<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ------------------------
Commission file number 000-22839
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Globecomm Systems Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-3225567
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45 Oser Avenue, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
(516) 231-9800
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Registrant's telephone number, including area code
-----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check [X] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 9,065,958 shares of
the Company's Common Stock, $.001 par value, were outstanding as of February 8,
1999.
1
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GLOBECOMM SYSTEMS INC.
Index to December 31, 1998 Form 10-Q
Page
----
Part I -- Financial Information
Item 1. Financial Statements...................................... 3
Consolidated Balance Sheets -- December 31, 1998
and June 30, 1998....................................... 3
Consolidated Statements of Operations -- Three and Six
Month Periods Ended December 31, 1998 and 1997.......... 5
Consolidated Statement of Changes in Stockholders'
Equity -- Six Month Period Ended December 31, 1998...... 6
Consolidated Statements of Cash Flows --
Six Month Periods Ended December 31, 1998 and 1997...... 7
Notes to Consolidated Financial Statements................ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 21
Part II -- Other Information
Item 1. Legal Proceedings......................................... 22
Item 2. Changes in Securities and Use of Proceeds................. 22
Item 3. Defaults Upon Senior Securities........................... 22
Item 4. Submission of Matters to a Vote of Security Holders....... 22
Item 5. Other Information......................................... 22
Item 6. Exhibits and Report on Form 8-K........................... 23
Signatures................................................ 27
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBECOMM SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
1998 1998
------------------------------
(UNAUDITED) (1)
Assets
Current assets:
Cash and cash equivalents $16,363 $21,342
Restricted cash 4,787 4,416
Accounts receivable 18,180 18,017
Inventories, net 2,898 1,583
Prepaid expenses and other current assets 853 635
------------------------------
TOTAL CURRENT ASSETS 43,081 45,993
Fixed assets, net 10,133 9,963
Investments 3,652 2,093
Other assets 293 295
------------------------------
TOTAL ASSETS $57,159 $58,344
==============================
See accompanying notes.
3
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GLOBECOMM SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
1998 1998
-------------------------
(UNAUDITED) (1)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $15,004 $13,042
Accrued payroll and related fringe benefits 414 632
Accrued commissions 144 216
Other accrued expenses and current liabilities 930 422
Capital lease obligations 1 18
-------------------------
TOTAL CURRENT LIABILITIES 16,493 14,330
=========================
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 3,000,000 shares
authorized, shares issued: none at
December 31, 1998 and June 30, 1998 -- --
Common stock, $.001 par value; shares
authorized: 22,000,000; shares
issued: 9,165,908 at December 31, 1998
and June 30, 1998 9 9
Treasury stock, at cost, 114,200 shares at
December 31, 1998 and none at June 30, 1998 (545) --
Additional paid-in capital 50,567 50,530
Accumulated deficit (9,365) (6,525)
-------------------------
TOTAL STOCKHOLDERS' EQUITY 40,666 44,014
-------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $57,159 $58,344
=========================
See accompanying notes.
(1) The balance sheet at June 30, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
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GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues $ 11,882 $ 16,269 $ 25,175 $ 30,860
Costs of revenues 10,352 13,902 22,123 26,821
-------------------------- -------------------------
Gross profit 1,530 2,367 3,052 4,039
-------------------------- -------------------------
Operating expenses:
Selling and marketing 1,293 966 2,324 1,797
Research and development 259 304 550 584
General and administrative 1,366 1,153 2,656 2,241
Terminated acquisition -- -- 972 --
-------------------------- -------------------------
Total operating expenses 2,918 2,423 6,502 4,622
-------------------------- -------------------------
Loss from operations (1,388) (56) (3,450) (583)
Interest income, net 272 379 610 643
-------------------------- -------------------------
Net (loss) income $ (1,116) $ 323 $ (2,840) $ 60
========================== =========================
Basic (loss) earnings per share $ (0.12) $ 0.04 $ (0.31) $ 0.01
========================== =========================
Diluted (loss) earnings per share $ (0.12) $ 0.03 $ (0.31) $ 0.01
========================== =========================
Weighted Average Shares:
Basic 9,092,183 9,078,256 9,126,687 7,954,386
========================== =========================
Diluted 9,092,183 10,194,301 9,126,687 9,074,131
========================== =========================
</TABLE>
See accompanying notes.
