendment to its certificate of incorporation
creating the Class A Preferred Stock, and the Investor shall have
received evidence reasonably satisfactory to its of such filing.
7. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the
Company to the Investor under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
7.1. Representations and Warranties. The representations and warranties
of such Investor contained in Section 5 shall be true and correct on
the date of the Closing with the same effect as though such
representations and warranties had been made on and as of the
Closing.
7.2. Payment of Purchase Price. The investor shall have delivered to the
Company the purchase price specified in accordance with the
provisions of Section 1.
7.3. Securities Exemptions. The offer and sale of the Purchased Shares,
the Option Shares and the shares issuable upon conversion of the
Purchased Shares to the investor pursuant to this Agreement shall be
exempt from the registration requirements of the 1933 Act, and the
registration and/or qualification requirements of all applicable
state securities laws.
8. MISCELLANEOUS.
8.1. Corporate Opportunity Issues. Notwithstanding (individually or
collectively) i) this Agreement; ii) any investment the Investor may
make in the Company, iii)
<PAGE>
any advice the Investor may give the Company; iv) any nomination to
the Company's Board of Directors which the Investor may make as
provided in this Agreement; v) any vendor or creditor relationship
that may exist between the Investor and the Company; and vi) other
dealings which the Investor may have in effecting any of the above
(collectively the Investor Dealings With the Company), the Investor
will be free, without accounting to or recourse by the Company, to:
a) invest in; b) advise; c) supply; d) provide credit to; e)
nominate members of the Board of Directors or management of, and f)
otherwise deal with any other entity, including entities that may
compete with the Company. Moreover, notwithstanding any the Investor
Dealings With the Company, the Investor may take advantage of any or
all commercial opportunities of which it becomes aware without
accounting to or recourse by the Company. The Investor will use
commercially reasonable efforts, subject to its obligations of
confidentiality, to keep the Company informed of dealings with other
companies that compete with the Company with respect to satellite
internet services.
8.2. Survival of Warranties. The representations, warranties and
covenants of the Company and the Investor contained in or made
pursuant to this Agreement shall survive the Closing for a period of
18 months.
8.3. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.4. Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of New York as applied to
agreements among New York residents entered into and to be performed
entirely within New York, without reference to principles of
conflict of laws or choice of laws.
8.5. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.6. Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified
or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party or at such other
address as any party or the Company may designate by giving ten (10)
days advance written notice to all other parties.
8.7. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the Investor. Any amendment or waiver effected in
accordance with this Section shall be binding upon the Investor each
future holder of the Purchased Shares, the shares issuable upon
conversion of the Purchased Shares and the Company.
<PAGE>
8.8. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
8.9. Entire Agreement. This Agreement, together with all exhibits hereto,
constitutes the entire agreement and understanding of the parties
with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, undertakings duties
or obligations between the parties with respect to the subject mater
hereof.
8.10. Further Assurances. From and after the date of this Agreement, upon
the request of the Investor or the Company, the Company, and the
Investor shall execute and deliver such instruments, documents or
other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and
purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY: THE INVESTOR:
NetSat Express, Inc. Hughes Network Systems, Inc.
By /s/Illegible By: /s/James Ruchese
-------------------------- ---------------------------------
Executive Vice President and
Title: Chairman & CEO Title: Chief Financial Officer
---------------------- ------------------------------
LIST OF EXHIBITS
Exhibit A - Intellectual Property
<PAGE>
EXHIBIT A
Intellectual Property
Trademark Application pending for "NetSat Express, Inc."
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of January 27, 1997 by and between David E.
Hershberg, a resident of Port Jefferson, New York (the "Executive"), and
Worldcomm Systems, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company").
RECITALS
The Executive is currently the Chairman of the Board and Chief Executive Officer
of the Company. The Board of Directors of the Company desires assurance that the
Executive will continue as its leader for at least the next three years. The
Company further wishes to assure itself of continuity of management in the event
of any actual or threatened change in the control of the Company, and believes
it is important that Executive be able to assess and advise the Company whether
supporting a change in control would be in the best interests of the Company and
its shareholders without being influenced by the uncertain effect of such a
change upon Executive's role within the Company. The Executive is willing to
commit to undertake his responsibilities as Chairman of the Board and Chief
Executive Officer of the Company on the terms and conditions hereinafter set
forth. The parties therefore agree as follows.
1. Employment and Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for the period commencing
on the date hereof and continuing until the third anniversary of such date and
from year to year thereafter, unless terminated by either party by written
notice of termination given to the other party. Termination by the Company of
the employment of Executive hereunder shall be effective (a) 90 days after the
date such notice is given if such termination is pursuant to Sections 0 or 0
below, or (b) immediately upon the date such notice is given if such termination
is pursuant to Section 0 below.
2. Responsibilities. During the term of his employment, the Executive shall
devote his full time, attention, loyalty, skill and efforts to the performance
of his responsibilities to the Company as Chairman of the Board and Chief
Executive Officer. The Company will not during the terms of this Agreement
demote the Executive or reduce his responsibility as the Chairman of the Board
and Chief Executive Officer, or otherwise reduce his stature in the Company.
3. Compensation. The Company shall pay or provide to the Executive, and the
Executive shall accept, the following as full compensation for all services
rendered hereunder. All compensation shall be subject to all applicable
withholding and similar requirements.
(a) Base Salary. The Company shall pay to the Executive a base salary (the "Base
Salary") at the annual rate of $165,000. The Base Salary shall be reviewed on an
annual basis and may be increased from time to time at the discretion of the
Board of Directors.
(b) Bonus or Incentive Compensation. Executive will participate in any bonus or
incentive compensation plan (including stock option and stock bonus plans)
approved by the Board of Directors for senior management of the Company.
(c) Benefits. The Company shall provide to the Executive, without any payment or
contribution by the Executive or members of his family, throughout his
employment by the Company the following benefits:
(i) Life Insurance. A life insurance policy in the amount of three
times the Base Salary, payable to the beneficiaries designated by the Executive.
(ii) Disability Insurance. Disability Insurance providing the
Executive with monthly payments during the period of his disability (after
termination of his employment) in an amount equal to 1/12th of his then
applicable annual Base Salary immediately prior to his disability. If the
disability insurance policy should begin payment while the Executive is still
being compensated by the Company under the terms of this Agreement, the
Executive will reimburse the Company for all portions of such payments which
cause his total compensation to exceed the amounts otherwise payable to the
Executive under the terms of this Agreement.
(iii) Medical. Medical insurance protection for the Executive and his
family at least as favorable to the Executive and his family as the protection
and plan being made available to them on the date of this Agreement. In
addition, if not covered by insurance, the Company shall provide the Executive
with an annual health checkup.
(iv) Professional Services Allowance. The Company will pay up to
$2,500 per year for Executive's tax planning and preparation and/or other
financial planning services used by the Executive.
(v) Automobile. The Company will furnish the Executive, without cost
to him, with a Company-owned or leased automobile of the make and model then
authorized by the Company's policy or provide an allowance for that purpose.
<PAGE>
(vi) Other. Such other benefits, not duplicative of the foregoing,
which the Board of Directors may now or in the future make available to its
senior executives.
4. Support and Expenses. The Company shall provide the Executive with an office,
staff and other support appropriate for the Chairman of the Board and Chief
Executive Officer of an organization of the stature of the Company, and shall
pay or reimburse the Executive for all reasonable travel and other expenses
incurred by him in connection with the performance of his services under this
Agreement upon presentation of expense statements or vouchers and such other
supporting information as the Company may from time to time reasonably request.
5. Termination by Company After Initial Term. If the Company shall terminate the
employment of Executive after the end of the third year of this Agreement, for a
reason other than "disability" or "cause," as defined in Section 0 hereof, the
Company shall continue to pay the Executive all of his compensation set forth in
Section 0 hereof through the effective date of termination. Thereafter the
Company shall pay to the Executive any compensation and other benefits which
were vested as of the effective date of termination but payable at a later date.
In addition to all of the foregoing, the Company shall pay to the Executive on
the first business day of the month following the effective date of termination
severance pay (herein called "Severance Pay") in a lump sum equal to 1/12th of
his then applicable annual Base Salary.
6. Termination by Company Prior to End of Initial Term. If the Company shall
terminate the employment of Executive prior to the end of the third year of this
Agreement, for a reason other than "disability" or "cause" as defined in Section
0 hereof, or if the Executive shall terminate his employment after the Company
has committed a material breach of this Agreement, then the Company shall pay to
the Executive as they become due, amounts otherwise payable to the Executive if
he had remained in the employment of the Company until the end of the third year
of this Agreement. In addition, the Company shall (i) forthwith pay Severance
Pay computed in accordance with Section 0 hereof, (ii) thereafter pay all
amounts of compensation and benefits which were vested on the date of
termination but not payable until a later date, including amounts payable under
Section 0(0) hereof, and (iii) comply with Section 0 hereof.
7. Termination for Disability or Cause. The Company may terminate the
Executive's employment due to "disability" if the Board of Directors shall
determine in good faith, that, by reason of physical or mental illness or other
condition continuing for more than one hundred and twenty (120) consecutive days
or for shorter periods aggregating more than one hundred and twenty (120) days
in any period of twelve (12) months (excluding in each case days on which on the
Executive was on vacation), the Executive has been substantially unable to
render services of the character contemplated by this Agreement. The Company may
terminate the Executive's employment for "cause" if the Board of Directors shall
determine in good faith that there shall have been a willful breach by the
Executive in a material manner of his duty of loyalty to the Company. If the
Company shall terminate the employment of Executive for disability or for cause
at any time, the Company shall have no further obligation hereunder except for
payment of Base Salary for services previously rendered, payment or provision of
other compensation or benefits previously vested, and the duty set forth in
Section 0 hereof.
8. Voluntary Termination. If prior to breach of this Agreement by the Company,
the Executive shall resign as an employee during the term of his employment, the
Company shall have no further obligation hereunder except for payment of Base
Salary for services previously rendered, payment or provision of other
compensation or benefits previously vested, and the duty set forth in Section 0
hereof.
9. Insurance after Termination. Except in case of termination voluntarily by the
Executive, or termination for Cause, the Company shall continue coverage of the
Executive and his family under the Company's group life, health and disability
insurance plans for a period of one year following termination. If such plans do
not continue to protect the Executive after termination of employment, the
Company will use its best efforts upon termination of the Executive's employment
for any reason other than death to arrange for transfer from a Company plan to
the Executive (to be carried, except in case of termination for Cause, at the
Company's expense for a period of one year and thereafter at his own expense)
any life, health and disability insurance protection which may be so
transferred.
10. Covenant Not to Compete. The Executive covenants and agrees that, from the
date hereof and until (i) thirty-six months following resignation by the
Executive pursuant to Section 0 hereof, or (ii) in the case of any other
termination of Executive's employment, six months following the date upon which
the final payment of amounts payable to the Executive by the Company by reason
of such termination becomes due, he shall not, either directly or indirectly,
(a) engage in or conduct any business competitive with the Company's business,
whether individually or as an employee, agent, officer, director, owner,
consultant or otherwise, without the prior written
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<PAGE>
consent of the Board of Directors of the Company, or (b) induce or attempt to
induce any existing or future employee or consultant of the Company or any of
its Affiliates to leave such employment.
11. Litigation. If litigation shall be brought by either party to enforce or
interpret any provision contained herein and such party (the "prevailing party")
shall prevail on any issue contested in such litigation either through
settlement or judgment in favor of the prevailing party, the other party shall
reimburse the prevailing party for reasonable attorneys' fees and disbursements
incurred by the prevailing party in such litigation, and shall pay prejudgment
interest on any money judgment obtained by the prevailing party calculated at
the rate in effect from time to time designated by the Company's principal bank
as its prime rate from the date of the breach by such other party under this
Agreement.
12. Provisions Becoming Effective upon Change in Control. Beginning on the date
of a Change of Control (as defined below), this Section 0 shall govern
Executive's employment and compensation by the Company and the other matters
referred to herein, and any other employment or severance agreement, arrangement
or policy otherwise applicable to the Executive, including, without limitation,
Sections 0 through 0, shall be superseded by this Section.
(a) Definitions. As used in this Section 0, the following terms shall have the
meanings indicated below.
(i) "Change of Control" means a change of control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change of
Control shall be deemed to have occurred if:
(A) any person or group (as such terms are used in connection
with Sections 13(d) and 14(d) of the Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company's then outstanding securities;
(B) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or
(C) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors. Notwithstanding the foregoing provisions of
this Section 0(0)(0), a "Change of Control" will not be deemed to have occurred
solely because of the acquisition of securities of the Company (or any reporting
requirement under the Act relating thereto) by an employee benefit plan
maintained by the Company for its employees.
(ii) "Term of Post-Takeover Employment" means the period beginning on
the date of a "Change of Control" and ending on the earliest of:
(A) Executive's 65th birthday,
(B) Executive's death,
(C) the date on which this Agreement terminates in accordance
with Section 0(0), and
(D) the date on which all rights and obligations of the parties
hereto have been satisfied in accordance with the terms of this Agreement.
Neither the expiration of the Term of Post-Takeover Employment nor the
termination of this Agreement will relieve the Company of the obligation to
provide Executive, in accordance with the terms hereof, the payments, benefits
and coverage to which he has become entitled under this Agreement.
(b) Either the Company or Executive may, by giving 60 days' written notice to
the other party, terminate the Agreement as of the third, or any subsequent,
anniversary of the Change of Control.
(c) Termination of Employment.
(i) In the event Executive's employment is terminated by the Company
during the Term of Post-Takeover Employment for any reason other than "Cause"
(as defined in Section 0(0)(0) the Company will pay Executive:
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<PAGE>
(A) a lump sum cash payment, payable within 30 days of his
termination, equal to 300% of the sum of:
(1) Executive's highest annual base salary in effect at any
time prior to his termination, plus
(2) the highest aggregate amount included by the Company on
his Form W-2 for fringe benefits provided in any of the three calendar years
prior to his termination, plus
(3) his highest bonus for any of the three full fiscal years
of the Company immediately preceding his termination; plus
(B) a lump sum cash payment, payable within 30 days of his
termination, equal to 300% of the employer contribution made for his benefit
under the Company's 401(k) plan for the last fiscal year of the Company ending
prior to the Change of Control.
(ii) In the event of a termination described in Section 0(0)(0),
Executive, together with his dependents and beneficiaries, will continue
following his termination to participate fully in accordance with Section 0(0)
in all life insurance plans, accident and health plans and other welfare plans,
maintained or sponsored by the Company immediately prior to the Change of
Control, or receive substantially equivalent coverage (or the full value thereof
in cash) from the Company, until the later of
(A) the end of Executive's Term of Post-Takeover Employment or
(B) the first anniversary of his termination.
The period of time between such a termination and the next following anniversary
of the Change of Control will be counted as service with the Company for
purposes of any benefit plan of the Company in which Executive is participating
at the time of the termination.
(iii) In the event of a termination described in 0(0), Executive will
become immediately entitled to exercise any and all stock options previously
granted to him by the Company notwithstanding any provision to the contrary of
the option or any plan under which it was granted.
(iv) Upon the occurrence of any breach by the Company of this
Agreement within the meaning of Section 0(0)(0), Executive may give the Company
written notice of his intention to resign effective the 30th day following the
date of such notice. If the Company does not fully remedy such breach within 15
days of the date of such notice, Executive's resignation will become effective
on such 30th day. If Executive resigns in accordance with this Section during
the Term of Post-Takeover Employment, his employment will be deemed to have been
terminated by the Company for reasons other than Cause (and he will be deemed to
have offered to continue to provide services to the Company), and he will be
entitled to all the payments and rights and benefits described in Sections
0(0)(0), 0(0)(0) and 0(0)(0) provided that such payments and rights and benefits
will in no event be less than they would have been had such termination taken
place on the date that the Company first breached this Agreement.
(v) The following events are breaches by the Company of this Agreement
within the meaning of this Section 0(0)(0):
(A) any reduction of, or failure to pay, Executive's salary or
bonus as described in Sections 0(0) or 0(0);
(B) any failure to provide the benefits required by 0(0);
(C) assignment to Executive of any duties inconsistent in any
respect with his position (including status, offices and titles), authority,
duties or responsibilities as contemplated by Section 0, or any other action by
the Company which results in a diminution of such position, authority, duties or
responsibilities;
(D) failure after a Change of Control to comply with and satisfy
Section 0(0)(0) or 0(0)(0);
(E) relocation of the Company's principal executive offices, or
any event that causes Executive to have his principal place of work changed, to
any location outside the area where its corporate headquarters are located at
the time of the Change of Control;
(F) any requirement by the Company that Executive travel away
from his office in the course of his duties significantly more than the number
of consecutive days or aggregate days in any calendar year than was required of
him prior to the Change of Control; and
(G) without limiting the generality or effect of the foregoing,
any other material breach of this Agreement by the Company or any successor
thereto or transferee of substantially all the assets thereof.
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<PAGE>
(vi) If Executive is dismissed by the Company for Cause, he will not
be entitled to payments, benefits or acceleration of exercisability of options
provided under Sections 0(0)(0), 0(0)(0) or 0(0)(0). "Cause" means only the
willful commission by Executive of theft, embezzlement or other serious and
substantial crimes against the Company. For purposes of this definition, no act
or omission shall be considered to have been "willful" unless it was not in good
faith and Executive knew at the time that the act or omission was not in the
best interest of the Company.
(vii) If Executive's employment is alleged to be terminated for Cause
or if Executive's right to resign under Section 0(0)(0) is disputed, Executive
may initiate binding arbitration in Suffolk County, New York, before the
American Arbitration Association by serving a notice to arbitrate upon the
Company or, at Executive's election, institute judicial proceedings, in either
case within 90 days of the effective date of his termination or, if later, his
receipt of notice of termination, or such longer period as may be reasonably
necessary for Executive to take such action if illness or incapacity should
impair his taking such action within the 90-day period. The Company agrees
(A) to pay the costs and expenses (including Executive's counsel
fees), and
(B) to pay interest to Executive on any amounts ultimately found
to be due to Executive hereunder during any period of time that such amounts are
withheld pending arbitration and/or judicial proceedings. Such interest will be
at a rate of 2% over the base rate most recently announced by the Company's
principle bank prior to the commencement of the arbitration.
(viii) Termination of employment due to the death or total and
permanent disability of Executive will not be considered a termination for
purposes of this Section.
(ix) If Executive dies following a termination of employment which
entitled him to benefits under this Section 0(0) but prior to receipt of all
such benefits:
(A) his beneficiary (as designated to the Company in writing) or,
if none, his estate, will be entitled to receive all unpaid amounts due
hereunder; and
(B) his beneficiary or estate will be entitled to exercise
options in accordance with Section 0(0)(0) and the terms of the options.
(d) No Obligation to Mitigate. There shall be no requirement on the Executive's
part to seek other employment or otherwise mitigate in order to be entitled to
the full amount of any payments or benefits hereunder.
(e) Limitation.
(i) Notwithstanding any other provision of this Agreement, and except
as provided in Section 0(0)(0), the payments or benefits to which Executive will
be entitled under Section 0(0) of this Agreement will be reduced to the extent
necessary so that Executive will not be liable for the federal excise tax levied
on certain "excess parachute payments" under section 4999 of the Code.
(ii) The limitation of Section 0(0)(0) will not apply if:
(A) the difference between
(1) the present value of all payments to which Executive is
entitled under Section 0(0) of this Agreement determined without regard to
Section 0(0)(0), less
(2) the present value of all federal, state, and other
income and excise taxes for which Executive is liable as a result of such
payments; exceeds
(B) the difference between
(1) the present value of all payments to which Executive is
entitled under Section 0(0) of this Agreement calculated as if the limitation
of Section 0(0)(0) applies, less
(2) the present value of all federal, state, and other
income and excise taxes for which Executive is liable as a result of such
reduced payments. Present values will be determined using the interest rate
specified in section 280G of the Code and will be the present values as of the
date on which Executive's employment terminates (unless it is necessary to use a
different date in order to avoid adverse consequences under section 280G).
(iii) Whether payments to the Executive are to be reduced pursuant to
Section 0(0)(0), and the extent to which they are to be so reduced, will be
determined by the Executive. Executive may, at the expense of the Company, hire
an accounting firm, law firm or employment consulting firm selected by Executive
to assist him in such determination.
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(iv) If a reduction is made pursuant to Section 0(0)(0), Executive
will have the right to determine which payments and benefits will be reduced.
(f) Expenses.
(i) It is the intent of the Company that the Executive not be required
to incur any expenses associated with the enforcement of his rights under this
Agreement by legal action or arbitration proceeding because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if Executive determines in good faith that
the Company has failed to comply with any of its obligations under this
Agreement, or if the Company or any other person takes any action to declare
this Agreement void or unenforceable, or institutes any legal action or
arbitration proceeding designed to deny Executive, or to recover from him, the
benefits intended to be provided hereunder, or in the event of actions
instituted as contemplated by Section 0(0)(0), the Company irrevocably
authorizes Executive from time to time to retain counsel of his choice, at the
expense of the Company as hereafter provided, to represent Executive in
connection with any and all actions and proceedings, whether by or against the
Company or any director, officer, stockholder or other person affiliated with
the Company, which may adversely affect Executive's rights under this Agreement.
In addition, notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company irrevocably consents to
Executive's entering into an attorney-client relationship with such counsel and
agrees that a confidential relationship shall exist between Executive and such
counsel. Without limiting the effect of Section 0(0)(0) or of the foregoing
provisions of this Section 0(0)(0), the Company shall pay or cause to be paid
and shall be solely responsible for any and all attorneys' and related fees and
expenses incurred by Executive as a result of the Company's failure to perform
under this Agreement.
(ii) Without limiting the effect of Section 0(0)(0), in order to
ensure the benefits intended to be provided to the Executive under such Section,
the Company will, if a Change of Control becomes likely or occurs, use
reasonable efforts to obtain an irrevocable $1,000,000 letter of credit issued
by a bank having combined capital and surplus in excess of $100,000,000, or
alternatively to place that amount in escrow or trust with such a bank, to
provide a fund for the benefit of Executive and other employees of the Company
with similar agreements with respect to enforcement of their rights under their
agreements, all on such terms as the Company shall consider appropriate when it
obtains such a letter of credit or establishes such a fund.
(g) Merger or Acquisition.
(i) If the Company is at any time before or after a Change of Control
merged with or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if substantially all of
the assets of the Company are transferred to another corporation or other
entity, the corporation or other entity resulting from such merger or
consolidation, or the acquirer of such assets, shall (by agreement in form and
substance satisfactory to Executive) expressly assume the obligations of the
Company under this Agreement. In any event, however, the provisions of this
Agreement shall be binding upon and inure to the benefit of the corporation or
other entity resulting from such merger or consolidation or the acquirer of such
assets, and this Section 0(0) will apply in the event of any subsequent
merger or consolidation or transfer of assets.
(ii) In the event of any merger, consolidation or sale of assets
described above, nothing contained in this Agreement will detract from or
otherwise limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing pension group insurance
hospitalization or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.
(iii) In the event of any merger, consolidation or sale of assets
described above, references to the Company in this Agreement shall unless the
context suggests otherwise be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
13. Entire Agreement; Amendments. This Agreement contains the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior discussions, agreements and understandings of every nature
between them. This Agreement may not be changed or modified, except by an
agreement in writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day of year first above written.
/s/ David E. Hershberg
--------------------------------------
David E. Hershberg
6
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Worldcomm Systems, Inc.
By: /s/ Kenneth A. Miller
--------------------------------
ATTEST:
/s/ Thomas A. DiCicco
- -------------------------
Secretary
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of January 27, 1997 by and between Kenneth A.
Miller, a resident of Huntington, New York (the "Executive"), and Worldcomm
Systems, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Company").
RECITALS
The Executive is currently the Chairman of the Board and Chief Executive Officer
of the Company. The Board of Directors of the Company desires assurance that the
Executive will continue as its leader for at least the next three years. The
Company further wishes to assure itself of continuity of management in the event
of any actual or threatened change in the control of the Company, and believes
it is important that Executive be able to assess and advise the Company whether
supporting a change in control would be in the best interests of the Company and
its shareholders without being influenced by the uncertain effect of such a
change upon Executive's role within the Company. The Executive is willing to
commit to undertake his responsibilities as Chairman of the Board and Chief
Executive Officer of the Company on the terms and conditions hereinafter set
forth. The parties therefore agree as follows.
1. Employment and Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for the period commencing
on the date hereof and continuing until the third anniversary of such date and
from year to year thereafter, unless terminated by either party by written
notice of termination given to the other party. Termination by the Company of
the employment of Executive hereunder shall be effective (a) 90 days after the
date such notice is given if such termination is pursuant to Sections 0 or 0
below, or (b) immediately upon the date such notice is given if such termination
is pursuant to Section 0 below.
2. Responsibilities. During the term of his employment, the Executive shall
devote his full time, attention, loyalty, skill and efforts to the performance
of his responsibilities to the Company as Chairman of the Board and Chief
Executive Officer. The Company will not during the terms of this Agreement
demote the Executive or reduce his responsibility as the Chairman of the Board
and Chief Executive Officer, or otherwise reduce his stature in the Company.
3. Compensation. The Company shall pay or provide to the Executive, and
the Executive shall accept, the following as full compensation for all services
rendered hereunder. All compensation shall be subject to all applicable
withholding and similar requirements.
(a) Base Salary. The Company shall pay to the Executive a base salary (the "Base
Salary") at the annual rate of $160,000. The Base Salary shall be reviewed on an
annual basis and may be increased from time to time at the discretion of the
Board of Directors.