5
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GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK TREASURY STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,1998 9,166 $ 9 -- $ -- $50,530 $(6,525) $44,014
Options granted to employees
and directors 37 37
Purchase of treasury stock (114) 114 (545) (545)
Net loss (2,840) (2,840)
-------------------------------------------------------------------------------------
Balance at December 31, 1998 9,052 $ 9 114 $ (545) $50,567 $(9,365) $40,666
=====================================================================================
</TABLE>
See accompanying notes.
6
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GLOBECOMM SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
-----------------------------------------
(UNAUDITED)
<S> <C> <C>
NET (LOSS) INCOME $ (2,840) $ 60
OPERATING ACTIVITIES:
Adjustments to reconcile net (loss) income to cash used in operating
activities:
Depreciation and amortization 779 329
Amortization of organization costs 26 27
Stock compensation expense 37 37
Changes in operating assets and liabilities:
Accounts receivable (163) (10,070)
Inventories, net (1,315) 1,179
Prepaid expenses and other current assets (218) (436)
Other assets (24) 794
Accounts payable 1,962 (1,846)
Accrued payroll and related fringe benefits (218) 128
Accrued commissions and other accrued expenses 436 14
-----------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,538) (9,784)
-----------------------------------------
INVESTING ACTIVITIES:
Purchases of investments (1,559) (606)
Purchases of fixed assets (949) (2,005)
Restricted cash (371) (2,017)
-----------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,879) (4,628)
-----------------------------------------
FINANCING ACTIVITIES:
Proceeds from initial public offering of common stock, net -- 27,904
Proceeds from exercise of warrants -- 46
Proceeds from exercise of stock options -- 201
Purchases of treasury stock (545) --
Payments under capital leases (17) (28)
-----------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (562) 28,123
-----------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,979) 13,711
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,342 5,164
=========================================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,363 $ 18,875
=========================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1 $ 4
=========================================
</TABLE>
See accompanying notes.
7
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Globecomm Systems Inc.
Notes to Consolidated Financial Statements
December 31, 1998
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles and reflect all
adjustments consisting of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the
periods shown. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
The accompanying financial statements should be read in conjunction
with the audited financial statements of the Company for the fiscal year ended
June 30, 1998 and the notes thereto contained in the Company's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on September 28,
1998.
2. Summary of Significant Accounting Policies
Basic and Diluted (Loss) Earnings Per Share
During the year ended June 30, 1998, Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 128 ("Statement 128"),
"Earnings Per Share" became effective. Statement 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share.
Basic loss per share for the three and six-month periods ended
December 31, 1998 are based on the weighted average number of common shares
outstanding during the period. Diluted loss per share for the three and
six-month periods ended December 31, 1998 excluded the effect of stock options
and warrants as the effect of inclusion would have been anti-dilutive as the
Company reported a net loss for the periods then ended.
Basic earnings per share for the three and six-month periods ended
December 31, 1997 are based on the weighted average number of common shares
outstanding during the period.
3. Treasury Stock
On September 1, 1998, the Company's Board of Directors authorized the
repurchase of up to $2.0 million of the Company's outstanding common stock. The
repurchase program allows for purchases to be made intermittently, through open
market and privately negotiated transactions. Timing, price, quantity and the
manner of purchase are at the discretion of the Company's management subject to
compliance with the applicable securities laws. Any repurchased shares under
the repurchase program will be used for general corporate purposes. As of
December 31, 1998, the Company had repurchased approximately 114,200 shares of
the Company's common stock under the repurchase program for an aggregate
purchase price of approximately $545,000.
8
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4. Segment Information
The Company operates through two business segments. Its Ground Segment
Systems and Networks Segment, through Globecomm Systems Inc., is engaged in the
design, assembly and installation of 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 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 typically are comprised of two
or more ground segment systems communicating with a satellite and
interconnected with a terrestrial network. Its Data Communications Services
Segment, through the NetSat Express, Inc. ("NetSat Express") subsidiary, is
engaged in providing high-speed, satellite-delivered data communications to
developing markets worldwide. NetSat Express is currently providing Internet
access to customers who have limited or no access to terrestrial network
infrastructures capable of supporting the economical delivery of such services.
The Company's reportable segments are business units that offer
different products and services. The reportable segments are each managed
separately because they provide distinct products and services. The basis for
the segment allocation set forth below is the same basis management uses for
internal reporting purposes.
The following is the business segment information as of and for the
six-month periods ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------------------ ------------------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C>
Revenues:
Ground Segment Systems and Networks .. $11,531 $16,149 $ 24,482 $ 30,652
Data Communications Services ......... 351 120 693 208
------------------------ ------------------------
Total revenues .......................... $11,882 $16,269 $ 25,175 $ 30,860
======================== ========================
(Loss) income from operations:
Ground Segment Systems and Networks .. $ (862) $ 263 $ (2,469) $ 194
Data Communications Services ......... (526) (319) (981) (777)
Interest income, net .................... 272 379 610 643
------------------------ ------------------------
Net (loss) income ....................... $(1,116) $ 323 $ (2,840) $ 60
======================== ========================
Depreciation and amortization:
Ground Segment Systems and Networks .. $ 314 $ 167 $ 629 $ 318
Data Communications Services ......... 75 6 150 11
------------------------ ------------------------
Total depreciation and amortization ..... $ 389 $ 173 $ 779 $ 329
======================== ========================
Expenditures for long-lived assets:
Ground Segment Systems and Networks .. $ 759 $ 587 $ 876 $ 1,875
Data Communications Services ......... 69 6 73 130
------------------------ ------------------------
Total expenditures for long-lived assets. $ 828 $ 593 $ 949 $ 2,005
======================== ========================
</TABLE>
9
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4. Segment Information (continued)
DECEMBER 31, JUNE 30,
1998 1998
(UNAUDITED)
---------------------
(IN THOUSANDS)
Assets:
Ground Segment Systems and Networks...... $ 60,690 $60,894
Data Communications Services............. 1,969 1,169
Intercompany eliminations................ (5,500) (3,719)
---------------------
Total assets............................... $ 57,159 $58,344
=====================
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q.
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 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 typically comprise
of two or more ground segment systems communicating with a satellite and
interconnected with a terrestrial network. NetSat Express, Inc. ("NetSat
Express"), the Company's subsidiary, is engaged in providing high-speed,
satellite-delivered data communications to developing markets worldwide. NetSat
Express is currently providing Internet access to customers who have limited or
no access to terrestrial network infrastructures capable of supporting the
economical delivery of such services.
RESULTS OF OPERATIONS
Three and Six Month Periods Ended December 31, 1998 and 1997
Revenues. Revenues, which were primarily derived from sales of ground
segment systems and networks, decreased by $4.4 million, or 27.0%, to $11.9
million for the three month period ended December 31, 1998 and decreased by
$5.7 million, or 18.4%, to $25.2 million for the six-month period ended
December 31, 1998 compared to $16.3 million and $30.9 million for the
comparable three and six-month periods ended December 31, 1997, respectively.
The decrease relates primarily to the decrease in the shipment and /or
completion of ground segment systems and networks contracts as a result of a
decline in the bookings of several larger contract orders due to the continuing
difficult economic conditions in the Pacific Rim, Russia and other
international markets.