(b) Bonus or Incentive Compensation. Executive will participate in any bonus or
incentive compensation plan (including stock option and stock bonus plans)
approved by the Board of Directors for senior management of the Company.
(c) Benefits. The Company shall provide to the Executive, without any payment or
contribution by the Executive or members of his family, throughout his
employment by the Company the following benefits:
(i) Life Insurance. A life insurance policy in the amount of three
times the Base Salary, payable to the beneficiaries designated by the Executive.
(ii) Disability Insurance. Disability Insurance providing the
Executive with monthly payments during the period of his disability (after
termination of his employment) in an amount equal to 1/12th of his then
applicable annual Base Salary immediately prior to his disability. If the
disability insurance policy should begin payment while the Executive is still
being compensated by the Company under the terms of this Agreement, the
Executive will reimburse the Company for all portions of such payments which
cause his total compensation to exceed the amounts otherwise payable to the
Executive under the terms of this Agreement.
(iii) Medical. Medical insurance protection for the Executive and his
family at least as favorable to the Executive and his family as the protection
and plan being made available to them on the date of this Agreement. In
addition, if not covered by insurance, the Company shall provide the Executive
with an annual health checkup.
(iv) Professional Services Allowance. The Company will pay up to
$2,500 per year for Executive's tax planning and preparation and/or other
financial planning services used by the Executive.
(v) Automobile. The Company will furnish the Executive, without cost
to him, with a Company-owned or leased automobile of the make and model then
authorized by the Company's policy or provide an allowance for that purpose.
<PAGE>
(vi) Other. Such other benefits, not duplicative of the foregoing,
which the Board of Directors may now or in the future make available to its
senior executives.
4. Support and Expenses. The Company shall provide the Executive with an office,
staff and other support appropriate for the Chairman of the Board and Chief
Executive Officer of an organization of the stature of the Company, and shall
pay or reimburse the Executive for all reasonable travel and other expenses
incurred by him in connection with the performance of his services under this
Agreement upon presentation of expense statements or vouchers and such other
supporting information as the Company may from time to time reasonably request.
5. Termination by Company After Initial Term. If the Company shall terminate the
employment of Executive after the end of the third year of this Agreement, for a
reason other than "disability" or "cause," as defined in Section 0 hereof, the
Company shall continue to pay the Executive all of his compensation set forth in
Section 0 hereof through the effective date of termination. Thereafter the
Company shall pay to the Executive any compensation and other benefits which
were vested as of the effective date of termination but payable at a later date.
In addition to all of the foregoing, the Company shall pay to the Executive on
the first business day of the month following the effective date of termination
severance pay (herein called "Severance Pay") in a lump sum equal to 1/12th of
his then applicable annual Base Salary.
6. Termination by Company Prior to End of Initial Term. If the Company shall
terminate the employment of Executive prior to the end of the third year of this
Agreement, for a reason other than "disability" or "cause" as defined in Section
0 hereof, or if the Executive shall terminate his employment after the Company
has committed a material breach of this Agreement, then the Company shall pay to
the Executive as they become due, amounts otherwise payable to the Executive if
he had remained in the employment of the Company until the end of the third year
of this Agreement. In addition, the Company shall (i) forthwith pay Severance
Pay computed in accordance with Section 0 hereof, (ii) thereafter pay all
amounts of compensation and benefits which were vested on the date of
termination but not payable until a later date, including amounts payable under
Section 0(0) hereof, and (iii) comply with Section 0 hereof.
7. Termination for Disability or Cause. The Company may terminate the
Executive's employment due to "disability" if the Board of Directors shall
determine in good faith, that, by reason of physical or mental illness or other
condition continuing for more than one hundred and twenty (120) consecutive days
or for shorter periods aggregating more than one hundred and twenty (120) days
in any period of twelve (12) months (excluding in each case days on which on the
Executive was on vacation), the Executive has been substantially unable to
render services of the character contemplated by this Agreement. The Company may
terminate the Executive's employment for "cause" if the Board of Directors shall
determine in good faith that there shall have been a willful breach by the
Executive in a material manner of his duty of loyalty to the Company. If the
Company shall terminate the employment of Executive for disability or for cause
at any time, the Company shall have no further obligation hereunder except for
payment of Base Salary for services previously rendered, payment or provision of
other compensation or benefits previously vested, and the duty set forth in
Section 0 hereof.
8. Voluntary Termination. If prior to breach of this Agreement by the Company,
the Executive shall resign as an employee during the term of his employment, the
Company shall have no further obligation hereunder except for payment of Base
Salary for services previously rendered, payment or provision of other
compensation or benefits previously vested, and the duty set forth in Section 0
hereof.
9. Insurance after Termination. Except in case of termination voluntarily by the
Executive, or termination for Cause, the Company shall continue coverage of the
Executive and his family under the Company's group life, health and disability
insurance plans for a period of one year following termination. If such plans do
not continue to protect the Executive after termination of employment, the
Company will use its best efforts upon termination of the Executive's employment
for any reason other than death to arrange for transfer from a Company plan to
the Executive (to be carried, except in case of termination for Cause, at the
Company's expense for a period of one year and thereafter at his own expense)
any life, health and disability insurance protection which may be so
transferred.
10. Covenant Not to Compete. The Executive covenants and agrees that, from the
date hereof and until (i) thirty-six months following resignation by the
Executive pursuant to Section 0 hereof, or (ii) in the case of any other
termination of Executive's employment, six months following the date upon which
the final payment of amounts payable to the Executive by the Company by reason
of such termination becomes due, he shall not, either directly or indirectly,
(a) engage in or conduct any business competitive with the Company's business,
whether individually or as an employee, agent, officer, director, owner,
consultant or otherwise, without the prior written consent of the Board of
Directors of the Company, or (b) induce or attempt to induce any existing or
future
2
<PAGE>
employee or consultant of the Company or any of its Affiliates to leave
such employment.
11. Litigation. If litigation shall be brought by either party to enforce or
interpret any provision contained herein and such party (the "prevailing party")
shall prevail on any issue contested in such litigation either through
settlement or judgment in favor of the prevailing party, the other party shall
reimburse the prevailing party for reasonable attorneys' fees and disbursements
incurred by the prevailing party in such litigation, and shall pay prejudgment
interest on any money judgment obtained by the prevailing party calculated at
the rate in effect from time to time designated by the Company's principal bank
as its prime rate from the date of the breach by such other party under this
Agreement.
12. Provisions Becoming Effective upon Change in Control. Beginning on the date
of a Change of Control (as defined below), this Section 0 shall govern
Executive's employment and compensation by the Company and the other matters
referred to herein, and any other employment or severance agreement, arrangement
or policy otherwise applicable to the Executive, including, without limitation,
Sections 0 through 0, shall be superseded by this Section.
(a) Definitions. As used in this Section 0, the following terms shall have the
meanings indicated below.
(i) "Change of Control" means a change of control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change of
Control shall be deemed to have occurred if:
(A) any person or group (as such terms are used in connection
with Sections 13(d) and 14(d) of the Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting power
of the Company's then outstanding securities;
(B) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or
(C) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors. Notwithstanding the foregoing provisions of
this Section 0((0))((0)), a "Change of Control" will not be deemed to have
occurred solely because of the acquisition of securities of the Company (or any
reporting requirement under the Act relating thereto) by an employee benefit
plan maintained by the Company for its employees.
(ii) "Term of Post-Takeover Employment" means the period beginning on
the date of a "Change of Control" and ending on the earliest of:
(A) Executive's 65th birthday,
(B) Executive's death,
(C) the date on which this Agreement terminates in accordance
with Section 0((0)), and
(D) the date on which all rights and obligations of the parties
hereto have been satisfied in accordance with the terms of this Agreement.
Neither the expiration of the Term of Post-Takeover Employment nor the
termination of this Agreement will relieve the Company of the obligation to
provide Executive, in accordance with the terms hereof, the payments, benefits
and coverage to which he has become entitled under this Agreement.
(b) Either the Company or Executive may, by giving 60 days' written notice to
the other party, terminate the Agreement as of the third, or any subsequent,
anniversary of the Change of Control.
(c) Termination of Employment.
(i) In the event Executive's employment is terminated by the Company
during the Term of Post-Takeover Employment for any reason other than "Cause"
(as defined in Section 0((0))((0))) the Company will pay Executive:
(A) a lump sum cash payment, payable within 30 days of his
termination, equal to
3
<PAGE>
300% of the sum of:
(1) Executive's highest annual base salary in effect at any
time prior to his termination, plus
(2) the highest aggregate amount included by the Company on
his Form W-2 for fringe benefits provided in any of the three calendar years
prior to his termination, plus
(3) his highest bonus for any of the three full fiscal years
of the Company immediately preceding his termination; plus
(B) a lump sum cash payment, payable within 30 days of his
termination, equal to 300% of the employer contribution made for his benefit
under the Company's 401(k) plan for the last fiscal year of the Company ending
prior to the Change of Control.
(ii) In the event of a termination described in Section 0((0))((0)),
Executive, together with his dependents and beneficiaries, will continue
following his termination to participate fully in accordance with Section 0((0))
in all life insurance plans, accident and health plans and other welfare plans,
maintained or sponsored by the Company immediately prior to the Change of
Control, or receive substantially equivalent coverage (or the full value thereof
in cash) from the Company, until the later of
(A) the end of Executive's Term of Post-Takeover Employment or
(B) the first anniversary of his termination.
The period of time between such a termination and the next following anniversary
of the Change of Control will be counted as service with the Company for
purposes of any benefit plan of the Company in which Executive is participating
at the time of the termination.
(iii) In the event of a termination described in 0((0)), Executive
will become immediately entitled to exercise any and all stock options
previously granted to him by the Company notwithstanding any provision to the
contrary of the option or any plan under which it was granted.
(iv) Upon the occurrence of any breach by the Company of this
Agreement within the meaning of Section 0((0))((0)), Executive may give the
Company written notice of his intention to resign effective the 30th day
following the date of such notice. If the Company does not fully remedy such
breach within 15 days of the date of such notice, Executive's resignation will
become effective on such 30th day. If Executive resigns in accordance with this
Section during the Term of Post-Takeover Employment, his employment will be
deemed to have been terminated by the Company for reasons other than Cause (and
he will be deemed to have offered to continue to provide services to the
Company), and he will be entitled to all the payments and rights and benefits
described in Sections 0((0))((0)), 0((0))((0)) and 0((0))((0)) provided
that such payments and rights and benefits will in no event be less than they
would have been had such termination taken place on the date that the Company
first breached this Agreement.
(v) The following events are breaches by the Company of this Agreement
within the meaning of this Section 0((0))((0)):
(A) any reduction of, or failure to pay, Executive's salary or
bonus as described in Sections 0((0)) or 0((0));
(B) any failure to provide the benefits required by 0((0));
(C) assignment to Executive of any duties inconsistent in any
respect with his position (including status, offices and titles), authority,
duties or responsibilities as contemplated by Section 0, or any other action by
the Company which results in a diminution of such position, authority, duties or
responsibilities;
(D) failure after a Change of Control to comply with and satisfy
Section 0((0))((0)) or 0((0))((0));
(E) relocation of the Company's principal executive offices, or
any event that causes Executive to have his principal place of work changed, to
any location outside the area where its corporate headquarters are located at
the time of the Change of Control;
(F) any requirement by the Company that Executive travel away
from his office in the course of his duties significantly more than the number
of consecutive days or aggregate days in any calendar year than was required of
him prior to the Change of Control; and
(G) without limiting the generality or effect of the foregoing,
any other material breach of this Agreement by the Company or any successor
thereto or transferee of substantially all the assets thereof.
(vi) If Executive is dismissed by the Company for Cause, he will not
be entitled to payments,
4
<PAGE>
benefits or acceleration of exercisability of options provided under Sections
0((0))((0)), 0((0))((0)) or 0((0))((0)). "Cause" means only the willful
commission by Executive of theft, embezzlement or other serious and substantial
crimes against the Company. For purposes of this definition, no act or omission
shall be considered to have been "willful" unless it was not in good faith and
Executive knew at the time that the act or omission was not in the best interest
of the Company.
(vii) If Executive's employment is alleged to be terminated for Cause
or if Executive's right to resign under Section 0((0))((0)) is disputed,
Executive may initiate binding arbitration in Suffolk County, New York, before
the American Arbitration Association by serving a notice to arbitrate upon the
Company or, at Executive's election, institute judicial proceedings, in either
case within 90 days of the effective date of his termination or, if later, his
receipt of notice of termination, or such longer period as may be reasonably
necessary for Executive to take such action if illness or incapacity should
impair his taking such action within the 90-day period. The Company agrees
(A) to pay the costs and expenses (including Executive's counsel
fees), and
(B) to pay interest to Executive on any amounts ultimately found
to be due to Executive hereunder during any period of time that such amounts are
withheld pending arbitration and/or judicial proceedings. Such interest will be
at a rate of 2% over the base rate most recently announced by the Company's
principle bank prior to the commencement of the arbitration.
(viii) Termination of employment due to the death or total and
permanent disability of Executive will not be considered a termination for
purposes of this Section.
(ix) If Executive dies following a termination of employment which
entitled him to benefits under this Section 0((0)) but prior to receipt of all
such benefits:
(A) his beneficiary (as designated to the Company in writing) or,
if none, his estate, will be entitled to receive all unpaid amounts due
hereunder; and
(B) his beneficiary or estate will be entitled to exercise
options in accordance with Section 0((0))((0)) and the terms of the options.
(d) No Obligation to Mitigate. There shall be no requirement on the Executive's
part to seek other employment or otherwise mitigate in order to be entitled to
the full amount of any payments or benefits hereunder.
(e) Limitation.
(i) Notwithstanding any other provision of this Agreement, and except
as provided in Section 0((0))((0)), the payments or benefits to which Executive
will be entitled under Section 0((0)) of this Agreement will be reduced to the
extent necessary so that Executive will not be liable for the federal excise tax
levied on certain "excess parachute payments" under section 4999 of the Code.
(ii) The limitation of Section 0((0))((0)) will not apply if:
(A) the difference between
(1) the present value of all payments to which Executive is
entitled under Section 0((0)) of this Agreement determined without regard to
Section 0((0))((0)), less
(2) the present value of all federal, state, and other
income and excise taxes for which Executive is liable as a result of such
payments; exceeds
(B) the difference between
(1) the present value of all payments to which Executive is
entitled under Section 0((0)) of this Agreement calculated as if the limitation
of Section 0((0))((0)) applies, less
(2) the present value of all federal, state, and other
income and excise taxes for which Executive is liable as a result of such
reduced payments. Present values will be determined using the interest rate
specified in section 280G of the Code and will be the present values as of the
date on which Executive's employment terminates (unless it is necessary to use a
different date in order to avoid adverse consequences under section 280G).
(iii) Whether payments to the Executive are to be reduced pursuant to
Section 0((0))((0)), and the extent to which they are to be so reduced, will be
determined by the Executive. Executive may, at the expense of the Company, hire
an accounting firm, law firm or employment consulting firm selected by Executive
to assist him in such determination.
(iv) If a reduction is made pursuant to Section 0((0))((0)), Executive
will have the right to determine which payments and benefits will be reduced.
5
<PAGE>
(f) Expenses.
(i) It is the intent of the Company that the Executive not be required
to incur any expenses associated with the enforcement of his rights under this
Agreement by legal action or arbitration proceeding because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if Executive determines in good faith that
the Company has failed to comply with any of its obligations under this
Agreement, or if the Company or any other person takes any action to declare
this Agreement void or unenforceable, or institutes any legal action or
arbitration proceeding designed to deny Executive, or to recover from him, the
benefits intended to be provided hereunder, or in the event of actions
instituted as contemplated by Section 0((0))((0)), the Company irrevocably
authorizes Executive from time to time to retain counsel of his choice, at the
expense of the Company as hereafter provided, to represent Executive in
connection with any and all actions and proceedings, whether by or against the
Company or any director, officer, stockholder or other person affiliated with
the Company, which may adversely affect Executive's rights under this Agreement.
In addition, notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company irrevocably consents to
Executive's entering into an attorney-client relationship with such counsel and
agrees that a confidential relationship shall exist between Executive and such
counsel. Without limiting the effect of Section 0((0))((0)) or of the
foregoing provisions of this Section 0((0))((0)), the Company shall pay or
cause to be paid and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by Executive as a result of the Company's
failure to perform under this Agreement.
(ii) Without limiting the effect of Section 0((0))((0)), in order to
ensure the benefits intended to be provided to the Executive under such Section,
the Company will, if a Change of Control becomes likely or occurs, use
reasonable efforts to obtain an irrevocable $1,000,000 letter of credit issued
by a bank having combined capital and surplus in excess of $100,000,000, or
alternatively to place that amount in escrow or trust with such a bank, to
provide a fund for the benefit of Executive and other employees of the Company
with similar agreements with respect to enforcement of their rights under their
agreements, all on such terms as the Company shall consider appropriate when it
obtains such a letter of credit or establishes such a fund.
(g) Merger or Acquisition.
(i) If the Company is at any time before or after a Change of Control
merged with or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if substantially all of
the assets of the Company are transferred to another corporation or other
entity, the corporation or other entity resulting from such merger or
consolidation, or the acquirer of such assets, shall (by agreement in form and
substance satisfactory to Executive) expressly assume the obligations of the
Company under this Agreement. In any event, however, the provisions of this
Agreement shall be binding upon and inure to the benefit of the corporation or
other entity resulting from such merger or consolidation or the acquirer of such
assets, and this Section 0((0)) will apply in the event of any subsequent
merger or consolidation or transfer of assets.
(ii) In the event of any merger, consolidation or sale of assets
described above, nothing contained in this Agreement will detract from or
otherwise limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing pension group insurance
hospitalization or other incentive or benefit plan or arrangement which may be
or become applicable to executives of the corporation resulting from such merger
or consolidation or the corporation acquiring such assets of the Company.
(iii) In the event of any merger, consolidation or sale of assets
described above, references to the Company in this Agreement shall unless the
context suggests otherwise be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
13. Entire Agreement; Amendments. This Agreement contains the entire agreement
and understanding of the parties relating to the subject matter hereof and
supersedes all prior discussions, agreements and understandings of every nature
between them. This Agreement may not be changed or modified, except by an
agreement in writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the day of year first above written.
/s/ Kenneth A. Miller
------------------------------
Kenneth A. Miller
Worldcomm Systems, Inc.
<PAGE>
Worldcomm Systems, Inc.
By: /s/ David E. Hershberg
----------------------------
ATTEST:
/s/ Thomas A. DiCicco
- ------------------------
Secretary
<PAGE>
Exhibit 10.11
12/1/92 SIN
LEASE
---------------------------
RREEF USA FUND-I,
Landlord
WORLD SYSTEMS INC.,
Tenant
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
1. USE AND RESTRICTIONS ON USE ....................................... 1
2. TERM .............................................................. 1
3. RENT .............................................................. 2
4. TAXES ............................................................. 2
5. SECURITY DEPOSIT .................................................. 3
6. ALTERATIONS ....................................................... 3
7. REPAIR ............................................................ 4
8. LIENS ............................................................. 5
9. ASSIGNMENT AND SUBLETTING ......................................... 5
10. INDEMNIFICATION ................................................... 6
11. INSURANCE ......................................................... 7
12. WAIVER OF SUBROGATION ............................................. 7
13. SERVICES AND UTILITIES ............................................ 7
14. HOLDING OVER ...................................................... 8
15. SUBORDINATION ..................................................... 8
16. REENTRY BY LANDLORD ............................................... 8
17. DEFAULT ........................................................... 8
18. REMEDIES .......................................................... 9
19. TENANT'S BANKRUPTCY OR INSOLVENCY ................................. 1l
20. QUIET ENJOYMENT ................................................... 12
21. DAMAGE BY FIRE, ETC ............................................... 12
22. EMINENT DOMAIN .................................................... 13
23. SALE BY LANDLORD .................................................. 13
24. ESTOPPEL CERTIFICATES ............................................. 14
25. SURRENDER OF PREMISES ............................................. 14
26. NOTICES .......................................................... 14
i
<PAGE>
27. TAXES PAYABLE BY TENANT ........................................... 15
28. DEFINED TERMS AND HEADINGS ........................................ 15
29. TENANT'S AUTHORITY ................................................ 15
30. COMMISSIONS ....................................................... 15
3l. TIME AND APPLICABLE LAW ........................................... 15
32. SUCCESSORS AND ASSIGNS ............................................ 15
33. ENTIRE AGREEMENT .................................................. 16
34. EXAMINATION NOT OPTION ............................................ 16
35. RECORDATION ....................................................... 16
36. LIMITATION OF LANDLORD'S LIABILITY ................................ 16
EXHIBIT A - PREMISES
EXHIBIT B - INITIAL ALTERATIONS
ii
<PAGE>
SINGLE TENANT INDUSTRIAL LEASE
REFERENCE PAGE
BUILDING: 375 Oser
Hauppauge, New York
LANDLORD: RREEF USA Fund-I, a California group trust
LANDLORD'S ADDRESS: 125 Maiden Lane, 5th Floor
New York, NY 10038
LEASE REFERENCE DATE: November 8, 1994
TENANT: Worldcomm Systems, Inc.
TENANT'S ADDRESS: 375 Oser
(a) As of beginning of Term: Hauppauge, New York
(b) Prior to beginning of Term 15 Warterview Drive
(if different): Port Jefferson, NY 11777
BUILDING RENTABLE AREA: approximately 20,000 sq. ft.
USE: executive and administrative office
SCHEDULED COMMENCEMENT DATE: November 15, 1994
TERMINATION DATE: November 30, 1998
TERM OF LEASE: 4 years, 0 months and 15 days beginning on
the Commencement Date and ending on the
Termination Date (unless sooner terminated
pursuant to the Lease)
INITIAL ANNUAL RENT (Article 3): $ See Rent Schedule, Article 39
INITIAL MONTHLY INSTALLMENT OF
ANNUAL RENT (Article 3): $ See Rent Schedule, Article 39
ASSIGNMENT/SUBLETTING FEE: $ 500.00
SECURITY DEPOSIT: $ 30,000.00 See Rider
REAL ESTATE BROKER DUE COMMISSION: Breiner-Maltz
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control. This Lease includes Exhibits A through C,
all of which are made a part of this Lease.
LANDLORD: TENANT:
RREEF USA Fund-I, a California
Group Trust Worldcomm Systems, Inc.
- ------------------------------ ----------------------------------------
By: RREEF Management Company, ----------------------------------------
a California corporation
By: /s/ Alane S. Berkowitz By: /s/ David E. Hershberg
-------------------------- ------------------------------------
Title: Alane S. Berkowitz, Title: CEO
District Manager
Dated: 11-15-94 Dateed: 11/14/94
<PAGE>
LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord the
Building as set forth and described on the Reference Page (the "Premises"). The
Reference Page, including all terms defined thereon, is incorporated as part of
this Lease.
1. USE AND RESTRICTIONS ON USE.
1.1 The Premises are to be used solely for the purposes stated on the
Reference Page. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way obstruct or interfere with the rights of
other tenants or occupants of the Building or injure, annoy, or disturb them or
allow the Premises to be used for any improper, immoral, unlawful, or
objectionable purpose. Tenant shall not do, permit or suffer in, on, or about
the Premises the sale of any alcoholic liquor without the written consent of
Landlord first obtained, or the commission of any waste. Tenant shall comply
with all governmental laws, ordinances and regulations applicable to the use of
the Premises and its occupancy and shall promptly comply with all governmental
orders and directions for the correction, prevention and abatement of any
violations in or upon, or in connection with, the Premises, all at Tenant's sole
expense. Tenant shall not do or permit anything to be done on or about the
Premises or bring or keep anything into the Premises which will in any way
increase the rate of, invalidate or prevent the procuring of any insurance
protecting against loss or damage to the Building or any of its contents by fire
or other casualty or against liability for damage to property or injury to
persons in or about the Building or any part thereof.
1.2 Tenant shall not, and shall not direct, suffer or permit any of its
agents, contractors, employees, licensees or invitees to at any time handle,
use, manufacture, store or dispose of in or about the Premises or the Building
any (collectively "Hazardous Materials") flammables, explosives, radioactive
materials, hazardous wastes or materials, toxic wastes or materials, or other
similar substances, petroleum products or derivatives or any substance subject
to regulation by or under any federal, state and local laws and ordinances
relating to the protection of the environment or the keeping, use or disposition
of environmentally hazardous materials, substances, or wastes, presently in
effect or hereafter adopted, all amendments to any of them, and all rules and
regulations issued pursuant to any of such laws or ordinances (collectively
"Environmental Laws"), nor shall Tenant suffer or permit any Hazardous Materials
to be used in any manner not fully in compliance with all Environmental Laws, in
the Premises or the Building and appurtenant land or allow the environment to
become contaminated with any Hazardous Materials. Notwithstanding the foregoing,
and subject to Landlord's prior consent, Tenant may handle, store, use or
dispose of products containing small quantities of Hazardous Materials (such as
aerosol cans containing insecticides, toner for copiers, paints, paint remover
and the like) to the extent customary and necessary for the use of the Premises
for general office purposes, provided that Tenant shall always handle, store,
use, and dispose of any such Hazardous Materials in a safe and lawful manner and
never allow such Hazardous Materials to contaminate the Premises, Building and
appurtenant land or the environment. Tenant shall protect, Defend, indemnify and
hold each and all of the Landlord Entities (as defined in Article 28) harmless
from and against any and all loss, Claims, liability or costs (including court
costs and attorney 5 fees) incurred by reason of any actual or asserted failure
of Tenant to fully comply with all applicable Environmental Laws, or the
presence, handling, use or disposition in or from the Premises of any Hazardous
Materials (even though permissible under all applicable Environmental Laws or
the provisions of this Lease), or by reason of any actual or asserted failure of
Tenant to keep, observe, or perform any provision of this Section 1.2.