Gross Profit. Gross profit decreased by $0.8 million, or 35.4%, to
$1.5 million for the three month period ended December 31, 1998 and decreased
by $1.0 million, or 24.4%, to $3.1 million for the six-month period ended
December 31, 1998 compared to $2.4 million and $4.0 million for the comparable
three and six-month periods ended December 31, 1997, respectively. The decrease
was primarily due to the decrease in the shipment and/or completion of ground
segment systems and networks contracts. Gross profit as a percentage of
revenues decreased from 14.5% to 12.9% and decreased from 13.1% to 12.1% for
the three and six-month periods ended December 31, 1998, respectively, as
compared to the three and six-month periods ended December 31, 1997,
respectively. The decrease was due primarily to a significant negotiated
contract in the second quarter of fiscal 1998, which resulted in a higher gross
profit margin.
Selling and Marketing. Selling and marketing expenses increased by
$0.3 million, or 33.9%, to $1.3 for the three month period ended December 31,
1998 and increased by $0.5 million, or 29.3%, to $2.3 million for the six-
month period ended December 31, 1998 compared to $1.0 million and $1.8 million
for the comparable three and six-month periods ended December 31, 1997,
11
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respectively. The increase was primarily due to the increase in marketing and
bid and proposal efforts in the Americas, as well as the related increase in
sales and marketing personnel.
Research and Development. Research and development expenses remained
relatively consistent at $0.3 million and $0.6 million for the three and
six-month periods ended December 31, 1998 and 1997.
General and Administrative. General and administrative expenses
increased by $0.2 million, or 18.5%, to $1.4 million for the three-month period
ended December 31, 1998 from $1.2 million for the same period in the prior year
and increased as a percentage of revenues to 11.5% from 7.1% for the same
period in the prior year. For the six-month period ended December 31, 1998,
general and administrative expenses increased by $0.4 million, or 18.5%, to
$2.7 million in comparison to $2.2 million for the same period in the prior
year and increased as a percentage of revenues to 10.6% from 7.3% for the same
period in the prior year. The increase in general and administrative expenses
for the three and six-month period resulted from an increase in personnel and
related expenses.
Terminated Acquisition. Terminated acquisition costs of approximately
$1.0 million for the six-month period ended December 31, 1998 relate to certain
legal, accounting and other expenses associated with the termination of a
proposed acquisition of a mobile satellite communications business during the
first quarter ended September 30, 1998 due to the determination that such
acquisition was not in the best interest of the Company's stockholders.
NetSat Express. The Company's consolidated subsidiary NetSat Express
experienced an increase in revenues by $111,000, or 92.7%, to $231,000 for the
three-month period ended December 31, 1998 and increased by $277,000, or 133.0%
to $485,000 for the six-month period compared to $120,000 and $208,000 for the
comparable three and six-month periods ended December 31, 1997, respectively.
The increase resulted from the implementation of Access Plus services in
January 1998, as well as an increase in the number of PC Vector equipment sales
and related activations. The loss from operations associated with NetSat
Express increased by $0.2 million, or 64.4%, to $0.5 for the three month period
ended December 31, 1998 and increased by $0.2 million, or 26.3%, to $1.0
million for the six-month period ended December 31, 1998 compared to $0.3
million and $0.8 million for the comparable three and six-month periods ended
December 31, 1997, respectively. The increase was primarily associated with the
implementation of operating NetSat's Network Operations Center on a 24 by 7
basis, an increase in general and administrative expenses and an increase in
selling and marketing efforts for NetSat's Access Plus services.
Year 2000. The Company is in the process of assessing the anticipated
costs, problems and uncertainties associated with Year 2000 issues. The Company
has initiated a Year 2000 Compliance Plan which includes information technology
("IT") and non-IT systems requiring or which may require modification or
conversion, and supplier, facilities and other operations (such as financial
and banking systems) readiness. The Company is in the process of or has
completed reviews of each of the above areas including identification and
assessment of potential Year 2000 issues, identification and contact with key
suppliers or institutions based on their relative risks associated with product
integrity and continued product deliveries and service. Until such reviews are
complete, the Company will not be able to completely evaluate whether its IT
and non-IT systems will need to be modified or replaced. The Company has
incurred only nominal costs to date and estimates at this time that the total
Year 2000 costs will not be material. The Company is continuing its assessment
which may necessitate refinement of its estimate over time. There can be no
assurance, however, that costs associated with the Company's Year 2000
Compliance Plan will not be higher than anticipated which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In association with the Company's Year 2000 Compliance Plan, the
Company is currently developing contingency plans for certain critical
applications. These contingency plans may include, among other actions, manual
workarounds, increasing inventories and adjusting staffing strategies. There
can be no assurance such contingency plans, once developed, will be adequate.