See Rider
2. TERM.
2.1 The Term of this Lease shall begin on the date ("Commencement Date")
which shall be the later of the Scheduled Commencement Date as shown on the
Reference Page and the date that Landlord shall tender possession of the
Premises to Tenant. Landlord shall tender possession of the Premises with all
the work, if any, to be performed by Landlord pursuant to Exhibit B to this
Lease substantially completed. Tenant shall deliver a punch list
<PAGE>
of items not completed within 30 days after Landlord tenders possession of the
Premises and Landlord agrees to proceed with due diligence to perform its
obligations regarding such items. Landlord and Tenant shall execute a memorandum
setting forth the actual Commencement Date and Termination Date.
2.2 Tenant agrees that in the event of the inability of Landlord to deliver
possession of the Premises on the Scheduled Commencement Date. Landlord shall
not be liable for any damage resulting from such inability. but Tenant shall not
be liable for any rent until the time when Landlord can. after notice to Tenant,
deliver possession of the Premises to Tenant. No such failure to give possession
on the Scheduled Commencement Date shall affect the other obligations of Tenant
under this Lease, except that if Landlord is unable to deliver possession of the
Premises within one hundred twenty (120) days of the Scheduled Commencement Date
(other than as a result of strikes, shortages of materials or similar matters
beyond the reasonable control of Landlord and Tenant is notified by Landlord in
writing as to such delay). Tenant shall have the option to terminate this Lease
unless said delay is as a result of: (a) Tenant's failure to agree to plans and
specifications; (b) Tenant's request for materials, finishes or installations
other than Landlord's standard except those, if any, that Landlord shall have
expressly agreed to furnish without extension of time agreed by Landlord; (c)
Tenant's change in any plans or specifications; or, (d) performance or
completion by a party employed by Tenant. If any delay is the result of any of
the foregoing, the Commencement Date and the payment of rent under this Lease
shall be accelerated by the number of days of such delay.
2.3 In the event Landlord shall permit Tenant to occupy the Premises prior
to the Commencement Date, such occupancy shall be subject to all the provisions
of this Lease. Said early possession shall not advance the Termination Date.
3. RENT.
3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time to
time by paying the Monthly Installment of Rent then in effect on or before the
first day of each full calendar month during the Term, except that the first
month's rent shall be paid upon the execution of this Lease. The Monthly
Installment of Rent in effect at any time shall be one-twelfth of the Annual
Rent in effect at such time. Rent for any period during the Term which is less
than a full month shall be a prorated portion of the Monthly Installment of Rent
based upon a thirty (30) day month. Said rent shall be paid to Landlord, without
deduction or offset and without notice or demand, at the Landlord's address, as
set forth on the Reference Page, or to such other person or at such other place
as Landlord may from time to time designate in writing.
3.2 Tenant recognizes that late payment of any rent or other sum due under
this Lease will result in administrative expense to Landlord, the extent of
which additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if rent or any other sum is not paid
when due and payable pursuant to this Lease, a late charge shall be imposed in
an amount equal to the greater of: (a) Fifty Dollars ($50.00), or (b) a sum
equal to five percent (5%) per month of the unpaid rent or other payment. The
amount of the late charge to be paid by Tenant shall be reassessed and added to
Tenant's obligation for each successive monthly period until paid. The
provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay
rent or other payments on or before the date on which they are due, nor do the
terms of this Section 3.2 in any way affect Landlord's remedies pursuant to
Article 18 in the event said rent or other payment is unpaid after date due.
4. TAXES.
4.1 Tenant shall pay as additional rent all Taxes incurred on the Building
during the Term. Taxes shall be defined as real estate taxes and any other
taxes, charges and assessments which are levied with respect to the Building or
the land appurtenant to the Building, or with respect to any improvements,
fixtures and equipment or other property of Landlord, real or personal, located
in the Building and used in connection with the operation of the Building and
said land, any payments to any ground lessor in reimbursement of tax payments
<PAGE>
made by such lessor; and if a reduction, rebate or refund is obtained, all fees,
expenses and costs incurred by Landlord in investigating, protesting, contesting
or in any way seeking to reduce or avoid increase in any assessments, levies or
the lax rate pertaining to any Taxes to be paid by Landlord in any Lease Year.
Taxes shall not include any corporate franchise, or estate, inheritance or net
income tax, or tax imposed upon any transfer by Landlord of its interest in this
Lease or the Building.
4.2 Prior to the actual determination thereof, Landlord may from time to
time estimate Tenant's liability for Taxes under Section 4.1, Article 6 and
Article 27 for the lease year or portion thereof. Landlord will give Tenant
written notification of the amount of such estimate and Tenant agrees that it
will pay, by increase of its Monthly Installments of Rent due in such lease
year, additional rent in the amount of such estimate. Any such increased rate of
Monthly Installments of Rent pursuant to this Section 4.2 shall remain in effect
until further written notification to Tenant pursuant hereto. Landlord will
provide copies of all tax bills.
4.3 When the above mentioned actual determination of Tenant's liability for
Taxes is made in any lease year and when Tenant is so notified in writing, then:
4.3.1 If the total additional rent Tenant actually paid pursuant to
Section 4.2 is less than Tenant's liability for Taxes, then Tenant shall pay to
Landlord as additional rent in one lump sum within thirty (30) days of receipt
of Landlord's bill therefor such deficiency; and
4.3.2 If the total additional rent Tenant actually paid pursuant to
Section 4.2 is more than Tenant's liability for Taxes, then Landlord shall
credit the difference against the then next due payments to be made by Tenant
under this Article 4.
4.4 If the Commencement Date is other than January 1 or if the Termination
Date is other than December 31, Tenant's liability for Taxes for the year in
which said Date occurs shall be prorated based upon a three hundred sixty five
(365) day year.
4.5 Even though the Term has expired and Tenant has vacated the premises,
when the final determination is made of Tenant's liability for Taxes for the
year in which the Lease terminated. Tenant shall pay any difference due over the
estimated Taxes paid; and conversely any overpayment, less any amounts due
Landlord under this Lease, shall be rebated to Tenant.
5. SECURITY DEPOSIT.
Tenant shall deposit the Security Deposit with Landlord upon the execution of
this Lease. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this Lease
to be kept and performed by Tenant and not as an advance rental deposit or as a
measure of Landlord's damage in case of Tenant's default. If Tenant defaults
with respect to any provision of this Lease. Landlord may use any part of the
Security Deposit for the payment of any rent or any other sum in default, or for
the payment of any amount which Landlord may spend or become obligated to spend
by reason of Tenant's default, or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
is so used. Tenant shall within five (5) days after written demand therefor,
deposit with Landlord an amount sufficient to restore the Security Deposit to
its original amount and Tenant's failure to do so shall be a material breach of
this Lease. Except to such extent, if any, as shall be required by law, Landlord
shall not be required to keep the Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit. If Tenant
shall fully and faithfully perform every provision of this Lease to be performed
by it, the Security Deposit or any balance thereof shall be returned to Tenant
at such time after termination of this Lease when Landlord shall have determined
that all of Tenant's obligations under this Lease have been fulfilled.
See Rider
6. ALTERATIONS.
6.1 Except for those, if any, specifically provided for in Exhibit B to
this Lease. Tenant shall not make or suffer to be made any alterations.
additions, or improvements;
<PAGE>
including, but not limited to, the attachment of any fixtures or equipment in,
on, or to the Premises or any part thereof or the making of any improvements as
required by Article 7. without the prior written consent of Landlord, When
applying for such consent, Tenant shall, if requested by Landlord, furnish
complete plans and specifications for such alterations, additions and
improvements. See Rider
6.2 In the event Landlord consents to the making of any such alteration,
addition or improvement by Tenant, the same shall be made using Landlord's
contractor (unless Landlord agrees otherwise) at Tenant's sole cost and expense.
If Tenant shall employ any Contractor other than Landlord's Contractor and such
other Contractor or any Subcontractor of such other Contractor shall employ any
non-union labor or supplier, Tenant shall be responsible for and hold Landlord
harmless from any and all delays, damages and extra costs suffered by Landlord
as a result of any dispute with any labor unions concerning the wage, hours,
terms or conditions of the employment of any such labor. In any event Landlord
may charge Tenant a reasonable charge to cover its overhead as it relates to
such proposed work.
6.3 All alterations. additions or improvements proposed by Tenant shall be
constructed in accordance with all government laws, ordinances, rules and
regulations and Tenant shall. prior to construction, provide the additional
insurance required under Article II in such case, and also all such assurances
to Landlord, including but not limited to, waivers of lien, surety company
performance bonds Landlord shall require to assure payment of the costs thereof
and to protect Landlord and the Building and appurtenant land against any loss
from any mechanic's, materialmen's or other liens.
6.4 All alterations, additions, and improvements in, on, or to the Premises
made or installed by Tenant, including carpeting, shall be and remain the
property of Tenant during the Term but, excepting furniture, furnishings,
movable partitions of less than full height from floor to ceiling and other
trade fixtures, shall become a part of the realty and belong to Landlord without
compensation to Tenant upon the expiration or sooner termination of the Term, at
which time title shall pass to Landlord under this Lease as by a bill of sale,
unless Landlord elects otherwise. Upon such election by Landlord, Tenant shall
upon demand by Landlord, at Tenant's sole cost and expense, forthwith and with
all due diligence remove any such alterations, additions or improvements which
are designated by Landlord to be removed, and Tenant shall forthwith and with
all due diligence, at its sole cost and expense, repair and restore the Premises
to their original condition, reasonable wear and tear and damage by fire or
other casualty excepted.
6.5 Tenant shall pay in addition to any sums due pursuant to Article 4, any
increase in real estate taxes attributable to any such alteration, addition or
improvement for so long, during the Term, as such increase is ascertainable, at
Landlord's election said sums shall be paid in the same way as sums due under
Article 4.
7. REPAIR.
7.1 Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Premises, except as specified in Exhibit B if attached t
this Lease. By taking possession of the Premises, Tenant accepts them as being
in good order, condition and repair and in the condition in which Landlord is
obligated to deliver them. Tenant acknowledges that it is taking the Premises
"AS IS." It is hereby understood and agreed that no representations respecting
the condition of the Premises or the Building have been made by Landlord to
Tenant, except as specifically set forth in this Lease. Landlord shall not be
liable for any failure to make any repairs or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. See Rider
7.2 Except for Landlord's obligations under Section 7.1, Tenant shall at
its own cost and expense keep and maintain all parts of the Premises in good
condition, promptly making all necessary repairs and replacements, whether
structural or non-structural, ordinary or extraordinary, with materials and
workmanship of the same character, kind and quality as the original (including,
but not limited to, repair and replacement of all fixtures installed by Tenant,
water heaters serving
<PAGE>
the Premises, windows, glass and plate glass, doors, exterior stairs, skylights,
any special office entries, interior walls and finish work, floors and floor
coverings, heating and air conditioning systems, electrical systems and
fixtures, sprinkler systems, dock boards, truck doors, dock bumpers, parking
lots, driveways. landscaping, rail tracks serving the Premises, plumbing work
and fixtures, and performance of regular removal of trash and debris). Tenant as
part of its obligations hereunder shall keep the Premises in a clean and
sanitary condition, Tenant will, as far as possible keep all such parts of the
Premises from deterioration due to ordinary wear and from falling temporarily
out of repair, and upon termination of this Lease in any way Tenant will yield
up the Premises to Landlord in good condition and repair, loss by fire or other
casualty excepted (but not excepting any damage to glass).
7.3 Except as provided in Article 21, there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or to
fixtures, appurtenances and equipment in the Building. However, Landlord shall
use reasonable efforts to minimize interruption of Tenant's business during any
such activities.
7.4 Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
approved by Landlord and Tenant for servicing all heating and air conditioning
systems and equipment serving the Premises (and a copy thereof shall be
furnished to Landlord). The service contract must include all services suggested
by the equipment manufacturer in the operation/maintenance manual and must
become effective within thirty (30) days of the date Tenant takes possession of
the Premises. Landlord may, upon notice to Tenant, enter into such a
maintenance/service contract on behalf of Tenant, or perform the work and in
either case, charge Tenant the cost thereof along with a reasonable amount for
Landlord's overhead.
8. LIENS.
Tenant shall keep the Premises, the Building and appurtenant land and Tenant's
leasehold interest in the Premises free from an liens arising out of any
services, work or materials performed, furnished, or contracted for by Tenant,
or obligations incurred by Tenant. In the event that Tenant shall not, within
thirty (30) days following the imposition of any such lien, either cause the
same to be released of record or provide Landlord with insurance against the
same issued by a major title insurance company or such other protection against
the same as Landlord shall accept, Landlord shall have the right to cause the
same to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith shall be considered additional
rent and shall be payable to it by Tenant on demand.
9. ASSIGNMENT AND SUBLETTING.
9.1 Tenant shall not have the right to assign or pledge this Lease or to
sublet the whole or any part of the Premises whether voluntarily or by operation
of law, or permit the use or occupancy of the Premises by anyone other than
Tenant, and shall not make, suffer or permit such assignment, subleasing or
occupancy without the prior written consent of Landlord, and said restrictions
shall be binding upon any and all assignees of the Lease and subtenants of the
Premises. In the event Tenant desires to sublet, or permit such occupancy of,
the Premises, or any portion thereof, or assign this Lease. Tenant shall give
written notice thereof to Landlord at least ninety (90) days but no more than
one hundred eighty (180) days prior to the proposed commencement date of such
subletting or assignment, which notice shall set forth the name of the proposed
subtenant or assignee, the relevant terms of any sublease or assignment and
copies of financial reports and other relevant financial reports and other
relevant financial information of the proposed subtenant or assignee.
9.2 Notwithstanding any assignment or subletting, permitted or otherwise,
Tenant shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent specified in this Lease and for compliance
with all of its other obligations under the terms, provisions and covenants of
this Lease. Upon the occurrence of an Event of Default, if the Premises or any
part of them are then assigned or sublet. Landlord, in addition to any other
remedies provided in this Lease or provided by law, may, at its option, collect
directly from such assignee or subtenant all rents due and becoming due to
Tenant under such assignment or sublease and apply such rent against any sums
due to Landlord from Tenant under this Lease, and no such collection shall be
construed to constitute a novation or release of Tenant from the further
performance of Tenant's obligations under this Lease.
9.3 In addition to Landlord's right to approve of any subtenant or
assignee, Landlord shall have the option, in its sole discretion, in the event
of any proposed subletting of more than 50% of the Premises or assignment of the
Lease to terminate this Lease, or in the case of a proposed subletting of less
than he entire Premises, to recapture the portion of the Premises to be sublet,
as of the date the
<PAGE>
subletting or assignment is to be effective. The option shall be exercised, if
it all, by Landlord giving Tenant written notice given by Landlord to Tenant
within sixty (60) days following Landlord's receipt of Tenant's written notice
as required above. If this Lease shall be terminated with respect to the entire
Premises pursuant to this Section, the Term of this Lease shall end on the date
stated in Tenant's notice as the effective date, of the sublease or assignment
as if that date had been originally fixed in this Lease for the expiration of
this Term. If Landlord recaptures under this Section only a portion of the
Premises, the rent to be paid from time to time during the unexpired Term shall
abate proportionately based on the proportion by which the approximate square
footage of the remaining portion of the Premises shall be less than that of the
Premises as of the date immediately prior to such recapture. Tenant shall at
Tenant's own cost and expense, discharge in full any outstanding commission
obligation on the part of Landlord with respect to this Lease, and any
commissions which may be due and owing as a result of any proposed assignment or
subletting, whether or not the Premises are recaptured pursuant to this Section
9.3 and rented by Landlord to the proposed tenant or any other tenant.
9.4 In the event that Tenant sells, sublets, assigns or transfers this
Lease, Tenant shall pay to Landlord as additional rent an amount equal to fifty
percent (50%) of any Increased Rent (as defined below) when and as such
Increased Rent is received by Tenant. As used in this Section, "Increased Rent"
shall mean the excess of (i) all rent and other consideration which Tenant is
entitled to receive by reason of any sale, sublease, assignment or other
transfer of this Lease, over (ii) the rent otherwise payable by Tenant under
this Lease at such time. For purposes of the foregoing, any consideration
received by Tenant in form other than cash shall be valued at its fair market
value as determined by Landlord in good faith.
9.5 Notwithstanding any other provision hereof, Tenant shall have no right
to make (and Landlord shall have the absolute right to refuse consent to) any
assignment of this Lease or sublease of any portion of the Premises if at the
time of either Tenant's notice of the proposed assignment or sublease or the
proposed commencement date thereof, there shall exist any uncured default of
Tenant or matter which will become a default of Tenant with passage of time
unless cured; or if the proposed assignee or sublessee is an entity: (a) with
which Landlord is already in negotiation as evidenced by the Issuance of a
written proposal; (b) is already an occupant of the Building unless Landlord is
unable to provide the amount of space required by such occupant; (c) is a
governmental agency; (d) is incompatible with the character of occupancy of the
Building; or (e) would subject the Premises to a use which would: (i) involve
increased personnel or wear upon the Building; (ii) violate any exclusive right
granted to another tenant of the Building; (iii) require any addition to or
modification of the Premises or the Building in order to comply with building
code or other governmental requirements; or, (iv) involves a violation of
Section 1.2. Tenant expressly agrees that Landlord shall have the absolute right
to refuse consent to any such assignment or sublease and that for the purposes
or any statutory or other requirement of reasonableness on the part of Landlord
such refusal shall be reasonable.
9.6 Upon any request to assign, or sublet, Tenant will pay to Landlord the
Assignment/Subletting Fee plus, on demand, a sum equal to all of Landlord's1
actual and reasonable costs, including reasonable attorney's fees, incurred in
investigating and considering any proposed or purported assignment or pledge of
this Lease or sublease of any of the Premises, regardless of whether Landlord
shall consent to, refuse consent, or determine that Landlord's consent is not
required for, such assignment, pledge or sublease. Any purported sale,
assignment, mortgage, transfer of this Lease or sublettIng which does not comply
with the provislons of this Article 9 shall be void.
9.7 If Tenant is a corporation, partnership or trust, any transfer or
transfers of or change or changes within any twelve month period in the number
of the outstanding voting shares of the corporation, the general partnership
interests in the partnership or the identity of the persons or entities
controlling the activities of such partnership or trust resulting in the parsons
or entities owning or controlling a majority or such shares, partnership
interests or activities of such partnership or trust at the beginning of such
period no longer having such ownership or control shall be regarded as
equivalent to an assignment of this Lease to the persons or entities acquiring
such ownership or control and shall be subject to all the provisions of this
Article 9 to the same extent and for all intents and purposes as though such an
assignment.
10. INDEMNIFICATION.
None of the Landlord Entities shall be liable and Tenant hereby waives all
claims against them for any damage to any property or any injury to any person
in or about the Premises by or from any cause whatsoever (including without
limiting the foregoing, rain or water leakage
<PAGE>
that Landlord will indemnify and hold tenant harmless from such claims of any
character from the roof, windows, walls, basement, pipes, plumbing works or
appliances, the Premises not being in good condition of repair, gas, fire, oil,
electricity or theft), except that landlord will indemnify and hold tenant
harmless from such claims to the extent caused by or arising from the negligence
or willful misconduct of Landlord or its agents, employees or contractors.
Tenant shall protect, indemnify and hold the Landlord Entities harmless from and
against any and all loss, claims, liability or costs (including court costs and
attorney's fees) incurred by reason of (a) any damage to any property (including
but not limited to property of any Landlord Entity) or any injury (including but
not limited to death) to any person occurring in, on or about the Premises to
the extent that such injury or damage shall be caused by or arise from any
actual or alleged act, neglect, fault, or omission by or of Tenant, its agents,
servants, employees, invitees, or visitors to meet any standards imposed by any
duty with respect to the injury or damage; (b) the conduct or management of any
work or thing whatsoever done by the Tenant in or about the Premises or from
transactions of the Tenant concerning the Premises; (c) Tenant's failure to
comply with any and all governmental law, ordinances and regulations applicable
to the condition or use of the Premises or its occupancy, or (d) any breach or
default on the part of Tenant to the performance of any covenant or agreement on
the part of the Tenant to be performed pursuant to this Lease. The provisions of
this Article shall survive the termination of this Lease with respect to any
claims or liability accruing prior to such termination.
11. INSURANCE.
11.1 Tenant shall keep in force throughout the Term: (a) a Commercial
General Liability Insurance policy or policies to protect the Landlord Entities
against any liability to the public or to any invitee of Tenant or a Landlord
Entity incidental to the use of or resulting from any accident occurring in or
upon the Premises with a limit of not less than $1,000,000.00 per occurrence and
not less than $2,000,000.00 in the annual aggregate, or such larger amount as
Landlord may prudently require from time to time, covering bodily injury and
property damage liability and $1,000,000 products/completed operations
aggregate; (b) Business Auto Liability covering owned, non-owned and hired
vehicles with a limit of not less than $1,000,000 per accident; (c) insurance
protecting against liability under Worker's Compensation Laws with limits at
least as required by statute; (d) Employers Liability with limits of $500,000
each accident, $500,000 disease policy limit, $500,000 disease--each employee;
(e) All Risk or Special Form coverage protecting Tenant against loss of or
damage to Tenant's alterations, additions, improvements, carpeting, floor
coverings, panelings, decorations, fixtures, inventory and other business
personal property situated in or about the Premises to the full replacement
value of the property so insured; and, (f) Business Interruption Insurance with
limit of liability representing loss of at least approximately six months of
income.
11.2 Each of the aforesaid policies shall (a) be provided at Tenant's
expense; (b) name the Landlord and the building management company, if any, as
additional insureds; (c) be issued by an insurance company with a minimum Best's
rating of "A:VII" during the Term; and (d) provide that said insurance shall not
be cancelled unless thirty (30) days prior written notice (ten days for
non-payment of premium) shall have been given to Landlord; and said policy or
policies or certificates thereof shall be delivered to Landlord by Tenant upon
the Commencement Date and at least thirty (30) days prior to each renewal of
said insurance. see Rider
11.3 Whenever Tenant shall undertake any alterations, additions or
improvements in, to or about the Premises ("Work") the aforesaid
insurance protection must extend to and include injuries to persons and damage
to property arising in connection with such Work, without limitation including
liability under any applicable structural work act, and such other insurance as
Landlord shall require; and the policies of or certificates evidencing such
insurance must be delivered to Landlord prior to the commencement of any such
Work.
12. WAIVIR OF SUBROGATION.
So long as their respective insurers so permit, Tenant and Landlord hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage, all Risks or other insurance now or
hereafter existing for the benefit of the respective party but only to the
extent of the net insurance proceeds payable under such policies. Each party
shall obtain any special endorsements required by their insurer to evidence
compliance with the aforementioned waiver.
13. SERVICES AND UTILITIES.
Tenant shall pay for all water, gas, heat, light, power, telephone, sewer,
sprinkler system charges and other utilities and services used on or from the
Premises, including without limitation, the cost of any central station
signaling system installed in the Premises together
<PAGE>
with any taxes, penalties, and surcharges or the like pertaining thereto and any
maintenance charges for utilities. Any such charges paid by Landlord and
assessed against Tenant shall be immediately payable to Landlord on demand and
shall be additional rent hereunder. Landlord shall in no event be liable for any
interruption or failure of utility services on or to the Premises.
14. HOLDING OVER.
Tenant shall pay Landlord for each day Tenant retains possession of the Premises
or part of them after termination of this Lease by lapse of time or otherwise at
the rate ("Holdover Rate") which shall be 150% of the greater of: (a) the amount
of the Annual Rent for the last period prior to the date of such termination
plus all Rent Adjustments under Article 4; and, (b) the then market rental value
of the Premises as determined by Landlord assuming a new lease of the Premises
of the then usual duration and other terms, in either case prorated on a daily
basis, and also pay all damages sustained by Landlord by reason of such
retention. If Landlord gives notice to Tenant of Landlord's election to that
effect, such holding over shall constitute renewal of this Lease for a period
from month to month or one year, whichever shall be specified in such notice, in
either case at the Holdover Rate, but if the Landlord does not so elect, no such
renewal shall result notwithstanding acceptance by Landlord of any sums due
hereunder after such termination; and instead, a tenancy at sufferance at the
Holdover Rate shall be deemed to have been created. In any event, no provision
of this Article 14 shall be deemed to waive Landlord's right of reentry or any
other right under this Lease or at law.
15. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be subject and
subordinate at all times to ground or underlying leases and to the lien of any
mortgages or deeds of trust now or hereafter placed on, against or affecting the
Building, Landlord's interest or estate in the Building, or any ground or
underlying lease; provided, however, that if the lessor, mortgagee, trustee, or
holder of any such mortgage or deed of trust elects to have Tenant's interest in
this Lease be superior to any such instrument, then, by notice to Tenant, this
Lease shall be deemed superior, whether this Lease was executed before or after
said instrument. Notwithstanding the foregoing, Tenant covenants and agrees to
execute and deliver upon demand such further instruments evidencing such
subordination or superiority of this Lease as may be required by Landlord.