12
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Since the Company's Year 2000 Compliance Plan is ongoing, all
potential Year 2000 issues have not yet been identified. Therefore the
potential impact of these issues on the Company's financial condition and
results of operations can not be determined at this time. If IT and non-IT
systems used by the Company or its suppliers, the product integrity of products
provided to the Company by its suppliers, or the software applications or
hardware used in systems integrated and sold by the Company, fail or experience
significant difficulties related to the Year 2000, the Company's results of
operations and financial condition could be materially affected. In addition,
there can be no assurance that equipment operated by third parties that
interface with or contain the Company's products will timely achieve Year 2000
compliance. Furthermore, if the Company's ground segment systems and networks
or data communications services were unable to be used by the Company's
customers because of Year 2000 compliance problems, there can be no assurance
that the Company's customers will not commence litigation against the Company
for such systems and networks failure. Any of the foregoing could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of $26.6
million, including cash and cash equivalents of $16.4 million, restricted cash
of $4.8 million, accounts receivable of $18.2 million, inventories of $2.9
million and prepaid and other current assets of $0.9 million, offset by $15.0
million in accounts payable and $1.5 million in accrued expenses and other
current liabilities.
Several factors had a major effect on the Company's liquidity during
the six-month period ended December 31, 1998. First, inventories increased by
$1.3 million reflecting the timing of purchases to support future shipments
and/or completion of ground segment systems and networks, offset by an increase
in accounts payable and accrued expenses of $2.1 million to support these
inventory purchases, as well as, the timing of receipt and payment to vendors.
The second factor affecting liquidity during the three and six-month period
ended December 31, 1998 was the Company's investment activities. During the
six-month period ended December 31, 1998, the Company purchased $1.0 million in
fixed assets and through its Stock Repurchase Program, repurchased $545,000 or
114,200 shares of the Company's common stock. In addition, during the first
quarter ended September 30, 1998, the Company purchased a $1.5 million equity
interest in McKibben Communications, LLC. McKibben Communications provides
conditional access and uplink services to the television industry in Los
Angeles. McKibben Communications also originates sports broadcasts from Los
Angeles to Japan for the distribution in Japan by a local satellite provider.
The Company and McKibben Communications complement each other and offer a
turnkey solution to broadcasters including design, installation, and operation
of uplink facilities.
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 Ground Segment Systems and Networks
Segment and the Data Communications Services Segment, the nature and timing of
customer orders, the extent to which it must conduct research and development
efforts internally and potential acquisitions of complementary businesses,
products or technologies. Based on current plans, the Company believes that its
existing capital resources will be sufficient to meet its capital requirements
for at least the next 12 months.