16. REENTRY BY LANDLORD.
16.1 Landlord reserves and shall at all times upon reasonable prior notice
(except in emergencies) have the right to re-enter the Premises to inspect the
same, to show said Premises to prospective purchasers, mortgagees or tenants,
and to alter, improve or repair the Premises and any portion of the Building,
without abatement of rent, and may for that purpose erect, use and maintain
scaffolding, pipes, conduits and other necessary structures and open any wall,
ceiling or floor in and through the Building and Premises where reasonably
required by the character of the work to be performed, provided entrance to the
Premises shall not be blocked thereby, and further provided that the business of
Tenant shall not be interfered with unreasonably.
16.2 Except to the extent of Landlord's negligence, Tenant hereby waives
any claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned by any action of Landlord authorized by this Article
16. Tenant agrees to reimburse Landlord, on demand, as additional rent, for any
expenses which Landlord may incur in thus effecting compliance with Tenant's
obligations under this Lease.
16.3 For each of the aforesaid purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency to obtain entry to
any portion of the Premises. As to any portion to which access can not be had by
means of a key or keys in Landlord's possession. Landlord is authorized to gain
access by such means as Landlord shall elect and the cost of repairing any
damage occurring in doing so shall be borne by Tenant and paid to Landlord as
additional rent upon demand.
17. DEFAULT.
17.1 Except as otherwise provided in Article 19, the following events shall
be deemed to be Events of Default under this Lease:
<PAGE>
17.1.1 Tenant shall fail to pay when due any sum of money becoming due
to be paid to Landlord under this Lease, whether such sum be any installment of
the rent reserved by this Lease, any other amount treated as additional rent
under this Lease, or any other payment or reimbursement to Landlord required by
this Lease, whether or not treated as additional rent under this Lease, and such
failure shall continue for a period of five business days after written notice
that such payment was not made when due, but if any such notice shall be given,
for the twelve month period commencing with the date of such notice, the failure
to pay within five business days after due any additional sum of money becoming
due to be paid to Landlord under this Lease during such period shall be an Event
of Default, without notice.
17.1.2 Tenant shall fail to comply with any term, provision or
covenant of this Lease which is not provided for in another Section of this
Article and shall not cure such failure within thirty (30) days (forthwith, if
the failure involves a hazardous condition) after written notice of such failure
to Tenant.
17.1.3 Tenant shall fail to vacate the Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination of
Tenant's right to possession only.
17.1.4 Tenant shall become insolvent, admit in writing its inability
to pay its debts generally as they become due, file a petition in bankruptcy or
a petition to take advantage of any insolvency statute, make an assignment for
the benefit of creditors, make a transfer in fraud of creditors, apply for or
consent to the appointment of a receiver of itself or of the whole or any
substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws, as now in
effect or hereafter amended, or any other applicable law or statute of the
United States or any state thereof. See Rider
17.1.5 A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of
Tenant, or of the whole or any substantial part of its property, without the
consent of Tenant, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the bankruptcy laws of the United
States, as now in effect or hereafter amended, or any state thereof, and such
order, judgment or decree shall not be vacated or set aside or stayed within
thirty (30) days from the date of entry thereof.
18. REMEDIES.
18.1 Except as otherwise provided in Article 19, upon the occurrence of any
of the Events of Default described or referred to in Article 17 and after
expiration of all cure and/or grace periods stated there, Landlord shall have
the option to pursue any one or more of the following remedies without any
notice or demand whatsoever, concurrently or consecutively and not
alternatively:
18.1.1 Landlord may, at its election, terminate this Lease or
terminate Tenant's right to possession only, without terminating the Lease.
18.1.2 Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter into and upon the
Premises in such event and to repossess Landlord of the Premises as of
Landlord's former estate and to expel or remove Tenant and any others who may be
occupying or be within the Premises and to remove Tenant's signs and other
evidence of tenancy and all other property of Tenant therefrom without being
deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom, Tenant
waiving any right to claim damages for such reentry and expulsion, and without
relinquishing Landlord's right to rent or any other right given to Landlord
under this Lease or by operation of law.
18.1.3 Upon any termination of this Lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent, including
any amounts treated as additional rent under this Lease, and other sums due and
payable by Tenant on the date of termination, plus as liquidated damages and not
as a penalty, an amount equal to the sum of: (a) an amount equal to the then
present value of the rent reserved in this Lease for the residue of the stated
Term of this Lease including any amounts treated as additional rent under this
Lease and all other sums provided in this Lease to be paid by Tenant, minus the
fair rental value of the Premises for such residue; (b) the value of the time
and expense necessary to obtain a replacement tenant or tenants, and the
estimated expenses described in Section 18.1.4 relating to recovery of the
Premises, preparation for reletting and for reletting itself;
<PAGE>
and (c) the cost of performing any other covenants which would have otherwise
been performed by Tenant.
18.1.4 Upon any termination of Tenant's right to possession only
without termination of the Lease:
18.1.4.1 Neither such termination of Tenant's right to possession nor
Landlord's taking and holding possession thereof as provided in Section 18.1.2
shall terminate the Lease or release Tenant, in whole or in part, from any
obligation, including Tenant's obligation to pay the rent, including any amounts
treated as additional rent, under this Lease for the full Term, and if Landlord
so elects Tenant shall pay forthwith to Landlord the sum equal to the entire
amount of the rent, including any amounts treated as additional rent under this
Lease, for the remainder of the Term plus any other sums provided in this Lease
to be paid by Tenant for the remainder of the Term.
18.1.4.2 Landlord shall use commercially reasonable efforts to relet
the Premises or any part thereof for such rent and upon such terms as Landlord,
in its sole discretion, shall determine (including the right to relet the
premises for a greater or lesser term than that remaining under this Lease, the
right to relet the Premises as a part of a larger area, and the right to change
the character or use made of the Premises). In connection with or in preparation
for any reletting, Landlord may, but shall not be required to, make repairs,
alterations and additions in or to the Premises and redecorate the same to the
extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay
the cost thereof, together with Landlord's expenses of reletting, including,
without limitation, any broker's commission incurred by Landlord. Landlord and
Tenant agree that nevertheless Landlord shall at most be required to use only
the same efforts Landlord then uses to lease premises in the Building generally
and that in any case that Landlord shall not be required to give any preference
or priority to the showing or leasing of the Premises over any other space that
Landlord may be leasing or have available and may place a suitable prospective
tenant in any such other space regardless of when such other space becomes
available. Landlord shall not be required to observe any instruction given by
Tenant about any reletting or accept any tenant offered by Tenant unless such
offered tenant has a credit-worthiness acceptable to Landlord and leases the
entire Premises upon terms and conditions including a rate of rent (after giving
effect to all expenditures by Landlord for tenant improvements, broker's
commissions and other leasing costs) all no less favorable to Landlord than as
called for in this Lease, nor shall Landlord be required to make or permit any
assignment or sublease for more than the current term or which Landlord would
not be required to permit under the provisions of Article 9.
18.1.4.3 Until such time as Landlord shall elect to terminate the
Lease and shall thereupon be entitled to recover the amounts specified in such
case in Section 18.1.3, Tenant shall pay to Landlord upon demand the full amount
of all rent, including any amounts treated as additional rent under this Lease
and other sums reserved in this Lease for the remaining Term, together with the
costs of repairs, alterations, additions, redecorating and Landlord's expenses
of reletting and the collection of the rent accruing therefrom (including
attorney's fees and broker's commissions), as the same shall then be due or
become due from time to time, less only such consideration as Landlord may have
received from any reletting of the Premises; and Tenant agrees that Landlord may
file suits from time to time to recover any sums falling due under this Article
18 as they become due. Any proceeds of reletting by Landlord in excess of the
amount then owed by Tenant to Landlord from time to time shall be credited
against Tenant's future obligations under this Lease but shall not otherwise be
refunded to Tenant or inure to Tenant's benefit.
18.2 Landlord may, at Landlord's option, enter into and upon the Premises
if Landlord determines in its sole discretion that Tenant is not acting within a
commercially reasonable time to maintain, repair or replace anything for which
Tenant is responsible under this Lease and correct the same, without being
deemed in any manner guilty of trespass, eviction or forcible entry and detainer
and without incurring any liability for any damage or interruption of Tenant's
business resulting therefrom. If Tenant shall have vacated the Premises.
Landlord may at Landlord's option re-enter the Premises at any time during the
last six months of the then current Term of this Lease and make any and all such
changes, alterations, revisions, additions and tenant and other improvements in
or about the Premises as Landlord shall elect, all without any abatement of any
of the rent otherwise to be paid by Tenant under this Lease.
18.3 If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning or to enforce or defend any of Landlord's rights or remedies arising
under this Lease, Tenant agrees to pay all Landlord's attorney's
<PAGE>
fees so incurred.
18.4 Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies provided in this Lease or any other remedies provided
by Law (all such remedies being cumulative), nor shall pursuit of any remedy
provided in this Lease constitute a forfeiture or waiver of any rent due to
Landlord under this Lease or of any damages accruing to Landlord by reason of
the violation of any of the terms, provisions and covenants contained in this
Lease.
18.5 No act or thing done by Landlord or its agents during the Term shall
be deemed a termination of this Lease or an acceptance of the surrender of the
Premises, and no agreement to terminate this Lease or accept a surrender of said
Premises shall be valid, unless in writing signed by Landlord. No waiver by
Landlord of any violation or breach of any of the terms, provisions and
covenants contained in this Lease shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease. Landlord's acceptance of the payment of
rental or other payments after the occurrence of an Event of Default shall not
be construed as a waiver of such Default, unless Landlord so notifies Tenant in
writing. Forbearance by Landlord in enforcing one or more of the remedies
provided in this Lease upon an Event of Default shall not be deemed or construed
to constitute a waiver of such Default or of Landlord's right to enforce any
such remedies with respect to such Default or any subsequent Default.
18.7 Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of this Lease or of law, to which Tenant is
or may be entitled. may be handled, removed and/or stored, as the case may be,
by or at the direction of Landlord but at the risk, cost and expense of Tenant,
and Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall, at Landlord's option, be
deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale
without further payment or credit by Landlord to Tenant.
19. TENANT'S BANKRUPTCY OR INSOLVENCY.
19.1 If at any time and for so long as Tenant shall be subjected to the
provisions of the United States Bankruptcy Code or other law of the United
States or any state thereof for the protection of debtors as in effect at such
time (each a "Debtor's Law"):
19.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or
receiver of Tenant's assets (each a "Tenant's Representative") shall have no
greater right to assume or assign this Lease or any interest in this Lease, or
to sublease any of the Premises than accorded to Tenant in Article 9, except to
the extent Landlord shall be required to permit such assumption, assignment or
sublease by the provisions of such Debtor's Law. Without limitation of the
generality of the foregoing, any right of any Tenant's Representative to assume
or assign this Lease or to sublease any of the Premises shall be subject to the
conditions that:
19.1.1.1 Such Debtor's Law shall provide to Tenant's
Representative aright of assumption of this Lease which Tenant's Representative
shall have timely exercised and Tenant's Representative shall have fully cured
any default of Tenant under this Lease.
<PAGE>
19.1.1.2 Tenant's Representative or the proposed assignee, as
the case shall be, shall have deposited with Landlord as security for the timely
payment of rent an amount equal to the larger of: (a) three months' Rent and
other monetary charges accruing under this Lease; and (b) any sum specified in
Article 5; and shall have provided Landlord with adequate other assurance of the
future performance of the obligations of the Tenant under this Lease. Without
limitation, such assurances shall include, at least, in the case of assumption
of this Lease, demonstration to the satisfaction of the Landlord that Tenant's
Representative has and will continue to have sufficient unencumbered assets
after the payment of all secured obligations and administrative expenses to
assure Landlord that Tenant's Representative will have sufficient funds to
fulfill the obligations of Tenant under this Lease; and, in the case of
assignment, submission of current financial statements of the proposed assignee,
audited by an independent certified public accountant reasonably acceptable to
Landlord and showing a net worth and working capital in amounts determined by
Landlord to be sufficient to assure the future performance by such assignee of
all of the Tenant's obligations under this Lease.
19.1.1.3 The assumption or any contemplated assignment of this
Lease or subleasing any part of the Premises, as shall be the case, will not
breach any provision in any other lease, mortgage, financing agreement or other
agreement by which Landlord is bound.
19.1.1.4 Landlord shall have. or would have had absent the
Debtor's Law, no right under Article 9 to refuse consent to the proposed
assignment or sublease by reason of the identity or nature of the proposed
assignee or Sublessee or the proposed use of the Premises concerned.
20. QUIET ENJOYMENT.
Landlord represents and warrants that it has full right and authority to enter
into this Lease and that Tenant, while paying the rental and performing its
other covenants and agreements contained in this Lease, shall peaceably and
quietly have, hold and enjoy the Premises for the Term without hindrance or
molestation from Landlord subject to the terms and provisions of this Lease.
Landlord shall not be liable for any interference or disturbance by other
tenants or third persons, nor shall Tenant be released from any of the
obligations of this Lease because of such interference or disturbance.
21. DAMAGE BY FIRE, ETC.
21.1 Landlord shall maintain all insurance policies deemed by Landlord to
be reasonably necessary or desirable and relating in any manner to the
protection, preservation or operation of the Premises, including by not limited
to, standard fire and extended coverage insurance covering the Premises in an
amount not less than ninety percent (90%) of the replacement cost thereof
insuring against the perils of fire and lightning and including extended
coverage or, at Landlord's option, all risk coverage and, if Landlord so elects,
earthquake, flood and wind coverages and Tenant shall pay, as additional rent,
the cost of such policies upon demand by Landlord. Such insurance shall be for
the sole benefit of Landlord and under its sole control. Tenant shall not take
out separate insurance concurrent in form or contributing in the event of loss
with that required to be maintained by Landlord hereunder unless Landlord is
included as a loss payee thereon. Tenant shall immediately notify Landlord
whenever any such separate insurance is taken out and shall promptly deliver to
Landlord the policy or policies of such insurance.
21.2 In the event the Premises or the Building are damaged by fire or other
cause and in Landlord's reasonable estimation such damage can be materially
restored within one hundred eighty (180) days, Landlord shall forthwith repair
the same and this Lease shall remain in full force and effect, except that
Tenant shall be entitled to a proportionate abatement in rent from the date of
such damage. Such abatement of rent shall be made pro rata in accordance with
the extent to which the damage and the making of such repairs shall interfere
with the use and occupancy by Tenant of the Premises from time to time. Within
thirty (30) days from the date of such damage, Landlord shall notify Tenant, in
writing, of Landlord's reasonable estimation of the length of time within which
material restoration can be made, and Landlord's determination shall be binding
on Tenant. For purposes of this Lease, the Building or Premises shall be deemed
materially restored if they are in such condition as would not prevent or
materially interfere with Tenant's use of the Premises for the purpose for which
it was being used immediately before such damage.
21.3 If such repairs cannot, in Landlord's reasonable estimation, be made
within one hundred eighty (180) days, Landlord and Tenant shall each have the
option of giving the other at any time within forty-five (45) days after such
damage, notice terminating this Lease as of the
<PAGE>
date of such damage. In the event of the giving of such notice, this Lease shall
expire and all interest of the Tenant in the Premises shall terminate as of the
date of such damage at if such date had been originally fixed in this Lease for
the expiration of the Term. In the event that neither Landlord nor Tenant
exercises its option to terminate this Lease, then Landlord shall repair or
restore such damage, this Lease continuing in full force and effect, and the
rent hereunder shall be proportionately abated as provided in Section 21.2.
21.4 Landlord shall not be required to repair or replace any damage or loss
by or from fire or other cause to any panelings, decorations, partitions,
additions, railings, ceilings, floor coverings, office fixtures or any other
property or improvements installed on the Premises or belonging to Tenant. Any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control.
21.5 In the event that Landlord should fail to complete such repairs and
material restoration within forty-five (45) days after the date estimated by
Landlord therefor as extended by this Section 21.5, Tenant may at its option and
as its sole remedy terminate this Lease by delivering written notice to
Landlord, within fifteen (15) days after the expiration of said period of time,
whereupon the Lease shall end on the date of such notice or such later date
fixed in such notice as if the date of such notice was the date originally fixed
in this Lease for the expiration of the Term; provided, however, that if
construction is delayed because of changes, deletions or additions in
construction requested by Tenant, strike, lockouts, casualties, Acts of God,
war, material or labor shortages, government regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair or rebuilding shall be extended for the amount or time Landlord is so
delayed.
21.6 Notwithstanding anything to the contrary contained in this Article:
(a) Landlord shall not have any obligation whatsoever to repair, reconstruct, or
restore the Premises when the damages resulting from any casualty covered by the
provisions of this Article 21 occur during the last twelve (12) months of the
Term or any extension thereof, but if Landlord determines not to repair such
damages Landlord shall notify Tenant within 30 days after the casualty and if
such damages shall render any material portion of the Premises untenantable as
determined by Tenant acting reasonably Tenant shall have the right to terminate
this Lease by notice to Landlord within fifteen (15) days after receipt of
Landlord's notice; and (b) in the event the holder of any indebtedness secured
by a mortgage or deed of trust covering the Premises or Building requires that
any insurance proceeds be applied to such indebtedness, then Landlord shall have
the right to terminate this Lease by delivering written notice of termination to
Tenant within fifteen (15) days after such requirement is made by any such
holder, whereupon this Lease shall end on the date of such damage as if the
date of such damage were the date originally fixed in this Lease for the
expiration of the Term.
21.7 In the event of any damage or destruction to the Building or Premises
by any peril covered by the provisions of this Article 21, it shall be Tenant's
responsibility to properly secure the Premises and upon notice from Landlord to
remove forthwith, at its sole cost and expense, such portion of all of the
property belonging to Tenant or its licensees from such portion or all of the
Building or Premises as Landlord shall reasonably request.
22. EMINENT DOMAIN.
If all or any substantial part of the Premises shall be taken or appropriated by
any public or quasi-public authority under the power of eminent domain, or
conveyance in lieu of such appropriation, either party to this Lease shall have
the right, at its option, of giving the other, at any time within thirty (30)
days after such taking, notice terminating this Lease, except that Tenant may
only terminate this Lease by reason of taking or appropriation, if such taking
or appropriation shall be so substantial as to materially interfere with
Tenant's use and occupancy of the Premises. If neither party to this Lease shall
so elect to terminate this Lease, the rental thereafter to be paid shall be
adjusted on a fair and equitable basis under the circumstances. In addition to
the rights of Landlord above, if any substantial part of the Building shall be
taken or appropriated by any public or quasi-public authority under the power of
eminent domain or conveyance in lieu thereof, and regardless of whether the
Premises or any part thereof are so taken or appropriated, Landlord shall have
the right, at its sole option, to terminate this Lease. Landlord shall be
entitled to any and all income, rent, award, or any interest whatsoever in or
upon any such sum, which may be paid or made in connection with any such public
or quasi-public use or purpose, and Tenant hereby assigns to Landlord any
interest it may have in or claim to all or any part of such sums, other than any
separate award which may be made with respect to Tenant's trade fixtures and
moving expenses; Tenant shall make no claim for the value of any unexpired Term.
23. SALE BY LANDLORD.
In event of a sale or conveyance by Landlord of the Building, the same shall
operate to release Landlord from any future liability upon any of the covenants
or conditions, expressed or implied, contained in this Lease in favor of Tenant,
and in such event Tenant agrees to look
<PAGE>
solely to the responsibility of the successor in interest of Landlord in and to
this Lease. Except as set forth in this Article 23, this Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. If any security has been given by Tenant to secure the faithful
performance of any of the covenants of this Lease, Landlord may transfer or
deliver said security, as such, to Landlord's successor in interest and
thereupon Landlord shall be discharged from any further liability with regard to
said security.
24. ESTOPPEL CERTIFICATES.
Within ten (10) days following any written request which Landlord may make from
time to time, Tenant shall execute and deliver to Landlord or mortgagee or
prospective mortgagee a sworn statement certifying: (a) the date of commencement
of this Lease; (b) the fact that this Lease is unmodified and in full force and
effect (or, if there have been modifications to this Lease, that this lease is
in full force and effect, as modified, and stating the date and nature of such
modifications); (c) the date to which the rent and other sums payable under this
Lease have been paid; (d) the fact that there are no current material defaults
under this Lease by either Landlord or Tenant except as specified in Tenant's
statement; and (e) such other matters as may be requested by Landlord. Landlord
and Tenant intend that any statement delivered pursuant to this Article 24 may
be relied upon by any mortgagee, beneficiary or purchaser and Tenant shall be
liable for all loss, cost or expense resulting from the failure of any sale or
funding of any loan caused by any material misstatement contained in such
estoppel certificate. Tenant irrevocably agrees that if Tenant fails to execute
and deliver such certificate within such ten (10) day period Landlord or
Landlord's beneficiary or agent may execute and deliver such certificate on
Tenant's behalf, and that such certificate shall be fully binding on Tenant.
25. SURRENDER OF PREMISES.
25.1 Tenant shall, at least thirty (30) days before the last day of the
Term, arrange to meet Landlord for a joint inspection of the Premises. In the
event of Tenant's failure to arrange such joint inspection to be held prior to
vacating the Premises, Landlord's inspection at or after Tenant's vacating the
Premises shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
25.2 At the end of the Term or any renewal of the Term or other sooner
termination of this Lease, Tenant will peaceably deliver up to Landlord
possession of the Premises, together with all improvements or additions upon or
belonging to the same, by whomsoever made, in the same conditions received or
first installed, broom clean and free of all debris, expecting only ordinary
wear and tear and damage by fire or other casualty. Tenant may, and at
Landlord's request shall, at Tenant's sole cost, remove upon termination of this
Lease, any and all furniture, furnishings, movable partitions of less than full
height from floor to ceiling, trade fixtures and other property installed by
Tenant, title to which shall not be in or pass automatically to Landlord upon
such termination, repairing all damage caused by such removal. Property not so
removed shall, unless requested to be removed, be deemed abandoned by the Tenant
and title to the same shall thereupon pass to Landlord under this Lease as by a
bill of sale. All other alterations, additions and improvements in, on or to the
Premises shall be dealt with and disposed of as provided in Article 6.
25.3 All obligations of Tenant under this Lease not fully performed as of
the expiration or earlier termination of the Term shall survive the expiration
or earlier termination of the Term. In the event that Tenant's failure to
perform prevents Landlord from releasing the Premises, Tenant shall continue to
pay rent pursuant to the provisions of Article 14 until such performance is
complete. Upon the expiration or earlier termination of the Term, Tenant shall
pay to Landlord the amount, as estimated by Landlord, necessary to repair and
restore the Premises as provided in this Lease and/or to discharge Tenant's
obligation for unpaid amounts due or to become due to Landlord. All such amounts
shall be used and held by Landlord for payment of such obligations of Tenant,
with Tenant being liable for any additional costs upon demand by Landlord, or
with any excess to be returned to Tenant after all such obligations have been
determined and satisfied. Any otherwise unused Security Deposit shall be
credited against the amount payable by Tenant under this Lease.
26. NOTICES.
Any notice or document required or permitted to be delivered under this Lease
shall be addressed to the intended recipient, shall be transmitted personally.
by fully prepaid registered or certified United States Mail return receipt
requested, or by reputable independent contract delivery service furnishing a
written record of attempted or actual delivery, and shall be deemed to be
delivered when tendered for delivery to the addressee at its address set forth
on the Reference Page, or at such other address as it has then last
<PAGE>
specified by written notice delivered in accordance with this Article 26, or if
to Tenant at either its aforesaid address or its last known registered office or
home of a general partner or individual owner, whether or not actually accepted
or received by the addressee. See Rider
27. TAXES PAYABLE BY TENANT.
In addition to rent and other charges to be paid by Tenant under this Lease,
Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by
Landlord (other than net income taxes) whether or not now customary or within
the contemplation of the parties to this Lease: (a) upon, allocable to. or
measured by or on the gross or net rent payable under this Lease, including
without limitation any gross income tax or excise tax levied by the State, any
political subdivision thereof, or the Federal Government with respect to the
receipt of such rent; (b) upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy of the
Premises or any portion thereof, including any sales, use or service tax imposed
as a result thereof; (c) upon or measured by the Tenant's gross receipts or
payroll or the value of Tenant's equipment, furniture, fixtures and other
personal property of Tenant or leasehold improvements, alterations or additions
located in the Premises; or (d) upon this transaction or any document to which
Tenant is a party creating or transferring any interest of Tenant in this Lease
or the Premises. In addition to the foregoing, Tenant agrees to pay, before
delinquency, any and all taxes levied or assessed against Tenant and which
become payable during the term hereof upon Tenant's equipment, furniture,
fixtures and other personal property of Tenant located in the Premises.
28. DEFINED TERMS AND HEADINGS.
The Article headings shown in this Lease are for convenience of reference and
shall in no way define, increase, limit or describe the scope or intent of any
provision of this Lease. Any indemnification or insurance of Landlord shall
apply to and inure to the benefit of all the following "Landlord Entities",
being Landlord, Landlord's investment manager, and the trustees, boards of
directors, officers, general partners, beneficiaries, stockholders, employees
and agents of each of them. Any option granted to Landlord shall also include or
be exercisable by Landlord's trustee, beneficiary, agents and employees, as the
case may be. In any case where this Lease is signed by more than one person, the
obligations under this Lease shall be joint and several. The terms "Tenant" and
"Landlord" or any pronoun used in place thereof shall indicate and include the
masculine or feminine, the singular or plural number. Individuals, firms or
corporations, and each of their respective successors, executors, administrators
and permitted assigns, according to the context hereof. The term "rentable area"
shall mean the rentable area of the Premises or the Building as calculated by
the Landlord on the basis of the plans and specifications of the Building
including a proportionate share of any common areas. Tenant hereby accepts and
agrees to be bound by the figures for the rentable space footage of the Premises
and Tenant's Proportionate Share shown on the Reference Page.
29. TENANT'S AUTHORITY.
If Tenant signs as a corporation each of the persons executing this Lease on
behalf of Tenant represents and warrants that Tenant has been and is qualified
to do business in the state in which the Building is located, that the
corporation has full right and authority to enter into this Lease, and that all
persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions. If Tenant signs as a partnership, trust or other
legal entity, each of the persons executing this Lease on behalf of Tenant
represents and warrants that Tenant has complied with all applicable laws, rules
and governmental regulations relative to its right to do business in the state
and that such entity on behalf of the Tenant was authorized to do so by any and
all appropriate partnership, trust or other actions. Tenant agrees to furnish
promptly upon request a corporate resolution, proof of due authorization by
partners, or other appropriate documentation evidencing the due authorization of
Tenant to enter into this Lease.
30. COMMISSIONS.
Each of the parties represents and warrants to the other that it has not dealt
with any broker or finder in connection with this Lease, except as described on
the Reference Page.
31. TIME AND APPLICABLE LAW.
Time is of the essence of this Lease and all of its provisions. This Lease shall
in all respects be governed by the laws of the state in which the Building is
located.
32. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Article 9, the terms, covenants and conditions
contained in this Lease shall be binding upon and inure to the benefit of the
heirs, successors, executors, administrators and assigns of the parties to this
Lease.
<PAGE>
33. ENTIRE AGREEMENT.
This Lease, together with its exhibits, contains all agreements of the parties
to this Lease and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its exhibits. This Lease may not be
modified except by a written instrument duly executed by the parties to this
Lease.
34. EXAMINATION NOT OPTION.
Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord shall not be bound by this Lease until it has received a copy
of this Lease duly executed by Tenant and has delivered to Tenant a copy of this
Lease duly executed by Landlord, and until such delivery Landlord reserves the
right to exhibit and lease the Premises to other prospective tenants.
Notwithstanding anything contained in this Lease to the contrary, Landlord may
withhold delivery of possession of the Premises from Tenant until such time as
Tenant has paid to Landlord any security deposit required by Article 5, the
first month's rent as set forth in Article 3 and any sum owed pursuant to this
Lease.
35. RECORDATION.
Tenant shall not record or register this Lease or a short form memorandum hereof
without the prior written consent of Landlord, and then shall pay all charges
and taxes incident such recording or registration.
36. LIMITATION OF LANDLORD'S LIABILITY.
Redress for any claim against Landlord under this Lease shall be limited to and
enforceable only against and to the extent of Landlord's interest in the
Building. The obligations of Landlord under this Lease are not intended to and
shall not be personally binding on, nor shall any resort be had to the private
properties of, any of its trustees or board of directors and officers, as the
case may be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, or agents of Landlord or the investment
manager. Landlord represents that there currently is no mortgage encumbering the
Premises.
LANDLORD: TENANT:
RREEF USA Fund-I, a California
Group Trust Worldcomm Systems, Inc.
- ------------------------------ ----------------------------------------
By: RREEF Management Company, ----------------------------------------
a California corporation
By: /s/ Alane S. Berkowitz By: /s/ /s/ David E. Hershberg
-------------------------- ------------------------------------
Title: Alane S. Berkowitz, Title: CEO
District Manager
Dated: 11-15-94 Dated: 11/14/94
<PAGE>
RIDER
attached to and made a part of Lease bearing the
Lease Reference Date of November 8th, 1994 between
RREEF USA Fund-I, as Landlord and
Worldcomm Systems Inc., as Tenant
375 Oser Avenue, Hauppauge, New York
Addenda to Provisions of the Printed Lease:
Section 1.2. Landlord shall indemnify and hold Tenant harmless from and
against any and all costs of any required or necessary investigation, repair,
cleanup or detoxification and the preparation of any closure or other required
plans in connection therewith, whether voluntary or compelled by governmental
authority, all to the extent resulting from or necessitated by any environmental
conditions in place prior to the Commencement Date. However, in any action to
enforce such indemnity, Tenant will have the burden of proof to show that such
conditions pro-existed the Commencement Date.
Section 5. (a) The amount of the Security Deposit specified on the
Reference Page equals four (4) months' rent at the rate of the Monthly
Installment of Rent first payable hereunder. Upon written demand by Landlord,
Tenant shall deposit with Landlord such additional amount as shall be required
by Landlord to maintain the Security Deposit at an amount equal to four times
the sum of then-current Monthly Installment of Rent. However, effective as of
the third (3rd) anniversary of the Commencement Date, if Tenant is not then in
default, the Security Deposit will be reduced to two (2) times the Monthly
Installment of Rent, as increased from time to time.
(b) Except to the extent Landlord is entitled to retain all or a
portion of the Security Deposit pursuant to this Lease, Landlord shall return
the Security Deposit to Tenant within thirty (30) days after the expiration of
the Term.
Section 6.1. (a) Landlord's consent is not required for any interior
alterations which (i) are not structural; (ii) do not affect the Building's
HVAC, electrical, plumbing, mechanical or other systems; and (iii) do not cost
in excess of $10,000. However, Tenant shall notify Landlord of any such
alterations at least twenty (20) days before effecting the same.
(b) Landlord may condition its approval of any proposed alterations,
additions or improvements upon Tenant's agreement to remove the same at the end
of the Term and restore the Premises to their prior condition, reasonable wear
and tear excepted. At the time Tenant seeks Landlord's approval of any proposed
alterations, additions or improvements, Landlord, at Tenant's request, shall
advise Tenant if Landlord will require such removal and restoration. Landlord
may require, pursuant to Section 6.4, the removal at the end of the Term of any
alterations, additions or improvements installed by Tenant without Landlord's
approval, as permitted under the preceding subparagraph (a).
Section 7.1 (a) Landlord represents that the HVAC systems serving the
Premises will be in good working condition as of the Commencement Date; however,
the inaccuracy of this representation would not give rise to any right of
termination.
R-1
<PAGE>
(b) Except as to repairs necessitated by the negligence or breach of
Lease by Tenant, Landlord shall repair and maintain the structural portions of
the roof, walls and foundation of the Building.
Section 11.2. If the proceeds of any Tenant insurance policies are paid by
the insurer to Landlord, and if Landlord has no rightful interest in such
proceeds, Landlord shall immediately endorse or pay such proceeds over to
Tenant.
Section 17.1.4. If an involuntary bankruptcy petition is filed against
Tenant, the same shall not constitute an Event of Default so long as Tenant is
diligently contesting the petition and the petition is dismissed not later than
sixty (60) days after filing.
5ection 26. Landlord shall endeavor to deliver a concurrent copy of any
notice to Tenant to Ronald G. Goldman, Horowitz & Goldman, 595 Stewart Avenue,
Suite 710, Garden City, New York 11530; but failure to deliver such copy shall
not render defective any notice which is otherwise proper.
Additional Provisions:
39. RENT SCHEDULE.
PERIOD ANNUAL RENT MONTHLY INSTALLMENT
------ ----------- -------------------
11/15/94-11/14/95 $90,000.00 ($4.50 psf/yr) $7,500.00
11/15/95-11/14/96 $100,000.00 ($5.00 psf/yr) $8,333.33
11/15/96-11/14/97 $105,000.00 ($5.25 psf/yr) $8,750.00
11/15/97-11/30/98 $110,000.00 ($5.50 psf/yr) $9,166.67
R-2
<PAGE>
EXHIBIT A
attached to and made a part of Lease bearing the
Lease Reference Date of November 8, 1994 between
RREEF USA Fund-I, as Landlord and
Worldcomm Systems, Inc., as Tenant
PREMISES
Exhibit A is intended only to show the general layout of the Premises as of the
beginning of the Term of this Lease. It does not in any way supersede any of
Landlord's rights set forth in Section 16.1 with respect to arrangements and/or
locations of public parts of the Building and changes in such arrangements
and/or locations. It is not to be scaled; any measurements or distances shown
should be taken as approximate.
<PAGE>
EXHIBIT B
attached to and made a part of Lease bearing the
Lease Reference Date of November 8, 1994 between
RREEF USA Fund-I, as Landlord and
Worldcomm Systems, Inc., as Tenant
INITIAL ALTERATIONS
<PAGE>
Exhibit 10.12
STANDARD COMMERCIAL LEASE 1/91
LEASE AGREEMENT
THIS LEASE made and entered into between RREEF USA FUND I, a
California Group Trust ("Landlord") and NETSAT EXPRESS, INC., a division of
Worldcomm Systems Inc. ("Tenant").
1. Premises and Term
In consideration of the obligation of Tenant to pay rent and of the
other terms, provisions and covenants hereof, Landlord leases to Tenant, and
Tenant leases from Landlord, that portion as outlned on the site plan attached
as Exhibit B, including any parking areas and truck loading areas specifically
marked on Exhibit B for the exclusive use of Tenant (the "Premises") of certain
real property legally described in Exhibit A and the buildings and improvements
thereon (the "Building"). KNOWN AS 400 OSER AVENUE CONSISTING OF APPROXIMATELY
3,000SF - SUITE 300.
Taking of possession by Tenant shall be deemed to establish
conclusively that the Premises have been so completed and that the Premises are
in good and satisfactory condition, as of when possession was so taken (except
for such items Landlord is permitted to complete at a later date because of
weather conditions or other causes beyond Landlord's reasonable control, which
items shall be specified by Landlord to Tenant in writing). Tenant acknowledges
that no representations as to the repair of the Premises have been made by
Landlord, unless expressly set forth in this Lease.
2. Base Rent; Security Deposit
Tenant agrees to pay to Landlord base rent for the entire Term as
the rate shown on Exhibit B one such monthly installment shall be due and
payable without demand on or before the first day of each calendar month during
the Term, provided, that the rental payment for any fractional calendar month
shall be prorated. In addition, Tenant agrees to deposit with Landlord on the
date hereof the sum shown on Exhibit B as the security deposit, which sum shall
be held by Landlord, without obligation for interest, as security for the full,
timely and faithful performance of Tenant's obligations under this Lease, it
being agreed that such deposit is not an advance rental deposit or a measure of
Landlord's damages. Upon the occurrence of any event of default by Tenant,
Landlord may, from time to time, without prejudice to any other remedy, use such
fund to make good any arrears of rent or other payments due Landlord hereunder,
and any other damage, injury, expense or liability caused by Tenant's default;
and Tenant shall pay to Landlord on demand the amount so applied in order to
restore the security deposit to its orginal amount. Any remaining balance shall
be returned at such time after termination of this Lease when Landlord shall
have determined that all Tenant's obligations under this Lease have been
fulfilled.
3. Use
A. The Premises shall be continuously used by Tenant, but only for
the purpose of receiving, storing, shipping and selling (other than at retail)
products, materials and merchandise made and/or distributed by Tenant and for no
other use or purpose. Tenant shall at its own cost and expense obtain any and
all licenses and permits necessary for any such use. The outside storage of any
property (including, without limitation, overnight parking of trucks and other
vehicles) is prohibited. Tenant shall comply with all governmental laws,
ordinances and regulations ("Laws") applicable to its use and occupancy of the
Premises and shall promptly comply with all governmental orders and directives
for the correction, prevention and abatement of any violations or nuisances in
or upon, or connected with the Premises, all at Tenant's sole expense. If as a
result of any change in Laws, the Premises must be altered to lawfully
accommodate the use and occupancy thereof, such alterations shall be made only
with the consent of Landlord, but the entire cost thereof shall be borne by
Tenant; provided, that, the necessity of Landlord's consent shall in no way
create any liability against Landlord for the failure of the Tenant to comply
with such Laws. Tenant and its employees, customers and licensees shall have the
nonexclusive right to use in common with the other parties occupying the
Building, common parking areas, if any, (exclusive of any parking or work load
areas designated or to be designated by Landlord for the exclusive use of Tenant
or other tenants occupying or to be occupying other portions of the Building),
driveways and alleys adjacent to the Building. Landlord shall at all times have
the right to promulgage such reasonable rules and regulations as it deems
advisable for the safety, care and cleanliness of the Premises and for the
preservation of good order therein. Copies of all rules and regulations,
changes, and amendments will be forwarded to Tenant. Tenant shall be responsible
for the compliance with such rules and regulations by Tenant's agents,
employees, and invitees.
B. Tenant agrees that Tenant, its agents and contractors, licensees,
or invitees shall not handle, use, manufacture, store or dispose of any
flammables, explosives, radioactive materials, hazardous wastes or materials,
toxic wastes or materials, petroleum products or derivatives or other similar
substances (collectively "Hazardous Materials") on, under, or about the
Premises, without Landlord's prior written consent in Landlord's sole
discretion. Tenant may handle, store, use or dispose of products containing
small quantities of Hazardous Materials, which products are of a type
customarily found in offices and households (such as aerosol cans containing
insecticides, toner for copies, and the like);provided that Tenant shall handle,
store, use and dispose of any such Hazardous Materials in a safe and lawful
manner and shall not allow such Hazardous Materials to contaminate the Premises
or the environment. Tenant further agrees that Tenant will not permit any
substance to come into contact with groundwater under the Premises. Any such
substance coming into contact with groundwater shall, regardless of its inherent
hazardous characteristics, be considered a Hazardous Material for purposes of
this Lease.
C. If Landlord, in its sole discretion, believes that the Premises
or the environment have become contaminated with Hazardous Materials, Landlord,
in addition to its other rights under this Lease, may enter upon the Premises
and obtain samples from the Premises, including without limitation the soil and
groundwater under the Premises, for the purposes of analyzing the same to
determine whether and to what extent the Premises or the environment have become
so contaminated. Tenant shall reimburse Landlord for the costs of any
inspection, sampling and analysis that discloses contamination for which Tenant
is liable. Tenant may not perform any sampling, testing, or drilling to locate
any Hazardous Materials on the Premises without Landlord's to locate any
Hazardous Materials on the Premises without Landlord's prior written consent.
Any of Tenant's insurance insuring against claims of the type dealt with in this
Paragraph shall be considered primary coverage for claims against the Premises
arising out of or under this Paragraph. In the event of any transfer of Tenant's
interest under this Lease or the termination of this Lease, by lapse of time or
otherwise, Tenant shall be solely responsible for compliance with any and all
then effective Laws concerning (i) the physical condition of the Premises; or
(ii) the presence of Hazardous Materials in or on the Premises (such as the
Illinois Responsible Property Transfer Act), including but not limited to any
reporting or filing requirements imposed by such laws. Tenant's duty to pay rent
shall continue until the obligations imposed by such laws are satisfied in full
and any certificate of clearance or similar document has been delivered to
Landlord.
D. Without limiting the above, Tenant shall reimburse, defend,
indemnify and hold Landlord harmless from and against any and all claims,
losses, liabilities, damages, costs and expenses, including without limitation,
loss of rental income, loss due to business interruption, and attorneys fees and
costs, arising out of or in any way connected with the use, manufacture,
storage, or disposal of Hazardous Materials by Tenant, its agents or contractors
on, under or about the Premises including, without limitation, the costs of any
required or necessary investigation, repair, cleanup or detoxification and the
preparation of any closure or other required plans in connection herewith,
whether voluntary or compelled by governmental authority. The indemnity
obligations of Tenant under this clause shall survive any termination of the
Lease, Tenant shall provide Landlord on a timely basis with (i) copies of all
documents, reports, and *for two (2) months , commencing July 15, 1996, and then
on a month to month term commencing September 16, 1996 and cancellable by either
party upon 30 days prior written notice which notice must be given no later than
the last day of the month preceeding the date of termination.
<PAGE>
communications with governmental authorities; and (ii) notice and an opportunity
to attend all meetings with regulatory authorities. Tenant shall comply with all
notice requirements and Landlord and Tenant agree to cooperate with governmental
authorities seeking access to the Premises for purposes of sampling or
inspection. No disturbance of Tenant's use of the Premises resulting from
activities conducted pursuant to this Paragraph shall constitute and actual or
constructive eviction of Tenant from the Premises. In the event that such
cleanup extends beyond the termination of the Lease, Tenant's obligation to pay
rent shall continue until such cleanup is completed and any certificate of
clearance or similar document has been delivered to Landlord. Rent during such
holdover period shall be at market rent; if the parties are unable to agree upon
the amount of such market rent, then the Landlord shall have the option of (a)
increasing the rent for the period of such holdover based upon the increase in
the Consumer Price Index for the third month preceding the Commencement Date to
the third month preceding the start of the holdover period; or (b) having
Landlord and Tenant each appoint a qualified MAI appraiser doing business in the
area; in turn, these two independent MAI appraisers shall appoint a third MAI
appraiser and the majority shall decide upon the fair market rental for Premises
as of the expiration of the then current term. Landlord and Tenant shall equally
share in the expense of this appraisal except that in the event the rent is
found to be within fifteen percent (15%) of the original rate quoted by
Landlord, then Tenant shall bear the full cost of all the appraisal process. In
no event shall the rent be subject to determination or modification by any
person, entity, court, or authority other than as set forth expressly herein,
and in no event shall the rent for any holdover period be less that the rent due
in the preceding period.
5. Repairs
A. Tenant shall at its own cost and expense keep and maintain all
parts of the Premises and such portion of the Building and improvements within
the exclusive control of Tenant in good condition, promptly making all necessary
repairs and replacements, whether ordinary or extraordinary, with materials and
workmanship of the same character, kind and quality as the original. Tenant as
part of its obligations hereunder shall keep the Premises in a clean and
sanitary condition. Tenant will, as far as possible keep all such parts of the
Premises from deterioration due to ordinary wear and from falling temporarily
out of repair, and upon termination of this Lease in any way Tenant will yield
up the Premises to Landlord in good condition and repair, loss by fire or other
casualty covered by insurance to be maintained by Landlord pursuant to
subparagraph 10A hereof excepted (but not excepting any damage to glass). Tenant
shall, at its own cost and expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor approved by Landlord
for servicing all heating and air conditioning systems and equipment serving the
Premises (and a copy thereof shall be furnished to Landlord). Tenant shall, at
its own cost and expense, repair any damage to the Premises resulting from
and/or caused in whole or in part by the negligence or misconduct of Tenant, its
agents, employees, invitees, or any other person entering upon the Premises as a
result of Tenant's business activities or caused by Tenant's default hereunder.
B. Landlord shall at its expense maintain in good repair, reasonable
wear and tear and any casualty covered by insurance to be maintained by Landlord
pursuant to subparagraph 10A excepted, the foundation, roof and walls of the
Building. Tenant shall immediately give Landlord written notice of any defect or
need for repairs, after which Landlord shall have reasonable opportunity to
repair same or cure such defect. Landlord's liability with respect to any
defects, repairs or maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect. The term "walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts or office
entries.
<PAGE>
6. Alterations
Tenants shall not make any alterations, additions or improvements
("Alterations") to the Premises without the prior written consent of Landlord,
which consent may in Landlord's sole discretion be withheld. Each request shall
be accompanied by plans detailing the proposed Alteration. In connection with
any request, Landlord may retain the services of an architect and/or engineer
and Tenant shall reimburse Landlord for the reasonable fees of such architect
and/or engineer. If Landlord shall consent to any Alterations, Tenant shall
construct the same in accordance with all Laws and shall, prior to construction,
provide such assurances to Landlord, (including but not limited to, waivers of
lien, surety company performance bonds and personal guarantees of individuals of
substance) as Landlord shall require to protect Landlord against any loss from
any mechanics', materialmen's or other liens. At the time of completion of each
Alteration, Tenant shall deliver to Landlord a set of final "as-built" plans.
All Alterations and partitions erected by Tenant shall be and remain the
property of Tenant during the Term and Tenant shall, unless Landlord otherwise
elects at the time of termination, remove all Alterations and partitions erected
by Tenant ( but not any improvements erected for Tenant by Landlord at the
commencement of the Term) and restore the Premises to their original condition
by the date of termination of this Lease or upon earlier vacating of the
Premises. All shelves, bins, machinery and trade fixtures installed by Tenant
shall be removed by the date of termination of this Lease or upon earlier
vacating of the Premises; upon any such removal Tenant shall restore the
Premises to their original condition (including the removal of all fastening
bolts and the patching of the walls and floors where necessary). All such
removals and restoration shall be accomplished in a good workmanlike manner so
as not to damage the primary structure or structural qualities of the Building.
Tenant shall not install any signs upon the Building.
7. Inspections
Landlord and Landlord's agents and representatives shall have the
right to enter and inspect the Premises at any reasonable time;(i) to ascertain
the condition of the Premises; (ii) to determine whether Tenant is diligently
fulfilling Tenant's responsibilities under the lease; (iii) to supply any
service to be provided by Landlord to Tenant hereunder;(iv) to make such repairs
as may be required or permitted to be made by Landlord under the terms of this
Lease (and may for that purpose, without abatement of rent, erect, use and
maintain scaffolding, pipes conduits, and other necessary structures in, through
or on the Premises where reasonably required by the character of the work to be
performed, provided entrance to the Premises shall not be blocked thereby, and
further provided that the business of Tenant shall not be interfered with
unreasonably); (v) to show the Premises to prospective tenants, purchasers
mortgagees; and (vi) to do any other act or thing which Landlord deems
reasonable to preserve the Premises.
8. Utilities
Tenant shall pay for all water, gas, heat, light, power, telephone,
sewer, sprinkler systems charges and other utilities and services used on or
from the Premises, including without limitation, Tenant's proportionate share as
determined by Landlord of the cost of any central station signaling system
installed in the Premises of the Building together with any taxes, penalties,
and surcharges or the like pertaining thereto and any maintenance charges for
utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts,
battery packs for emergency lighting and fire extinguishers. If any such
services are not separately metered to Tenant, Tenant shall pay such proportion
of all charges jointly metered with other premises as determined by Landlord, in
its sole discretion, to be reasonable. Any such charges paid by Landlord and
assessed against Tenant shall be immediately payable to Landlord on demand and
shall be additional rent hereunder. Landlord shall in no event be liable for any
interruption or failure of utility services on or to the Premises.
9. Assignment and Subletting
A. Tenant shall not have the right to assign or pledge this Lease or
to sublet the whole or any part of the Premises, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises by anyone other
than the Tenant, without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, and such restrictions shall be binding
upon any assignee or subtenant to which Landlord has consented. In the event
Tenant desires to sublet the Premises, or any portion thereof, or assign this
Lease, Tenant shall give written notice thereof to Landlord within a reasonable
time prior to the proposed commencement date of such subletting or assignment,
which notice shall set forth the name of the proposed subtenant or assignee the
relevant terms of any sublease and copies of financial reports and other
relevant financial information on the proposed subtenant or assignee. In no
event may Tenant sublease, nor will Landlord consent to any sublease of all or
any portion of the Premises if the rent is determined in whole or in part upon
the income or profits derived by the sublessee (other than a rent based upon a
fixed percentage or percentages of receipts or sales). Notwithstanding any
permitted assignment or subletting, Tenant shall at all times remain directly,
primarily and fully responsible and liable for the payment of the rent herein
specified and for compliance with all of its other obligations under this Lease.
Upon the occurrence of an event of default, if the Premises or any part thereof
are then assigned or sublet, Landlord, in addition to any other remedies herein
provided, or provided by law, may, at its option, collect directly from such
assignee or subtenant all rents due and becoming due to Tenant under such
assignment or sublease and apply such rent against any sums due to Landlord from
Tenant hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of Tenant's
obligations hereunder.
B. In addition to, but not in limitation of, Landlord's right to
approve of any subtenant or assignee, Landlord shall have the option, in its
sole discretion, in the event of any proposed subletting or assignment, to
terminate this Lease, or in the case of a proposed subletting of less than the
entire Premises, to recapture the portion of the Premises to be sublet, as of
the date the subletting or assignment is to be effective. The option shall be
exercised, if at all, by Landlord giving Tenant written notice thereof within
sixty (60) days following Landlord's receipt of Tenant's written notice as
required above. If this Lease shall be terminated with respect to the entire
Premises pursuant to this paragraph, the Term shall end on the date stated in
the Tenant's notice as the effective date of the sublease or assignment as if
that date had been originally fixed in the Lease for the expiration of the Term.
If Landlord recaptures under this paragraph only a portion of the Premises, the
rent during the unexpired Term shall abate proportionately based on the rent per
square foot contained in this Lease. In the event that Tenant sublets, assigns
or otherwise transfers its interest in this Lease and at any time receives
periodic rent and/or other consideration which exceeds that which Tenant would
at that time be obligated to pay to Landlord, Tenant shall pay to Landlord fifty
percent (50%) of the gross increase in such rent and fifty percent (50%) of any
other consideration as received by Tenant. Tenant shall pay to Landlord, on
demand, a reasonable service charge for the processing of the application for
consent and preparation of the consent and/or the assumption documents.
C. It shall not be unreasonable for Landlord to withhold its consent
to any proposed assignment or sublease if (i) the proposed assignee's or
sublessee's anticipated use of the Premises involves the generation, storage,
use, treatment or disposal of Hazardous Materials;(ii) the proposed assignee or
sublessee has been required by any prior landlord, lender, or governmental
authority to take remedial action in connection with Hazardous Materials
contaminating a property if the contamination resulted from such assignee's or
sublessee's actions or use of the property in question; or (iii) the proposed
assignee or sublessee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of a
Hazardous Material.