13
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CERTAIN BUSINESS CONSIDERATIONS
RISK FACTORS
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 can be based and has incurred
significant operating losses since its inception. The Company has financed its
operations to date primarily from the sale of equity securities and, to a
lesser degree, from stockholder loans. The Company generated its first revenue
from its ground segment systems and networks business in June 1995 and has
generated only minimal revenues from its satellite-delivered data
communications services business, which commenced operations in July 1996. The
Company incurred operating losses of $1.1 million, $2.3 million, $2.7 million
and $0.5 million during the fiscal years ended June 30, 1995, 1996, 1997 and
1998, respectively (which amounts for fiscal years ended June 30, 1997 and 1998
include operating losses of $1.5 million and $1.7 million, respectively, for
NetSat Express' data communications services business) and may incur further
operating losses as it attempts to expand its businesses. The Company's ability
to expand its ground segment systems and networks business and data
communications services business and generate additional revenues and positive
operating and net income is dependent, in large part, on its ability to obtain
new contracts and the profitability of such contracts, and there can be no
assurance that the Company will generate significant additional revenues or
report quarterly or annual positive operating or net income. As of December 31,
1998, the Company had an accumulated deficit of $9.4 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
INHERENT RISK OF INTERNATIONAL OPERATIONS
Most of the Company's revenues are derived from sales to customers
outside the United States. 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, the decrease in the value of foreign currencies
relative to the U.S. dollar, such as the currency devaluations in the Pacific
Rim region, Russia and other international currencies, has adversely affected
and may continue to adversely affect the demand for the Company's ground
segment systems and networks and data communications services by increasing the
price of the Company's products and services in the currency of the countries
in which they are sold. The economic and monetary crisis in the Pacific Rim
countries, including Korea, Malaysia, Thailand, Philippines, Indonesia and
other countries in the region, as well as the economic and monetary declines in
Russia, has resulted in a decreased demand in such countries and other foreign
regions for capital equipment such as the ground segment systems and networks
supplied by the Company and NetSat Express' data communications services. The
difficult economic conditions in the Pacific Rim region, Russia and other
international markets and the decrease in bookings received by the Company from
these and other foreign regions adversely effected the Company's results of
operations for the fourth quarter of fiscal year 1998 and the first six months
of fiscal year 1999, and the Company expects that these negative trends will
continue to adversely impact it. Additional risks inherent to 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.
QUARTERLY FLUCTUATIONS
The Company may continue to 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, delays in the booking of new contracts,
the demand for the Company's ground segment systems and networks and NetSat
Express' data communications services, the introduction of new or enhanced
products and services by the Company or NetSat Express or their competitors,
14
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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 in the U.S. and abroad, such as the difficult
economic conditions and currency devaluations in the Pacific Rim region, Russia
and other international markets which have adversely impacted, and may continue
to, adversely impact the Company's quarterly results. See "Inherent Risk of
International Operations". 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.
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.
The Company anticipates that its competitors may develop or acquire
competing products or products that provide functionality that is similar to
that provided by the Company's products and may be offered at significantly
lower prices or bundled with other products. 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.
The Company also is dependent on the continued success and development
of the satellite communications industry, which itself competes with other
technologies such as terrestrial microwave, copper wire and fiber optic
communications systems. Any failure of the satellite communications industry to
continue to develop, or any technological development which significantly
improves the capacity, cost or efficiency of such competing systems relative to
satellite systems, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Rapid Industry
Change; Technological Obsolescence."
RELIANCE ON STRATEGIC RELATIONSHIPS
The Company is dependent on certain customers and suppliers for the
development and expansion of its ground segment system and network business.
However, such relationships are not governed by any contract and accordingly
neither the Company nor such customers or suppliers are obligated to maintain
such strategic relationships. There can be no assurance that the Company will
be able to maintain such strategic relationships, that its strategic customers
and suppliers will continue to assist the Company by developing and expanding
its business and by providing research and development expertise, or that such
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strategic customers and suppliers will not actually compete with the Company in
the future. See "Intense Competition; Limited Barriers to Entry."
Because the Company intends to provide its satellite-delivered data
communications services almost entirely in developing markets where the Company
has minimal 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.
RISK OF CUSTOMER CONCENTRATION
The Company typically relies upon a small number of customers for a
large portion of its revenues. 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 period to
period) 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.
RISK OF MANAGEMENT OF RAPID GROWTH
The Company has been significantly and rapidly expanding its
operations since its inception. In order to pursue successfully the
opportunities presented by the ground segment and emerging satellite-delivered
communications and Internet/intranet-infrastructure markets, the Company will
be required to continue to expand its operations. Such expansion has placed,
and is expected to continue to place, a significant strain on the Company's
personnel, management, financial and other resources. In order to manage any
future growth effectively, the Company will, among other things, be required to
attract, train, motivate and manage a significantly larger number of employees
successfully to conduct product engineering and management, product
implementation, sales activity and customer support activities; manage higher
working capital requirements; and improve its operating and financial systems.