10. Casualty and Condemnation
A. Landlord shall maintain all insurance policies deemed by Landlord
to be reasonably necessary or desirable and relating in any manner to the
protection, preservation or operation of the Building, including standard fire
and extended coverage insurance covering the Building in an amount not less than
ninety percent (90%) of the replacement cost thereof or, at Landlord's option,
all risk coverage and, if Landlord so elects, earthquakes, flood and wind
coverages. Subjects to the provisions of subparagraph 10B below, such insurance
shall be for the sole benefit of Landlord and under its sole control. Tenant
shall not take out separate insurance concurrent in form or contributing in the
event of loss with that required to be maintained by the Landlord hereunder.
Tenant shall maintain insurance on all Alterations erected by or on behalf of
Tenant in, on or about the Premises (but not any improvements erected for Tenant
by Landlord at the commencement of the Term) in an amount not less than ninety
percent (90%) of the replacement cost thereof. Such insurance shall insure
against the perils and be in form, including stipulated endorsements, as
provided in subparagraph 10A. Such insurance shall be for the sole benefit of
Tenant and under its sole control provided that Tenant shall be obligated to
immediately commence the rebuilding of the improvements erected by tenant and to
apply such proceeds in payment of the cost thereof.
<PAGE>
B. If the Building should be damaged by any peril covered by the
insurance to be provided by Landlord under subparagraph 10A, but only to such
extent that the Building can in Landlord's estimation be materially restored
within two hundred fifty (250) days after the date upon which Landlord is
notified by Tenant of such damage (except that Landlord may elect not to rebuild
if such damage occurs during the last year of the Term), this Lease shall not
terminate, and Landlord shall at its sole cost and expense thereupon proceed
with reasonable diligence to rebuild and repair the Building to substantially
the condition in which they existed prior to such damage, except Landlord shall
not be required to rebuild, repair or replace any part of the partitions,
fixtures, additions and other improvements which may have been placed in, on or
about the Premises by Tenant. For purposes hereof the Building shall be deemed
"materially restored" if it is in such condition as would not prevent or
materially interfere with Tenant's use of the Premises for the purpose for which
they were then being used. If the Premises are untenantable in whole or in part
following such damage, the rent payable hereunder during the period in which the
Premises are untenantable shall be reduced to such extent as may be fair and
reasonable. In the event that Landlord should fail to complete such material
restoration within two hundred fifty (250) days after the date upon which
Landlord is notified by Tenant of such damage, Tenant may at its option
terminate this Lease within thirty (30) days thereafter by delivering written
notice of termination to Landlord as Tenant's exclusive remedy, whereupon the
Term shall end on the date of such notice as if the date of such notice were the
date originally fixed in the Lease for the expiration of the Term; provided,
however, that if construction is delayed because of changes, deletions, or
additions in construction requested by Tenant, strikes, lockouts, casualties,
acts of God, war, material or labor shortages, governmental regulation or
control or other causes beyond the reasonable control of Landlord, the period
for restoration, repair or rebuilding shall be extended for the amount of time
Landlord is so delayed. If the Building should be damaged or destroyed and
Landlord is not required to rebuild pursuant to the provisions of subparagraph
10B, this Lease shall terminate upon notice to Tenant, given within sixty (60)
days after Landlord is notified by Tenant of such damage, effective as of the
date of such damage as if the date had been originally fixed in the Lease for
the expiration of the Term.
C. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Premises or the Building requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such request is made by any such holder, whereupon the Lease shall end on
the date of such damage as if the date of such damage were the date originally
fixed in the Lease for the expiration of the Term.
D. Each of Landlord and Tenant hereby releases the other from any
and all liability or responsibility to the other or anyone claiming through or
under them by way of subrogation or otherwise for any loss or damage to property
caused by fire, extended coverage perils, vandalism or malicious mischief,
sprinkler leakage, or any other perils insured in policies of insurance covering
such property, even if such loss or damage shall have been caused by the fault
or negligence of the other party, or anyone for whom such party may be
responsible, including any other tenants or occupants of the remainder of the
Building; provided, however, that this release shall be applicable and in force
and effect only to the extent that such release shall be lawful at that time and
in any event only with respect to loss or damage occurring during such times as
the releasor's policies shall contain a clause or endorsement to the effect that
any such release shall not adversely affect or impair said policies or prejudice
the right of the releasor to recover thereunder and then only to the extent of
the insurance proceeds payable under such policies. Each of Landlord and Tenant
agrees that it will request its insurance carriers to include in its policies
such a clause or endorsement.
E. If the whole or any substantial part of the Premises or Building
should be taken for any public or quasi-public use under any Law or by right of
eminent domain, or by private purchase in lieu thereof (a "Condemnation") and
the taking would prevent or materially interfere with the use of Premises or the
Building for the purpose for which they are then being used, this Lease shall
terminate effective when the physical taking shall occur as if the date of such
taking were the date originally fixed in the Lease for the expiration of the
Term. If part of the Premises shall be Condemned, and this Lease is not
terminated as provided above, this Lease shall not terminate but the rent
payable hereunder during the unexpired portion of this Lease shall be reduced to
such extent as may be fair and reasonable, Landlord shall undertake to restore
the Premises to a condition suitable for Tenant's use, as near to the condition
thereof immediately prior to such taking as is reasonably feasible. In the event
of any such Condemnation, Landlord and Tenant shall each be entitled to receive
and retain such separate awards and/or portion of lump sum awards as may be
allocated to their respective interests in any condemnation proceedings;
provided that Tenant shall not be entitled to receive any award for Tenant's
loss of its leasehold interest, the right to such award being hereby assigned by
Tenant to Landlord.
11. Liability
Landlord shall not be liable to Tenant or Tenant's employees,
agents, patrons or visitors, or to any other person whomsoever, for any injury
to persons or damage to property on or about the Premises, the Building
resulting from and/or caused in part or whole by the negligence or misconduct of
Tenant, its agents, employees, invitees or any other person entering upon the
Premises, or caused by the Building becoming out of repair, or caused by leakage
of gas, oil, water or steam or by electricity emanating from the Building, or
due to any cause whatsoever, and Tenant hereby covenants and agrees that it will
at all times indemnify and hold safe and harmless the Building and Landlord from
any loss, liability, claims, suits, costs, expenses, including attorney's fees
and damages, both real and alleged, arising out of any such damage or injury;
except injury to persons or damage to property the sole cause of which is the
negligence of Landlord or the failure of Landlord to repair any part of the
Premises which Landlord is obligated to repair and maintain hereunder within a
reasonable time after the receipt of written notice from Tenant of needed
repairs. Tenant shall procure and maintain throughout the Term a policy or
policies of insurance, in form and substance satisfactory to Landlord, at
Tenant's sole cost and expense, insuring Landlord, Landlord's mortgagee, if any,
and Tenant against all claims, demands or actions arising out or in connection
with: (i) the Premises; (ii) the condition of the Premises; (iii) Tenant's
operations in and maintenance and use of the Premises; and (iv) Tenant's
liability assumed under this Lease, the limits of such policy or policies to be
in the amount of not less than Two Million Dollars ($2,000,000) per occurrence
in respect of injury to persons (including death) and in the amount of not less
than Five Hundred Thousand Dollars ($500,000) per occurrence in respect of
property damage or destruction, including loss of use thereof.
12. Holding Over
Tenant will, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant retains
possession of the Premises or any part thereof after such termination, then
Landlord may, at its option, serve written notice upon Tenant that such holding
over constitutes any one of (i) renewal of this Lease for one year, and from
year to year thereafter, or (ii) creation of month to month tenancy, upon the
terms and conditions set forth in this Lease, or (iii) creation of a tenancy at
sufferance, in any case upon the terms and conditions set forth in this Lease;
provided, however, that the monthly rental (or daily rental under clause (iii))
shall, in addition to all other sums which are to be paid by Tenant hereunder,
whether or not as additional rent, be equal to double the total rental being
paid monthly to Landlord under this Lease immediately prior to such termination
(prorated in the case of clause (iii) on the basis of a 365 day year for each
day Tenant remains in possession). If no such notice is served, then a tenancy
at sufferance shall be deemed to be created at the rent in the preceeding
sentence. Tenant shall also pay to Landlord all damages sustained by Landlord
resulting from retention of possession by Tenant, including the loss of any
proposed subsequent tenant for any portion of the Premises. The provisions of
this paragraph shall not constitute a waiver by Landlord of any right of
re-entry nor shall receipt of any rent or any other act in apparent affirmance
of the tenancy operate as a waiver of the right to terminate this Lease.
13. Quiet Enjoyment
Landlord covenants that it now has, or will acquire before Tenant
takes possession of the Premises, good title to the Premises. In the event this
Lease is a sublease, then Tenant agrees to take the Premises subject to the
provisions of the prior leases. Landlord represents and warrants that it has
full right and authority to enter into this Lease and that Tenant, upon paying
the rental herein set forth, and performing its other covenants and agreements
herein set forth shall peaceably and quietly have, hold and enjoy the Premises
for the Term without hindrance or molestation from Landlord, subject to the
terms and provisions of this Lease. Landlord agrees to make reasonable efforts
to protect Tenant from interference or disturbance by other tenants or third
persons; however, Landlord shall not be liable for any such interference or
disturbance, nor shall Tenant be released from any of the obligations of this
Lease because of such interference or disturbance.
<PAGE>
14. Events of Default
The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) Tenant shall fail to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, whether such sum be any
installment of the rent herein reserved, any other amount treated as additional
rent hereunder, or any other payment or reimbursement to Landlord required
herein, and such failure shall continue for a period of five (5) days from the
date such payment was due; or
(b) Tenant shall fail to comply with any term, provision or covenant
of this Lease other than by failing to pay when or before due any sum of money
becoming due to be paid to Landlord hereunder, and shall not cure such failure
within twenty (20) days (forthwith, if the default involves a hazardous
condition) after written notice thereof to Tenant; or
(c) Tenant shall fail to immediately vacate the Premises upon
termination of this Lease or upon termination of Tenant's right to possession
only; or
(d) The leasehold interest of Tenant shall be levied upon under
execution or be attached by process of law or Tenant shall fail to contest
diligently the validity of any lien or claimed lien and give sufficient security
to Landlord to insure payment thereof or shall fail to satisfy any judgment
rendered thereon and have the same released, and such default shall continue for
ten (10) days after written notice thereof to Tenant.
15. Remedies
Upon the occurrence of any of such events of default described in
Paragraph 14 hereof or elsewhere in this Lease, Landlord shall have the option
to pursue any one or more of the following remedies without any notice or demand
whatsoever:
(a) Landlord may, at its election, terminate this Lease or terminate
Tenant's right to possession only, without terminating the Lease.
(b) Upon any such termination of this Lease, or upon any termination
of Tenant's right to possession without termination of the Lease, Tenant shall
surrender possession and vacate the Premises immediately, and deliver possession
thereof to Landlord, and Tenant hereby grants to Landlord full and free license
to enter into and upon the Premises in such event and to repossess Landlord of
the Premises as of Landlord's former estate and to expel or remove Tenant and
any others who may be occupying or within the Premises and to remove any and all
property therefrom without being deemed in any manner guilty of trespass,
eviction or forcible entry or detainer and without incurring any liability for
any damage resulting therefrom, Tenant hereby waiving any right to claim damage
for such re-entry and expulsion, and without relinquishing Landlord's right to
rent or any other right given to Landlord hereunder or by operation of law.
(c) Upon any termination of this Lease, Landlord shall be entitled
to recover as damages, all rent, including any amounts treated as additional
rent hereunder, and other sums due and payable by Tenant on the date of
termination, plus the sum of (i) an amount equal to the then present value of
the rent, including any amounts treated as additional rent hereunder, and other
sums provided herein to be paid by Tenant for the residue of the stated Term,
less the fair rental value of the Premises for such residue, (taking into
account the time and expense necessary to obtain a replacement tenant or
tenants, including expenses hereinafter described in subparagraph (d) relating
to recovery of the Premises, preparation for reletting and for reletting itself)
which the parties agree shall in no event exceed sixty percent (60%) of the then
present value of the rent for the period, and (ii) the cost of performing any
other covenants which would have otherwise been performed by Tenant.
(d) Upon any termination of Tenant's right to possession only
without termination of the Lease, Landlord may at Landlord's option, enter into
the Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as provided in subparagraph (b) above, without such
entry and possession terminating the Lease or releasing Tenant, in whole or in
part, from any obligation, including Tenant's obligation to pay the rent,
including any amounts treated as additional rent hereunder for the full Term. In
any such case Tenant shall pay forthwith to Landlord, if Landlord so elects, a
sum equal to the entire amount of the rent, including any amounts treated as
additional rent hereunder, for the residue of the stated Term plus any other
sums provided herein to be paid by Tenant for the remainder of the Term.
Landlord may, but need not, relet the Premises or any part thereof
for such rent and upon such terms as Landlord, in its sole discretion, shall
determine (including the right to relet the Premises for a greater or lesser
term than that remaining under this Lease, the right to relet the Premises as a
part of a larger area, and the right to change the character or use made of the
Premises). If Landlord decides to relet the Premises or a duty to relet is
imposed upon Landlord by law, Landlord and Tenant agree that Landlord shall only
be required to use the same efforts Landlord then uses to lease other properties
Landlord owns or manages (or if the Premises are then managed for Landlord, then
Landlord will instruct such manager to use the same efforts such manager then
uses to lease other space or properties which it owns or manages); provided,
however, that Landlord (or its manager) shall not be required to give any
preference or priority to the showing or leasing of the Premises over any other
space that Landlord (or its manager) may be leasing or have available and may
place a suitable prospective tenant in any such available space regardless of
when such alternative space becomes available; provided, further, that Landlord
shall not be required to observe any instruction given by Tenant about such
reletting or accept any tenant offered by Tenant unless such offered tenant has
a creditworthiness acceptable to Landlord, leases the entire Premises, agrees to
use the Premises in a manner consistent with the Lease and leases the Premises
at the same rent, for no more than the current Term and on the same other terms
and conditions as in this Lease without the expenditure by Landlord for tenant
improvements or broker's commissions. In any such case, Landlord may, but not
shall not be required to, make repairs, alterations and additions in or to the
Premises and redecorate the same to the extent Landlord deems necessary or
desirable, and Tenant shall, upon demand, pay the cost thereof, together with
Landlord's expenses of reletting, including, without limitation, any broker's
commission incurred by Landlord. If the consideration collected by Landlord upon
any reletting plus any sums previously collected from Tenant are not sufficient
to pay the full amount of all rent, including any amounts treated as additional
rent hereunder, and other sums reserved in this Lease for the remaining Term,
together with the cost of repairs, alterations, additions, redecorating, and
Landlord's expenses of reletting and the collection of the rent accruing the
refrom (including attorney's fees and broker's commissions), Tenant shall pay to
Landlord the amount of such deficiency upon demand and Tenant agrees that
Landlord may file suit from time to time to recover sums falling due under this
section.
(e) Landlord may, at Landlord's option, enter into and upon the
Premises if Landlord determines in its sole discretion that Tenant is not acting
within a commercially reasonable time to maintain, repair or replace anything
for which Tenant is responsible hereunder and correct the same, without being
deemed in any manner guilty of trespass, eviction or forcible entry and detainer
and without incurring any liability for any damage resulting therefrom and
Tenant agrees to reimburse Landlord, on demand, as additional rent, for any
expenses which Landlord may incur in thus effecting compliance with Tenant's
obligations under this Lease.
(f) Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is or
may be entitled, may be handled, removed and stored, as the case may be, by or
at the direction of Landlord at the risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall, at Landlord's option, be
deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale
without further payment or credit by Landlord to Tenant.
In the event Tenant fails to pay any installment of rent, including
any amount treated as additional rent hereunder, or other sums hereunder as and
when such installment or other charge is due, Tenant shall pay to Landlord on
demand a late charge in an amount equal to five percent (5%) of such installment
or other charge overdue in any month and five percent (5%) each month thereafter
until paid in full to help defray the additional cost to Landlord for processing
such late payments, and such late charge shall be additional rent hereunder and
the failure to pay such late charge within ten (10) days after demand therefor
shall be an additional event of default
<PAGE>
hereunder. The provision for such late charge shall be in addition to all of
Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner.
Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies herein provided or any other remedies provided by
law (all such remedies being cumulative), nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Landlord or of any
damages accruing to Landlord. No act or thing done by Landlord or its agents
during the Term shall be deemed a termination of this Lease or an acceptance of
the surrender of the Premises, and no agreement to terminate this Lease or
accept a surrender of said Premises shall be valid unless in writing signed by
Landlord. No waiver by Landlord of any violation or breach of any of the terms,
provisions and covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach. Landlord's acceptance of
the payment of rental or other payments hereunder after the occurrence of an
event of default shall not be construed as a waiver of such default, unless
Landlord so notifies Tenant in writing. Forbearance by Landlord in enforcing one
or more of the remedies herein provided upon an event of default shall not be
deemed or construed to constitute a waiver of such default or of Landlord's
right to enforce any such remedies with respect to such default or any
subsequent default. If, on account of any breach or default by Tenant, it shall
become necessary or appropriate for Landlord to employ or consult with an
attorney concerning or to enforce or defend any of Landlord's rights or remedies
hereunder, Tenant agrees to pay any attorney's fees so incurred.
16. Mortgages
Tenant accepts this Lease subject and subordinate to any mortgage(s)
and/or deed(s) of trust now or at any time hereafter constituting a lien or
charge upon the Premises or the Building, provided, however, that if the
mortgagee, trustee, or holder of any such mortgage or deed or trust elects to
have Tenant's interest in this Lease superior to any such instrument, then by
notice to Tenant from such mortgagee, trustee or holder, this Lease shall be
deemed superior to such lien, whether this Lease was executed before or after
said mortgage or deed of trust. Tenant shall at any time hereafter on demand
execute any instruments, releases or other documents which may be required by
any mortgagee for the purpose of evidencing the subjection and subordination of
this Lease to the lien of any such mortgage or for the purpose of evidencing the
superiority of this Lease to the lien of any such mortgage, as may be the case.
17. Mechanic's and Other Liens
Tenant agrees that it will pay or cause to be paid all sums legally
due and payable by it on account of any labor performed or materials furnished
in connection with any work performed on the Premises on which any lien is or
can be validly and legally asserted against its leasehold interest in the
Premises and that it will save and hold Landlord harmless from any and all loss,
cost or expense based on or arising out of assorted claims or liens against the
leasehold estate or against the right, title and interest of the Landlord in the
Premises or under the terms of this Lease. If any such lien shall remain in
force and effect for twenty (20) days after written notice thereof from Landlord
to Tenant, Landlord shall have the right and privilege at Landlord's option of
paying and discharging the same or any portion thereof without inquiry as to the
validity thereof, and any amounts so paid, including expenses and interest,
shall be so much additional indebtedness hereunder due from Tenant to Landlord
and shall be repaid to Landlord immediately on rendition of a bill therefor.
Notwithstanding the foregoing, Tenant shall have the right to contest any such
lien in good faith and with all due diligence so long as any such contest, or
action taken in connection therewith, protects the interest of Landlord and
Landlord's mortgagee in the Premises and Landlord and any such mortgagee are, by
the expiration of said twenty (20) day period, furnished such protection, and
indemnification against any loss, cost or expense related to any such lien and
the contest thereof as are satisfactory to Landlord and any such mortgagee.
18. Notices
Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered upon receipt if delivered personally
or by contract carrier or, whether actually received or not, when deposited in
the United States Mail, postage prepaid, Certified or Registered Mail, addressed
to the parties hereto at the respective addresses set out below, or at such
other address as they have theretofore specified by written notice delivered in
accordance herewith. If and when included within the term "Landlord" or "Tenant"
as used in this instrument, there are more than one person, firm or corporation,
all shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address for the receipt of
notices and payments. All parties included within the terms "Landlord" and
"Tenant", respectively, shall be bound by notices given in accordance with the
provisions of this paragraph to the same effect as if each had received such
notice.
19. Miscellaneous
A. The terms, provisions and covenants and conditions contained in
this Lease shall apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns, except as otherwise herein expressly provided.
Landlord shall have the right to assign any of its rights and obligations under
this Lease and Landlord's grantee or Landlord's successor, as the case may be,
shall upon such assignment, become Landlord hereunder, thereby freeing and
relieving the grantor or assignor, as the case may be, of all covenants and
obligations of Landlord hereunder.
B. Tenant shall at any time and from time to time within ten (10)
days after written request from Landlord execute and deliver to the Landlord or
any prospective Landlord, mortgagee or prospective mortgagee a sworn and
acknowledged estoppel certificate, in form reasonably satisfactory to Landlord
and/or such mortgagee certifying and stating accurate statements required by
Landlord or such mortgagee. It is intended that any such statement delivered
pursuant to this subsection may be relied upon by any prospective purchaser or
mortgagee and their respective successors and assigns and Tenant shall be liable
for all loss, cost or expense resulting from the failure of any sale or funding
of any loan caused by any misstatement contained in such estoppel certificate.
Tenant hereby irrevocably appoints Landlord or if Landlord is a trust,
Landlord's beneficiary, as attorney-in-fact for Tenant with full power and
authority to execute and deliver in the name of Tenant such estoppel certificate
if Tenant fails to deliver the same within such ten (10) day period and such
certificate as signed by Landlord or Landlord's beneficiary, as the case may be,
shall be fully binding on Tenant, if Tenant fails to deliver a contrary
certificate within five (5) days after receipt by Tenant of a copy of the
certificate executed by Landlord on behalf of Tenant.
C. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the Term shall survive the expiration or
earlier termination of the Term, including without limitation, all payment
obligations with respect to Taxes, Operating Costs and the like and all
obligations concerning the condition of the Premises. Upon the expiration or
earlier termination of the Term, and prior to Tenant vacating the Premises,
Landlord and Tenant shall jointly inspect the Premises and Tenant shall pay to
Landlord any amount estimated by Landlord as necessary to put the Premises,
including without limitation heating and air conditioning systems and equipment
therein, in good condition and repair. Any work required to be done by Tenant
prior to its vacation of the Premises which has not been completed upon such
vacation, may be completed by Landlord at Tenant's expense. Tenant shall also,
prior to vacating Premises, pay to Landlord the amount, as estimated by
Landlord, of Tenant's obligation hereunder for Taxes and Operating Costs. All
such amounts shall be used and held by Landlord for payment of such obligations
of Tenant hereunder, with Tenant being liable for any additional costs therefor
upon demand by Landlord, or with any excess to be returned to Tenant after all
such obligations have been determined and satisfied.
D. All policies of insurance to be obtained by Tenant shall be
procured by Tenant from responsible insurance companies satisfactory to
Landlord. Certified copies of such policies, together with receipt evidencing
payment of premiums therefor, shall be delivered to Landlord prior to the
Commencement Date and not less than fifteen (15) days prior to the expiration
dates of such policies.
E. Tenant's "proportionate share" as used in this Lease shall mean a
fraction, the numerator of which is the rentable area (other than any designated
parking and loading areas) contained in the Premises and the denominator of
which is the rentable area
<PAGE>
*James Mounce Inc.
contained in the Building, in each case as determined by Landlord. For purposes
hereof, the numerator is n/a and the denominator is n/a and Tenant's
proportionate share is __________ percent(___%).
F. Tenant represents and warrants to Landlord that it has not dealt
with any broker or finder in connection with this Lease except,* and indemnifies
and holds the other harmless from any and all loss, liability, costs or expenses
(including attorney's fees) incurred as a result of any breach of the foregoing
warranty. Landlord agrees to pay the broker, if any, listed above.
G. Neither party shall record this Lease or a memorandum hereof
without the prior written consent of the other party and the party seeking the
recording shall pay all charges and taxes incident thereto.
H. In no event shall Landlord's liability for any breach of any
contractual obligation of this Lease exceed the amount of rental then remaining
unpaid for the then current Term (exclusive of any renewal periods which have
not then actually commenced). This provision is not intended to be a measure or
agreed amount of Landlord's liability with respect to any particular breach, and
shall not be utilized by any court or otherwise for the purpose of determining
any liability of Landlord hereunder, except only as a maximum amount not to be
exceeded in any event.
EXECUTED the 15 day of July, 1996.
LANDLORD RREEF USA FUND I
a California Group Trust
By: RREEF MANAGEMENT COMPANY
a California Corporation
ATTEST/WITNESS
_______________________________ By: /s/ Alane S. Berkowitz
-------------------------------------
Title:_________________________ Title: District Manager
Address: 125 Maiden Lane
TENANT NETSAT EXPRESS INC
a Division of WorldComm Systems
Inc
375 OSER AVENUE
HAUPPAUGE, NY 11788
ATTEST/WITNESS
/s/ Sherrill L. Hansen By: Gerald A. Gutman
- ------------------------------
Title: Supervisor Title: President
Administrator
NETSAT Express, Inc. Address: 375 Oser Ave.
<PAGE>
EXHIBIT A
attached to and made a part of Lease bearing the
Lease Reference Date of July 15, 1996 between
RREEF USA FUND I, a California Group Trust as Landlord and
NETSAT EXPRESS INC. a Division of WorldComm Systems Inc., as Tenant
MAP
This site plan is intended only to show the general layout of the property or a
part thereof. Landlord reserves the right to alter, vary, add to or omit in
whole or in part any structures, and/or improvements, and/or common areas and/or
land area shown on this plan. All measurements and distances are approximate.
This plan is not to be scaled.
HEARTLAND FOUR HUNDRED PLAZA
400 OSER AVENUE, HAUPPAGE
<PAGE>
EXHIBIT B
attached to and made a part of Lease bearing the
Lease Reference Date of July 15, 1996 between
RREEF USA FUND I, a California Group Trust as Landlord and
NETSAT EXPRESS INC., a Division of WorldComm Systems Inc., as Tenant
1) Tenant to occupy office area only, as per Exhibit A
1) Tenant to take space "as is"
2) Monthly rent shall be $ 2,500
3) Tenant shall pay 1st month's rent upon execution of Lease
4) Tenant shall pay Security Deposit of $ 2,500 upon execution of Lease
5) Tenant is responsible for securing the two (2) doors from entry from the
adjacent vacant space, as per Exhibit A, when not on premises, at Tenant's
sole cost & expense. Landlord reserves the right to show the space during
normal business hours.
6) Monthly rent is inclusive of rent, taxes, CAM, & utilities.
<PAGE>
Exhibit 10.13
================================================================================
PURCHASE AND SALE AGREEMENT
45 OSER AVENUE
HAUPPAUGE, NEW YORK
================================================================================
<PAGE>
PURCHASE AND SALE AGREEMENT
45 OSER AVENUE
HAUPPAUGE, NEW YORK
TABLE OF CONTENTS
Section: Page
- -------- ----
1. Sale of Property ................................................... 1
2. Purchase Price ..................................................... 2
3. Title and Conveyance ............................................... 6
4. Apportionments and Adjustments ..................................... 8
5. Operations Pending Closing ......................................... 10
6. Closing ............................................................ 11
7. Representations, Warranties and Agreements of Seller ............... 11
8. Representations, Warranties and Agreements of Buyer ................ 13
9. Seller's Closing Obligations ....................................... 15
10. Violations ......................................................... 17
11. Objections to Title; Failure of Seller or Buyer to Perform ......... 17
12. Destruction, Damage or Condemnation ................................ 19
13. Brokerage .......................................................... 20
14. No Mortgage Contingency ............................................ 21
15. Notices ............................................................ 21
16. Hazardous Substances ............................................... 22
17. Closing Costs ...................................................... 24
18. Pending Tax Reduction Proceedings .................................. 24
19. Liquidated Damages ................................................. 25
20. Buyer's Application for Permit ..................................... 26
21. Miscellaneous Provisions ........................................... 26
Page ii
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SCHEDULE OF EXHIBITS
EXHIBIT "A" Legal Description of Subject Premises
EXHIBIT "B" Maintenance and Service Contracts
EXHIBIT "C" Pending or Threatened Litigation
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PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT (the "Agreement") made this 12th day of
December, 1996 by and between EATON CORPORATION, having an address at 1111
Superior Avenue, Cleveland, Ohio 44114-2584 (hereinafter referred to as
"Seller") and WORLDCOMM SYSTEMS, INC., having an address at 375 Oser Avenue,
Hauppauge, New York 11788 (hereinafter referred to as "Buyer").
1. SALE OF PROPERTY.
A. Seller agrees to sell. transfer and convey and the Buyer agrees to
purchase. subject to the terms and conditions of this Agreement, all that
certain piece, parcel or tract of land located at Hauppauge, in the Town of
Smithtown, County of Suffolk and State of New York, together with the buildings,
fixtures and improvements therein erected, and all appurtenances pertaining
thereto, as more fully described on Exhibit "A" annexed hereto, and known as 45
Oser Avenue, Hauppauge, New York, together with all building systems serving the
Subject Premises (as hereinafter defined) and all carpeting, partitions,
electrical systems and panels, heating, venting and air conditioning systems
("HVAC"), lighting, plumbing and mechanical systems, machinery, equipment,
replacement parts, components and supplies, cleaning and maintenance equipment,
tools and supplies, if any, together with all right, title and interest, if any,
of the Seller in and to any land lying in the bed of any street, road or avenue
open or proposed in front of or adjoining the Subject Premises to the centerline
thereof; all rights of way or use, licenses, tenements,
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hereditaments, appurtenances and easements now or hereafter belonging or
pertaining to any of the Subject Premises; all certificates of occupancy,
authorizations and approvals held by Seller and necessary for the current
occupancy, use and operation of the Subject Premises; all existing and unexpired
warranties, guarantees and bonds, including, without limitation, contractor's,
architect's and manufacturer's warranties and guarantees, if any, held by Seller
and given by third parties with respect to the Subject Premises; and all
surveys, plans and specifications that relate to the Subject Premises, to the
extent in Seller's possession, custody or control, including, without
limitation, those previously delivered to Buyer (hereinafter collectively
referred to as the "Subject Premises"). To the extent same are not in Seller's
possession, custody or control, Seller shall assign on the Closing Date all of
its right, title and interest in and to same to Buyer.
B. Buyer shall have the right to assign this Agreement to another
entity in which Buyer is, or the principals of Buyer are, the owner(s) of a
controlling interest. Except as set forth above, Buyer may not assign this
Agreement to any person or to any entity without the prior written consent of
Seller and any assignment in violation of this provision shall be null and void.
The assignment of this Agreement by Seller shall not relieve Seller of its
obligations and liabilities hereunder.
2. PURCHASE PRICE AND ESCROW.
The purchase price for the Subject Premises is Two Million Five
Hundred Fifty Thousand Dollars ($2,550,000) (hereinafter referred to as the
"Purchase Price") which shall be payable as follows:
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A. A check in the amount of One Hundred Twenty-Seven Thousand Five
Hundred Dollars ($127,500) (the "Deposit"), subject to collection drawn to the
order of Esanu Katsky Korins & Siger, as attorneys (hereinafter referred to as
"Escrow Agent"), simultaneously with the execution of this Agreement by Buyer,
as a good faith deposit to be held in escrow by Escrow Agent in an interest
bearing account at Citibank, N.A. and to be paid to Seller on the Closing Date
(as hereinafter defined) unless Buyer is entitled to a refund thereof in whole
or in part pursuant to the terms of this Agreement, in which event the amount to
be refunded, together with all accrued interest shall be paid over to Buyer and
the balance, if any, shall be paid to Seller;
B. The escrow of the Deposit shall be subject to the following
provisions:
(i) Seller and Buyer hereby appoint Esanu Katsky Korins & Siger
to serve as Escrow Agent pursuant to the terms of this Agreement.
(ii) Buyer shall pay the Deposit by unendorsed check, subject to
collection, payable to the order of and delivered to Escrow Agent. Upon
collection of the proceeds of the check in payment of the Deposit, Escrow Agent
shall deposit the proceeds thereof in an interest-bearing bank account at the
120 Broadway, New York, New York branch of Citibank, N.A., but Escrow Agent
shall have no obligation to obtain any specific interest rate on the Deposit.
Any party that shall receive interest on the Deposit shall be responsible for
payment of any applicable income taxes thereon. The tax identification numbers
of the parties are set forth opposite their signatures to this Agreement. Any
party entitled to receive interest on the Deposit shall furnish an executed and
completed IRS Form W-9 to Escrow Agent prior to delivery of such interest.
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(iii) If this transaction shall not close as a result of Buyer's
willful default hereunder, then, in such event, the Deposit and any accrued
interest on the Deposit shall be delivered to Seller following demand by Seller
as and for liquidated damages, and Seller shall have no further rights or
remedies as a result of such default; provided, however, that Escrow Agent shall
give Buyer ten (10) days' written notice to object to the payment of the Deposit
and interest to Seller, in which event Escrow Agent may either (a) maintain the
Deposit pursuant to the terms hereof, or (b) deposit the Deposit and interest in
a court of competent jurisdiction, pending resolution of the dispute between
Buyer and Seller. It is understood that since it would be impossible to
ascertain the amount of damages in the event of such default by Buyer, the
parties agree that, as Seller's sole remedy, such portion of the Deposit plus
interest thereon would constitute a fair and reasonable sum to cover such
damages.
(iv) The parties acknowledge that Escrow Agent is acting solely
as a stakeholder at their request and for their convenience and that Escrow
Agent shall not be deemed to be the agent or trustee for either of the parties.
(v) Escrow Agent shall not be liable to either of the parties for
anv mistake of fact or of law or error of judgment or any act or omission of any
kind unless it involves willful misconduct or gross negligence on the part of
Escrow Agent. Without limiting the generality of the foregoing, Escrow Agent
shall not be responsible or liable in any manner whatsoever for (i) the
sufficiency, correctness, genuiness, or validity of any check or other
instrument delivered to it, (ii) the form of execution of any such instruments,
(iii) the identity, authority or rights of any person executing or delivering
any such instrument, (iv) the terms and conditions of any
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instrument pursuant to which the parties may act, (v) any loss of interest
resulting from a delay in investing or reinvesting the Deposit, (vi) any loss
resulting from, in connection with, or arising from the Deposit or investment of
the Deposit as provided herein, including, but not limited to, the failure;
refusal or inability of any institution with which the Deposit has been
deposited or invested to repay any portion of the principal amount of or any
interest accrued on the Deposit.
(vi) Seller and Buyer, jointly and severally, hereby indemnify
and hold Escrow Agent harmless from and against all costs, claims. losses,
liabilities and expenses, including, without limitation, reasonable attorneys'
fees, incurred in connection with or arising from the performance of Escrow
agent's duties hereunder, except with respect to acts or omissions involving
willful misconduct or gross negligence on the part of Escrow Agent, and provided
that Escrow Agent shall not charge any fees for the performance of its services
in the ordinary course. Such indemnity shall survive the Closing or termination
of this Agreement.
(vii) Notwithstanding anything to the contrary contained herein,
Buyer agrees that Esanu Katsky Korins & Siger may represent Seller as Seller's
counsel in any action, suit or other proceeding between Seller and Buyer, or in
which Seller and Buyer may be involved.
(viii) No change or termination of this Agreement affecting the
rights, duties or liabilities of Escrow Agent shall be binding upon Escrow Agent
unless agreed to in writing by Escrow Agent.
(ix) At the Closing, the Deposit together with any interest
earned thereon shall be paid by Escrow Agent to Seller. If Buyer is entitled to
the return of the Deposit, or any
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portion thereof, pursuant to the terms hereof, then Buyer shall be entitled to
the interest earned thereon.
C. Bank draft or certified check in the amount of Two Million Four
Hundred Twenty-Two Thousand Five Hundred Dollars ($2,422,500) payable to the
order of Seller, or as may be directed by Seller upon not less than forty-eight
(48) hours prior written notice to Buyer, drawn on a bank which is a member of
the New York Clearing House Association or, at Seller's option, by federal funds
wire transfer on the Closing Date.
3. TITLE AND CONVEYANCE.
A. On the Closing Date, the Subject Premises shall be conveyed by
Bargain and Sale Deed with Covenants Against Grantors Acts in proper form for
recording which shall be properly executed and acknowledged so as to convey to
Buyer a good and insurable fee simple title to the Subject Premises and such
title to be free, clear and unencumbered subject only to the following permitted
exceptions (hereinafter collectively referred to as the "Permitted Exceptions"):
(i) real estate taxes, water charges and sewer rents not yet due and payable;
(ii) encroachments of retaining walls, roofs, coping, fences and variations
between record lines and retaining walls, hedges and fences provided same do not
render title unmarketable; (iii) any state of facts an accurate survey of the
Subject Premises would show, provided such state of facts does not render title
unmarketable; (iv) covenants, restrictions, utility agreements or utility or
other easements of record, if any, still in force and effect, provided the items
in this subsection (iv) do not prevent or interfere with the existing or
continued use of the Subject Premises as presently existing and
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Buyer's title company insures to the Buyer and to the mortgagee of Buyer, if
any, that a future violation will not cause a reversion or forfeiture of title;
(v) building and zoning laws, restrictions, ordinances, codes and regulations
affecting the Subject Premises, and all amendments and additions thereto now or
which will be in force and effect on the Closing Date, provided same are not
presently violated by the Subject Premises as constructed or by the present use
thereof and (vi) the matters set forth on Schedule B to title report on the
Subject Premises issued by Continental Abstract Corporation, Title No.
96-08-100500572 (S335435), dated October 28, 1996.
B. Title to the Subject Premises shall be good and marketable and
insurable as such by any reputable title insurance company licensed to do
business in the State of New York in accordance with its standard policy without
additional premium, subject only to the Permitted Exceptions and standard
exceptions and exclusions generally contained in such policies.
C. Unpaid franchise taxes of any corporation in the chain of title
shall not constitute an objection to title, provided, that on Closing of title,
Seller makes such deposit or guarantee as might be required by the title company
engaged by the Buyer and the title company "omits" same from any fee and
mortgage policy and issues to Buyer and to the mortgagee of Buyer, if any, a
policy of title insurance, insuring against the collection thereof out of or
against the Subject Premises. Subsequent to the Closing, Buyer shall look solely
to its title insurance company for any claims arising in respect of title
matters and Seller shall have no liability to Buyer for title defects which are
discovered subsequent to the Closing. At the Closing, Buyer shall deliver to
Seller an agreement from Buyer's title insurance company waiving its right of
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subrogation for claims against Seller in connection with title defects affecting
the Subject Premises.
4. APPORTIONMENTS AND ADJUSTMENTS.
A. The following apportionments shall be made between the parties at
the Closing as of midnight of the day preceding the Closing Date:
(i) Real estate taxes, water charges and sewer rents, if any, on
the basis of the fiscal period for which assessed, except that if there is a
water meter on the Subject Premises, then apportionment at the Closing shall be
based on the last available reading, subject to adjustment after the Closing
when the next reading is available. If the Closing shall occur before a new tax
rate is fixed, the apportionment of taxes at the Closing shall be upon the basis
of the old tax rate for the preceding period applied to the latest assessed
valuation. Promptly after the new tax rate is fixed, the apportionment of taxes
shall be re-computed. Any discrepancy resulting from such re-computation as well
as any errors or omissions in computing all other apportionments at Closing
shall be promptly corrected, which obligations shall survive the Closing;
(ii) Payments due under any maintenance or service contracts
(collectively, the "Service Agreements") set forth on Exhibit "B", annexed
hereto, to the extent same are assignable and are assigned to Buyer pursuant to
this Agreement; provided that Buyer shall have no obligation to take assignment
of any such Service Agreements;
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(iii) Pursuant to Section 4.C. below, utility charges pursuant to
readings obtained not more than three (3) days prior to Closing;
(iv) Fuel oil, based on a reading by Seller's fuel oil supplier,
not more than three (3) days prior to Closing, based on the number of gallons in
the fuel tank, at the price per gallon last paid by Seller;
(v) All other adjustments as are customary and usual in a real
estate closing in accordance with the customs and practices for title closing,
except if specifically set forth to the contrary;
B. If, on the Closing Date, the Subject Premises or any part thereof
is affected by any assessment other than ad valorem taxes which is payable in
installments, then all unpaid installments of such assessment which become due
and payable after the Closing Date shall be the obligation of the Seller.
C. Seller shall attempt to obtain readings of the water, electric,
gas and other utility meters affecting the Subject Premises to a date no earlier
than three (3) days prior to the Closing. At or prior to Closing, Seller shall
pay all charges based upon such meter readings, adjusted to include a reasonable
estimate of the additional charges due for the period from the dates of the
respective readings until the Closing Date. However, if Seller is unable to
obtain readings of any meters prior to Closing, Closing shall be completed
without such readings and upon the obtaining thereof after Closing, Seller shall
pay the charges incurred prior to the Closing as reasonably determined based
upon such readings, and at Closing Seller shall deposit in escrow with the title
company an amount reasonably estimated by the title company to represent the
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anticipated obligation of Seller hereunder and to omit same as an exception to
Buyer's title policy to the date of Closing. The obligations of this Section
4.C. shall survive the Closing.
5. OPERATIONS PENDING CLOSING.
Seller agrees that between the date hereof and the Closing:
A. Seller shall operate. manage and maintain the Subject Premises or
cause same to be operated. managed and maintained in the same general manner as
it is currently being operated, and the Subject Premises will be delivered to
Buyer on the Closing Date vacant and in its as is" condition on the date hereof,
reasonable wear and tear and, subject to Section 12 of this Agreement, damage
due to casualty or condemnation excepted, free and clear of all leases,
tenancies and occupancies.
B. Seller shall provide Buyer reasonable access to the Subject
Premises upon prior notice to Seller for the purpose of inspecting the Subject
Premises prior to Closing;
C. Seller shall not enter into any leases for any portion of the
Subject Premises without Buyer's prior written consent; and
D. Seller shall not enter into any new Service Agreements without
Buyer's prior written consent, except such contracts which can be terminated by
Buyer on no more than thirty (30) days notice and which provide for services at
rates competitive for similar services at buildings of the size and in the
general geographic area of the Subject Premises.
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6. CLOSING.
Subject to the satisfaction of the terms and conditions set forth in
this Agreement, the closing of the purchase and sale of the Subject Premises
(the "Closing") shall take place on or about December ___, 1996 at 10:00 a.m.
(the "Closing Date"): (i) at the office of the Seller's attorneys, 605 Third
Avenue, New York, New York 10158; or (ii) at such other place as the parties may
mutually agree upon in writing.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER.
Seller hereby makes the following representations and warranties to
the Buyer, and acknowledges and confirms that Buyer is relying upon such
representations and warranties in connection with the execution. delivery and
performance of this Agreement and the transactions contemplated hereby.
A. Seller is a corporation duly organized and validly existing under
the laws of the State of Ohio; the execution, delivery and performance of this
Agreement on behalf of Seller has been duly authorized; Seller is the sole owner
of record of the Subject Premises and has full power and authority to convey the
Subject Premises as contemplated by this Agreement.
B. Seller represents that (i) this Agreement constitutes a legally
valid and binding agreement, enforceable against Seller in accordance with its
terms; and (ii) the execution and delivery by Seller of this Agreement does not,
and the performance by Seller of the transactions contemplated hereby will not.
violate any of the provisions of any contract or
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agreement to which Seller is a party or by which Seller is bound, or any order,
writ, injunction, or decree applicable to Seller.
C. Seller is not a "foreign person" as such term is defined for
purposes of the foreign Investment in Real Property Tax Act of the Internal
Revenue Code Section 1445, as amended, and the regulations promulgated
thereunder (collectively, "FIRPTA");
D. There are no leases in effect for all or any portion of the Subject
Premises and Seller shall not enter into any such leases but shall deliver the
Subject Premises vacant and free of any and all leases, tenancies and rights of
occupancy.
E. There are no management. service. equipment. supply, security,
maintenance, concession or other agreements with respect to or affecting the
Subject Premises, except for those which will be cancellable by Buyer on not
more than thirty (30) days' notice, and except those Service Agreements set
forth on Exhibit "B".
F. The conveyance of the Subject Premises to the Buyer pursuant to
this Attreement does not contravene the Certificate of Incorporation or By Laws
of Seller or any other document or agreement of Seller; and is not subject to
the approval of any court of competent jurisdiction or other governmental agency
or authority or, if required, such approval has been obtained and will be
delivered to buyer at. or prior to, the Closing.
G. There is no litigation pending against Seller which could affect
Seller's ability to convey the Subject Premises to the Buyer in accordance with
this Agreement, except as set forth on Exhibit "C" annexed hereto.
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8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BUYER
Buyer hereby makes the following representations and warranties to the
Seller, and acknowledges and confirms that Seller is relying upon such
representations and warranties in connection with the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
A. Buyer is a corporation duly organized and validly existing under
the laws of the State of Delaware.
B. The execution, delivery and performance of this Agreement by Buyer
has been duly authorized by the Board of Directors of Buyer.
C. Buyer represents that (i) this Agreement constitutes a legally
valid and binding agreement enforceable against Buyer in accordance with its
terms; and (ii) the execution and delivery by Buyer of this Agreement does not,
and the performance by Buyer of the transactions contemplated hereby will not,
violate any of the provisions of any contract or agreement to which Buyer is a
party or by which Buyer is bound, or any order, writ, injunction or decree
applicable to Buyer.
D. Subject to Seller's representations contained in Section 16 of this
Agreement, Buyer has made an independent investigation of the Subject Premises
and has examined the physical and environmental condition of the Subject
Premises and its improvements to the extent that it deemed necessary to
determine to purchase the Subject Premises in its "as is" condition. The
Purchase Price has been reduced by $250,000 as a result of the condition of the
roof and the HVAC system at the Subject Premises and Buyer accordingly accepts
the roof and
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the HVAC system in their "as is" condition and Buyer shall be solely responsible
for any and all repairs, corrections or modifications that are required to be
made to the roof and the HVAC system.
E. Seller has not made nor has Buyer relied upon any representation,
warranty or promise with respect to the condition, value or state of repair of
the Subject Premises, except as specifically set forth in this Agreement. Buyer
agrees to accept the Subject Premises in its "as is" condition as of the date
hereof subject to reasonable wear, tear and deterioration to the date of the
closing, free from any warranties as to condition, merchantability, or use for
any particular purpose. Without limiting the generality of the foregoing, Buyer
has not relied on any representations or warranties, and Seller has not made any
representations or warranties, in either case, express or implied, except as
expressly set forth herein, as to (i) the current or future real estate tax
liability, assessment or valuation of the Subject Premises; (ii) the potential
qualification of the Subject Premises for any benefits conferred by federal.
state or municipal laws, whether for subsidies, special real estate tax
treatment, Insurance, financing, or any other benefits, whether similar or
dissimilar to those enumerated; (iii) the compliance of the Subject Premises, in
its current or any future state, with applicable zoning ordinances and the
ability to obtain a variance in respect to the Subject Premises and possible
noncompliance with any zoning ordinance or the existence of development rights;
(iv) the availability of any financing for the purchase, alteration,
rehabilitation or operation of the Subject Premises from any source, including,
but not limited to, state, city or federal governments or any institutional
lenders; or (v) the current or future use of the Subject Premises. Seller is not
liable or bound in any manner by any verbal or written
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statements, representations, real estate brokers' "setups" or information
pertaining to the Subject Premises furnished by any real estate broker, agent,
employee. or other person, unless the same are specifically set forth herein as
a representation of Seller. The acceptance by Buyer of the deed conveying the
Subject Premises shall constitute an acknowledgment by Buyer that all
obligations of Seller set forth in this Agreement have been discharged in full,
and upon such acceptance, Seller shall be released from any and all obligations
set forth in this Agreement, except only such obligations, if any, which shall,
pursuant to the express provisions of this Agreement, survive the Closing
hereunder.
9. SELLER'S CLOSING OBLIGATIONS.
At the Closing, Seller shall deliver or cause to be delivered the
following to Buyer:
A. A statutory form of Bargain and Sale Deed with Covenants against
Grantor's Acts, properly executed in recordable form so as to transfer and
convey to Buyer the title required by this Agreement.
B. Copies or originals of any Certificates of Occupancy, licenses,
permits. authorization and approvals issued for or with respect to all
improvements on the Subject Premises as presently existing by governmental and
quasi-governmental authorities having jurisdiction to the extent in Seller's
possession, custody or control;
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C. Copies of as-built drawings of the Subject Premises, as well as any
other plans or drawings pertaining to the Subject Premises to the extent in
Seller's possession, custody or control;
D. Copies of operating manuals for building equipment and systems with
respect to the Subject Premises to the extent in Seller's possession, custody or
control;
E. A Bill of Sale for the personal Property, if any, is to be conveyed
hereunder, duly executed and acknowledged by the Seller;
F. All required real property transfer and gains tax returns, and
delivery of checks in payment of the applicable conveyance and gains taxes (all
such taxes shall be the obligation of Seller);
G. The required Equalization and assessment form; and
H. All other documents and instruments as are customary in real estate
closings in New York State.
10. VIOLATIONS
A. Seller and Buyer shall cooperate to comply with all notes or
notices of violation of law or municipal ordinances. orders or requirements
noted in or issued by any governmental department having authority as to lands,
housing, buildings, fire, health environment and labor conditions affecting the
Subject Premises (the "Violations") issued up to and including the Closing Date.
Buyer shall take title to the Subject Premises subject to the Violations,
however, Seller shall be responsible to fully satisfy, prior to the Closing
Date, all fines, penalties and all
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other financial obligations relating to, resulting from and in connection with
the Violations, of every kind, type and nature whatsoever, except for the cost
of correcting the Violations (collectively, the "Financial Obligations"), and
the Subject Premises shall be conveyed free of the Financial Obligations at
Closing. Copies of all Violations in Seller's possession, custody and control
shall be delivered by Seller to Buyer upon the execution of this Agreement.
Seller's obligation under this Section 10 shall survive the Closing.
11. OBJECTIONS TO TITLE; FAILURE OF SELLER OR BUYER TO PERFORM.
A. Buyer, at its sole cost, shall make application, promptly after the
execution hereof to a reputable title insurance company (or representative
thereof) licensed to do business in the State of New York for its commitment to
insure the Buyer's title to the Subject Premises subject only to the Permitted
Exceptions. Buyer shall request such title company to send a title report or
certificate of title simultaneously to the Seller and the Buyer, but in no event
less than twenty (20) days prior to the Closing.
B. If at the date set for the Closing Seller is unable to convey to
the Buyer title to the Subject Premises subject to and in accordance with the
provisions of this Agreement, or fails or is unable to fulfill any condition
precedent to Buyer's obligations under this Agreement except for Seller's
willful default, or if any representation made by Seller hereunder is not true
and correct in all material respect required to be true at Closing, Seller shall
be entitled, to reasonable adjournments of the Closing not to exceed sixty (60)
days in the aggregate, to enable Seller to convey such title or fulfill any such
condition under this Agreement. If Seller does not
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elect to adjourn the Closing, or if at the adjourned date Seller is unable to
convey title in accordance with the provisions of this Agreement, then either
(i) Buyer may terminate this Agreement, whereupon this Agreement shall terminate
and neither party shall have any obligations of any nature to the other
hereunder (except for Seller's willful default) or otherwise except that Seller
shall return the deposit (with interest earned thereon, if any) plus the net
cost of title examination and survey, if any, has been incurred by Buyer or (ii)
Buyer may elect to take such title as Seller is able to convey without any
reduction, credit or adjustment in the Purchase Price.
C. Each party shall deliver or cause to be delivered to the other
party or to the title company such duly executed and acknowledged or verified
certificates and other instruments respecting its power and authority to perform
the obligations hereunder, the due authorization thereof by appropriate
corporate or other proceedings and the authority of the officer or other
representatives acting for such party at the Closing, as counsel for the other
party or the title company may reasonably request.
D. If the Subject Premises shall, at the time of Closing, be subject
to any liens, such as for judgments or transfer, franchise, license or other
similar taxes, or any encumbrances or other title exceptions which would be
grounds for Buyer to reject title hereunder, Seller shall be obligated to expend
up to Five Hundred Thousand Dollars ($500,000.00) to satisfy or cure same or to
cause the Subject Premises to be released from such liens, and same shall not be
deemed an objection to title provided that, at the time of Closing, the title
company will issue or bind itself to issue a policy which will omit same as
exceptions to title or will insure buyer against collection thereof from or
enforcement thereof against the Subject Premises at no additional cost
Page 18
<PAGE>
to Buyer and for a premium computed at regular rates. Seller shall have no
obligation to cure non-monetary liens or encumbrances.
12. DESTRUCTION, DAMAGE OR CONDEMNATION.
A. Seller shall keep in effect until Closing its present hazard
insurance. The risk of any loss by fire or other casualty or by the taking of
the Subject Premises or any part thereof by eminent domain shall be assumed
solely by Seller until Closing; provided, however, that in the event of damage
to or destruction of the Subject Premises that is not material (for the purposes
hereof, damage or destruction shall not be deemed material if the reasonably
estimated cost of restoration does not exceed Five Hundred Thousand Dollars
($500,000.00)), this Agreement shall remain in full force and effect, and Seller
shall pay over to Buyer the amount of the insurance proceeds collected to the
extent not applied to the restoration or repair of the Subject Premises or, if
any proceeds have not been collected, Seller shall assign to Buyer all its
right, title and interest in and to the same to the extent not applied by Seller
to the restoration or repair of the Subject Premises. In the event casualty
losses occur which were not insured.,Seller shall pay or credit to the Purchase
Price at the Closing an amount agreed to by Buyer and Seller to be necessary for
restoration. Seller retains the right to make any claims against the insurance
company arising out of any such casualty resulting in a credit to the Purchase
Price.
B. If the damage or destruction to the Subject Premises is material
(the cost of restoration will exceed Five Hundred Thousand Dollars
($500,000.00)), or if any material part of the Subject Premises constituting
part of the property shall be taken by eminent domain, then
Page 19
<PAGE>
Buyer or Seller may elect to, upon notice to the other party given not later
than ten (10) days after receipt of notice of such damage or taking, (i)
terminate this Agreement, or (ii) proceed to Closing under the same terms and
conditions as set forth herein, and, in the event of a taking, Buyer, if it
elects, in its sole discretion, to proceed, shall receive an assignment of any
awards in connection therewith. Upon termination pursuant to the preceding
sentence, the obligations of each party to the other shall terminate without
further liability hereunder or otherwise except that the Deposit (with interest
earned thereon, if any) shall be refunded by Seller and/or Escrow Agent to
Buyer.
13. BROKERAGE.
Seller and Buyer represent and warrant to each other that they have
dealt with no broker in connection with this Agreement other than Corporate
National Realty, Inc. (the "Broker") and that they know of no broker who has
claimed or may have the right to claim a commission or other compensation, in
connection with this transaction other than the Broker. Seller and Buyer shall
indemnify, defend and hold each other harmless against any loss, liability,
costs, claims or expenses, including, but not limited to, reasonable attorneys'
fees and expenses, arising out of the breach on their part of any
representations, warranties or agreements contained in this Section 13. In the
event of a third-party brokerage claim made against either party, which claim,
if true, would constitute a breach of this representation, then the party
required to indemnify the other party shall defend such other party from such
claim. The representations and obligations under this Section 13 shall survive
the Closing or, if Closing does not occur, the termination of this Agreement.
Page 20
<PAGE>
14. NO MORTGAGE CONTINGENCY.
A. This Agreement and Buyer's obligations hereunder are not subject to
or conditioned upon Buyer's ability to obtain financing of any kind or nature
whatsoever.
15. NOTICES.
All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered (i) by hand or mailed, express, certified or registered mail,
return receipt requested, with postage prepaid, or sent by a nationally
recognized overnight courier service that regularly maintains records of items
picked up and delivered to the parties at the addresses set forth below and (b)
telecopied to parties at the telecopier numbers set forth below:
If To Seller: Eaton Corporation
Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114-2584
Attention: Mr. Dale R. Mitchell
Fax No: (216) 479-7010
If To Escrow Agent: Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158
Attention: Randolph Amengual, Esq.
Fax No.: (212) 953-6899
If To Buyer: Worldcomm Systems, Inc.
375 Oser Avenue
Hauppauge, New York 11788
Attention: Mr. David E. Hershberg
Fax No.: (516) 231-1557
Page 21
<PAGE>
With a Copy to: Goldman & Maza
666 Old Country Road, Suite 304
Garden City, New York 11530
Attention: Ronald G. Goldman, Esq.
Tel. No.: (516) 228-8349
or to such other person or address as any party shall furnish to all other
parties in writing. Notices delivered personally or by such courier service
shall be deemed communicated as of the date of actual receipt or rejection,
mailed notices shall be deemed communicated as of the date four (4) days after
mailing.
16. HAZARDOUS SUBSTANCES
A. Hazardous Substances shall include the existence of any petroleum
or petroleum products, asbestos or asbestos containing materials,
polychlorinated biphenyls, underground storage tanks and the contents thereof,
flammable explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials, including, without
limitation, any such materials defined or regulated pursuant to (i) any federal
statute, law, rule or regulation, including, but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 as
amended by the Superfund Amendments and Re-authorization Act of 1986, the
Resource Conservation and Recovery Act, (42 U.S.C. ss.6901. et seq.) and in the
regulations adopted and publications promulgated pursuant thereto, or (ii) any
state or local law, rule or regulation having jurisdiction thereof, as such laws
or regulations now exist.
Page 22
<PAGE>
B. Seller represents and warrants that to the best of its knowledge,
there is no environmental condition at the Subject Premises requiring the
clean-up of Hazardous Substances under applicable Federal, state and local laws,
rules and regulations and that there are no underground or above-ground fuel oil
storage tanks located at the Subject Premises, except as shown on the Phase I
Environmental Site Assessment, prepared by Geraghty & Miller. Seller's
representations and warranties set forth in this Section 16 shall survive the
Closing for a period of five (5) years.
C. Notwithstanding anything contained in this Section 16 or this
Agreement to the contrary, it is expressly understood and agreed that Seller
shall in no event be liable to Buyer for consequential damages arising in
respect of environmental matters or claims.
17. CLOSING COSTS.
Buyer shall pay the costs of examination of title and any owner's
policy of title insurance to be issued insuring Buyer's title to the Subject
Premises, any mortgagee's policy of title insurance to be issued insuring
mortgagee's mortgage encumbering the Subject Premises, if any, as all other
title charges and all other costs or expenses incident to the execution or
recordation of documents required in order to transfer title to (and mortgage)
the Subject Premises and record any document given in connection with the
conveyance (and mortgaging) of the Subject Premises, except that Seller shall
pay for all documentary stamps to be affixed to the Deed conveying the Subject
Premises in accordance with Article 31 of the Tax Law of the State of New
Page 23
<PAGE>
York. Other than as expressly set forth herein, both parties shall bear all of
their respective costs and expenses associated with the transactions
contemplated by this Agreement.
18. PENDING TAX REDUCTION PROCEEDINGS
A. Seller shall have the right to continue the tax certiorari
proceedings in respect of the Subject Premises which are currently pending for
the fiscal year 1996 and for periods prior thereto. In the event that as a
result of any such proceeding there is a real estate tax reduction which covers
a fiscal tax year a portion of which occurs from or after the Closing, Buyer
shall be entitled to its pro rata share of any such reduction, less the legal
fees and expenses in proportion to Buyer's share of the reduction.
Notwithstanding the foregoing, Seller shall suspend and adjourn any proceeding
or proceedings, if any, now pending for the reduction of the assessed valuation
of the Subject Premises for the fiscal year 1997 (the "Fiscal Year"), and at
Closing Seller shall assign any and all such proceedings to Buyer. On the
Closing Date, Seller shall deliver to Buyer copies of any applications currently
pending for such Fiscal Year, together with a substitution of counsel. The
attorneys representing Seller in connection with any such real estate tax
reduction proceedings will withdraw from representation of Seller effective on
the Closing Date free and clear of any claims for attorneys' fees.
B. Buyer is hereby authorized to continue any such proceeding or
proceedings subsequent to Closing (as same relate to periods of time after the
Closing Date) and in Buyers sole discretion to litigate or settle same without
Seller's consent or approval.
Page 24
<PAGE>
C. It is further agreed between Seller and Buyer that the net refund
of taxes, if any, for such Fiscal Year received by either Seller or Buyer in any
such proceeding, shall be apportioned between Seller and Buyer, as of the
Closing Date, in the same manner as other adjustments, in accordance with the
provisions of this Agreement. Prior to any apportionment, however, Buyer shall
be entitled to deduct from any refund that it receives all expenses including
reasonable attorneys' fees incurred in obtaining such refund. Seller shall
deliver to Buyer, upon demand, receipted tax bills and cancelled checks used in
payment of such taxes and shall execute any and all consents or other documents,
and do any act or thing necessary for the collection of such refund by Buyer.
The provisions of this Section 18 shall survive the Closing.
19. LIQUIDATED DAMAGES.
In the event for any reason the Buyer does not perform its obligations
hereunder by failing to close title hereunder, the parties agree that the
Deposit and any interest earned thereon shall be considered liquidated damages
and may be retained by the Seller for its sole and exclusive remedy. It is
understood that it would be impossible to ascertain the amount of damages in the
event of such default by Buyer, and therefore, the parties agree that the
Deposit together with interest earned thereon constitutes a fair and reasonable
sum to cover such damages. This in no way shall be construed as a penalty
clause.
Page 25
<PAGE>
20. BUYER'S APPLICATION FOR PERMIT.
A. Prior to the Closing Date, Buyer shall have the right to apply for
any permits for construction, alteration or other work on the Subject Premises.
Seller shall cooperate with Buyer; in connection with any such applications
including, without limitation, the execution and delivery of application or
consent forms, furnishing of documents and other information in Seller's
possession which may be reasonably required by Buyer or the agency, department
or other entity to whom such application may be made. Any such applications
shall be at Buyer's sole cost and expense and Seller shall not be obligated or
required to incur any expense or liability to third parties to comply with this
Section 20. Buyer shall not change or alter the Subject Premises or any
improvements thereon prior to the Closing Date, even if permits are issued by
the authorities having jurisdiction with respect thereto. It shall not be a
condition to Buyer's obligation to close under this Agreement that Buyer obtain
any of such permits.
21. MISCELLANEOUS PROVISIONS.
A. This Agreement embodies and constitutes the entire understanding
between the parties with respect to the transaction contemplated herein, and all
prior agreements, understandings, representations and statements, oral or
written, are merged into this Agreement. Neither this Agreement nor any
provision hereof may be waived, modified, amended, discharged, or terminated
except by a written instrument signed by both parties.
B. The Buyer acknowledges that, except as specifically provided for
herein, Seller has made no representations or warranties, and held out no
inducements to the Buyer, other
Page 26
<PAGE>
than those herein expressed. This Agreement is entered into after full
investigation by Buyer, and Buyer has not relied on any representations or
warranties, and Seller has not made any representations or warranties, promises
or statements, in either case express or implied, except as herein expressly
provided, as to (i) the potential qualification of the Subject Premises for
division into a Condominium or for any other benefits conferred by federal,
state or municipal laws or (ii) the condition of the Subject Premises, or the
Building, the improvements or personal property included therein. The Seller is
not liable or bound in any manner by any verbal or written statements,
pertaining to the Subject Premises or the operation, layout, expenses,
condition, income, leases or rents furnished by any real estate broker, agent,
employee, or other person, unless the same are specifically set forth herein.
C. The acceptance of the deed by Buyer at Closing shall be deemed to
be full performance of, and discharge of, every agreement, representation
(except those that are to expressly survive the Closing) and obligation on the
part of Seller to be performed hereunder as a condition precedent to Buyer's
obligations except for matters that are expressly provided herein or otherwise
in writing to survive the Closing.
D. This Agreement shall be governed by. and construed in accordance
with, the local laws of the State of New York in all respects including the
validity, interpretation and performance thereof and without giving effect to
principles governing conflicts or choice of law.
E. The captions and the table of contents in this Agreement are
inserted for convenience of reference only and in no way define, describe or
limit the scope or intent of this Agreement.
Page 27
<PAGE>
F. This Agreement shall be binding upon and shall inure to the benefit
of the successors and permitted assigns of the parties.
G. The submission of this Agreement by Buyer or Seller shall in no
manner bind Buyer or Seller nor shall the same constitute an offer by Buyer or
Seller. This Agreement shall be binding on Buyer and Seller only when duly
executed by Seller and Buyer and upon delivery of a copy of such fully executed
Agreement to both Seller and Buyer or their respective counsel.
H. Any time period provided herein which shall end on a Saturday,
Sunday or legal holiday shall extend to 5:00 p.m. of the next full business day.
I. In no event shall any director, trustee, board member, partner
shareholder or officer of either party have any personal liability whatsoever
arising under or in connection with this Agreement.
J. This Agreement may be executed in any number of counterparts, each
or which shall be deemed an original and all of which constitute one and the
same instrument.
K. Seller shall furnish Buyer at or prior to Closing with a
Certification ot Non-Foreign Status (Corporation) in accordance with the
provisions of Section 1445 of the Internal Revenue Code of 1954, as amended
("Section 1445"). If Seller shall fail to furnish the same, Buyer shall comply
with the FIRPTA withholding requirements of Section 1445 unless Seller qualified
for the "Qualifying Statement" exemption from such withholding and furnishes
Buyer at or prior to Closing with the "Qualifying Statement" prescribed by
Section 1445.
Page 28
<PAGE>
L. Each party to this Agreement agrees to execute, acknowledge and
deliver or cause to be delivered, such other deeds, assignments, affidavits,
certificates and other instruments, documents and agreements as may be
reasonably necessary and required by the other party from time to time to
confirm and carry out the intent and purpose of this Agreement and the
performance of each party's obligations under the terms of this Agreement, in
such form as shall be reasonably satisfactory to counsel for both parties.
M. All monies paid on account of this Agreement and the reasonable
expenses of examination of title to the Subject Premises and of any survey
incurred by Buyer are hereby made liens on the Subject Premises.
N. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other Jurisdiction. The parties intend this Agreement to
be enforced as written. If any provision of this Agreement shall otherwise
finally be determined to be unlawful, then such provision shall be deemed to be
severed from this Agreement and every other provision of this Agreement shall
remain in full force and effect.
Page 29
<PAGE>
O. This Agreement has been drafted on the basis of mutual contribution
of language, the parties each having been represented by independent counsel of
their own choosing, and is not to be construed against any party as being the
drafter or causing the same to be drafted.
P. Each of Buyer and Seller shall pay its own costs and expenses
(including, without limitation, attorneys' fees and other professional fees and
expenses) incurred in connection with the negotiation, preparation, execution
and delivery of this Agreement and all related documents and the consummation of
the transactions contemplated hereby. The provisions of this Subsection P shall
survive the Closing or termination of this Agreement.
Q. Any of the terms or conditions of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits thereof. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of such provision at any time in the future or a waiver of
any other provision hereof.
R. Notwithstanding anything to the contrary in this Agreement, (i)
nothing in this Agreement is intended to or shall create for or grant to any
third person any rights whatsoever, as a third party beneficiary or otherwise,
(ii) no third person is entitled to rely on any of the representations,
warranties, covenants or agreements contained herein; and (iii) no party hereto
shall incur any liability or obligation to any third person because of any
reliance by such third person on any representation, warranty, covenant or
agreement herein.
Page 30
<PAGE>
S. As used in this Agreement, the Exhibits and the Schedule as
required by the context; the singular and plural shall be deemed to include each
other an each gender, to include all genders, words importing persons shall
include partnerships, associations, corporations, trusts and other entities, the
terms "herein", "hereof", and "hereunder" or other similar terms refer to this
Agreement as a whole and not only to the particular sentence, paragraph,
subsection or section in which any term is used except as expressly more
specifically limited; and words and phrases defined in this Agreement have the
same meaning in the Exhibits and the Schedule unless specifically provided to
the contrary in any Exhibits and the Schedule. As used herein the term "party"
refers, as appropriate, to Seller or Buyer.
T. Except with respect to the Confidentiality Agreement entered into
by and between Buyer and Seller, dated November 13, 1996, this Agreement,
including all Exhibits and the Schedule hereto, constitute the sole
understanding of the parties with respect to the matters contemplated hereby and
thereby and supersedes and renders null and void all prior agreements and
understandings between the parties with respect to such matters. No amendment
modification or alteration of the terms or provisions of this Agreement,
including all Exhibits and the Schedule hereto, shall be binding unless the same
shall be in writing and duly executed by the party to be charged with such
amendment, modification or alteration.
Page 31
<PAGE>
U. It is understood and agreed that all understandings,
representations and agreements heretofore had between the parties (including
their brokers and agents) hereto are merged in this Agreement, which alone fully
and completely expresses their agreement, and that the same is entered into
after full investigation neither party relying upon any statement or
representation not embodied in this Agreement, made by the other.
V. Notwithstanding anything contained herein to the contrary, if this
transaction shall not close solely as a result of a willful default by Seller
under this Agreement, then the Deposit with interest earned on the Deposit,
shall be returned by Escrow Agent to Buyer within five (5) days following demand
by Buyer. In the event that Seller willfully fails to perform any of its
obligations under this Agreement, in addition to the return of the Deposit and
interest as above provided, Buyer shall have the right to seek specific
performance of this Agreement. In the event buyer prevails in such specific
performance action, Buyer shall be obligated to pay to Seller the full Purchase
Price including the amount of the Deposit, less cost and expenses of enforcing
rights including, but not limited to, legal fees and expenses. In no event shall
Buyer have the right to seek damages from Seller as a result of any default or
breach by Seller under this Agreement. Seller's inability to close (e.g., due to
title defects which Seller is not obligated to cure) shall not be deemed a
willful default.
Page 32
<PAGE>
W. Except in the event of a willful default by Seller, Buyer shall not
record this Agreement or a memorandum of this Agreement. Any such recording by
Buyer shall be deemed a material default hereunder entitling Seller to terminate
this Agreement and retain the Deposit and interest as liquidated damages.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SELLER:
Federal Taxpayer I.D. No. EATON CORPORATION
34-0196300 By: /s/ G.L. Gherlein
- ------------------------------- -------------------------------------
G. L. Gherlein
Executive Vice President
By: /s/ E. R. Frank1in
-------------------------------------
E. R. Frank1in
Secretary
BUYER:
Federal Taxpayer I.D. No. WORLDCOMM SYSTEMS, INC.
11-3225567 By: /s/ David E. Hershberg
- ------------------------------- -------------------------------------
David E. Hershberg
ESCROW AGENT:
ESANU KATSKY KORINS & SIGER
By: /s/ Randolph Amengual
----------------------------------
Randolph Amengual, Esq.
Page 33
<PAGE>
EXHIBIT "A"
Legal Description of Subject Premises
CONTINENTAL ABSTRACT CORPORATION
Title No. 5-335435 SCHEDULE A
ALL that certain plot, piece or parcel of land, situate, lying and being in the
Town of Smithtown, County of Suffolk and State of New York, known and designated
as part of Lot 40 on a certain map entitled, "Map of Vanderbilt Industrial Park,
Section 4" and filed in the Office of the Clerk of the County of Suffolk on May
28, 1971 as Map No. 5598, bounded and described as follows:
BEGINNING at a point on the southerly side of Oser Avenue, distant 1124.36 feet
easterly from the northeasterly end of the curve having a radius of 40.00 feet
connecting said southerly side of Oser Avenue with the easterly side of Plant
Avenue; and
RUNNING THENCE along the southerly side of Oser Avenue, South 79 degrees 55
minutes 00 seconds East, a distance of 641.90 feet;
THENCE South 109 degrees 05 minutes 00 seconds West, a distance of 468.98 feet;
THENCE North 83 degrees 16 minutes 20 seconds West, a distance of 504.02 feet;
THENCE North 79 degrees 55 minutes 00 seconds West, a distance of 151.77 feet;
THENCE North 10 degrees 05 minutes 00 seconds East, a distance of 130.00 feet;
THENCE South 79 degrees 55 minutes 00 seconds East, a distance of 13.02 feet;
and
THENCE North 10 degrees 05 minutes 00 seconds East, a distance of 368.48 feet to
the southerly side of Oser Avenue, at the point or place of BEGINNING.
Page 34
<PAGE>
EXHIBIT "B"
Maintenance and Service Contracts
"NONE"
<PAGE>
EXHIBIT "C"
Pending or Threatened Litigation
"NONE"
<PAGE>
EXHIBIT 16.1
February 27, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
GLOBECOMM SYSTEMS INC.
We have read the section titled "Change in Independent Accountants" included
in Globecomm Systems Inc.'s Registration Statement on Form S-1 filed on February
27, 1997 and are in agreement with the statements contained in the first
paragraph therein.
Yours very truly,
/s/ PRICE WATERHOUSE LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts",
"Selected Consolidated Financial Data" and "Change in Independent Accountants"
and to the use of our report dated January 24, 1997 (except for Note 1 as to
which the date is , 1997), in the Registration Statement (Form S-1 No.
333- ) and related Prospectus of Globecomm Systems Inc. for the registration
of shares of its common stock.
Ernst & Young LLP
Melville, New York
------------------------
The foregoing consent is in the form that will be signed upon (a) completion
of the split of outstanding shares of common stock and amendment to the
certificate of incorporation and (b) determination of the estimated initial
public offering price for purposes of computing shares used in per share
computations, as described in Notes 1 and 2, respectively, to the consolidated
financial statements.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Melville, New York
February 27, 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
February 26, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We the undersigned directors and/or officers of Globecomm Systems Inc. (the
"Company") (formerly Worldcomm Systems Inc.), hereby severally constitute and
appoint David E. Hershberg, Chief Executive Officer, Kenneth A. Miller,
President and Andrew C. Melfi, Chief Financial Officer, and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the Registration Statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective amendments),
and any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, in connection with the registration under
the Securities Act of 1933, as amended, of equity securities of the Company, and
to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them might
or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
WITNESS our hands on this 26th day of February, 1997.
<TABLE>
<CAPTION>
/s/ DAVID E. HERSHBERG /s/ DONALD G. WOODRING
- -------------------------------------------- --------------------------------------------
David E. Hershberg Donald G. Woodring
Chief Executive Officer and Chairman of the Vice President and Director
Board of Directors (Principal Executive
Officer)
<S> <C>
/s/ KENNETH A. MILLER /s/ HERMAN FIALKOV
- -------------------------------------------- --------------------------------------------
Kenneth A. Miller Herman Fialkov
President and Director Director
/s/ ANDREW C. MELFI /s/ SHELLEY A. HARRISON
- -------------------------------------------- --------------------------------------------
Andrew C. Melfi Shelley A. Harrison
Chief Financial Officer (Principal Accounting Director
and Financial Officer)
/s/ THOMAS A. DICICCO
- -------------------------------------------- --------------------------------------------
Thomas A. DiCicco Benjamin Duhov
Vice President and Director Director
/s/ STEPHEN C. YABLONSKI /s/ CECIL J. WAYLAN
- -------------------------------------------- --------------------------------------------
Stephen C. Yablonski Cecil J. Waylan
Vice President and Director Director
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,618,382
<SECURITIES> 0
<RECEIVABLES> 7,988,033
<ALLOWANCES> 0
<INVENTORY> 88,642
<CURRENT-ASSETS> 19,533,197
<PP&E> 3,972,216
<DEPRECIATION> 366,384
<TOTAL-ASSETS> 24,410,901
<CURRENT-LIABILITIES> 8,271,375
<BONDS> 0
0
657
<COMMON> 3,769
<OTHER-SE> 20,291,057
<TOTAL-LIABILITY-AND-EQUITY> 24,410,901
<SALES> 13,306,482
<TOTAL-REVENUES> 13,306,482
<CGS> 11,497,100
<TOTAL-COSTS> 11,497,100
<OTHER-EXPENSES> 3,046,958
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,898
<INCOME-PRETAX> (892,162)
<INCOME-TAX> 0
<INCOME-CONTINUING> (892,162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (892,162)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