Any failure to manage any future growth in an efficient manner and at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition and results of operations.
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
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contract could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk of Customer
Concentration."
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
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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the data code field. These data code
fields will need to accept four digit entries to distinguish 21st century
dates. As a result, in less than two years, computer systems and/or software
used by many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance.
The Company is in the process of assessing the anticipated costs,
problems and uncertainties associated with Year 2000 issues. The Company has
initiated a Year 2000 Compliance Plan which includes information technology
("IT") and non-IT systems requiring or which may require modification or
conversion, and supplier, facilities and other operations (such as financial
and banking systems) readiness. The Company is in the process of or has
completed reviews of each of the above areas including identification and
assessment of potential Year 2000 issues, identification and contact with key
suppliers or institutions based on their relative risks associated with product
integrity and continued product deliveries and service. Until such reviews are
complete, the Company will not be able to completely evaluate whether its IT
and non-IT systems will need to be modified or replaced. The Company has
incurred only nominal costs to date and estimates at this time that the total
Year 2000 costs will not be material. The Company is continuing its assessment
which may necessitate refinement of its estimate over time. There can be no
assurance, however, that costs associated with the Company's Year 2000
Compliance Plan will not be higher than anticipated which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
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In association with the Company's Year 2000 Compliance Plan, the
Company is currently developing contingency plans for certain critical
applications. These contingency plans may include, among other actions, manual
workarounds, increasing inventories and adjusting staffing strategies. There
can be no assurance such contingency plans, once developed, will be adequate.
Since the Company's Year 2000 Compliance Plan is ongoing, all
potential Year 2000 issues have not yet been identified. Therefore the
potential impact of these issues on the Company's financial condition and
results of operations can not be determined at this time. If IT and non-IT
systems used by the Company or its suppliers, the product integrity of products
provided to the Company by its suppliers, or the software applications or
hardware used in systems integrated and sold by the Company, fail or experience
significant difficulties related to the Year 2000, the Company's results of
operations and financial condition could be materially affected. In addition,
there can be no assurance that equipment operated by third parties that
interface with or contain the Company's products will timely achieve Year 2000
compliance. Furthermore, if the Company's ground segment systems and networks
or data communication services were unable to be used by the Company's
customers because of Year 2000 compliance problems, there can be no assurance
that the Company's customers will not commence litigation against the Company
for such systems and networks failure. Any of the foregoing could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
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" and "Quarterly Fluctuations".
RISK OF FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS
The Company is subject to various federal laws and regulations which
may have negative effects on the Company. The Company operates a teleport in
Hauppauge, New York, which is subject to FCC Rules and Regulations. The Company
has obtained certain licenses 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 additional licenses that may be required or
maintain the necessary licenses.
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.
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Regulatory schemes in countries in which the Company may seek to
provide its satellite-delivered data communications services may impose
impediments on the Company's operations. Certain countries in which the Company
intends to operate have telecommunications laws and regulations that do not
currently contemplate technical advances in broadcast technology such as
Internet/intranet transmission by satellite. There can be no assurance that the
present regulatory environment in any such country will not be changed in a
manner which may have a material adverse impact on the Company's business. The
Company or its local partners typically must obtain authorization for each
country in which the Company provides its satellite-delivered data
communications services. Although the Company believes that it or its local
partners will be able to obtain the requisite licenses and approvals from the
countries in which the Company intends to provide service, the regulatory
schemes in each country are different and thus there may be instances of
noncompliance of which the Company is not aware. Although the Company believes
these regulatory schemes will not prevent the Company from pursuing its
business plan, there can be no assurance such licenses and approvals are or
will remain sufficient in the view of foreign regulatory authorities, or that
necessary licenses and approvals will be granted on a timely basis in all
jurisdictions in which the Company wishes to offer its services or that
restrictions applicable thereto will not be unduly burdensome.
The Company's Internet operations (other than the operation of a
teleport) are not currently subject to direct government regulation in most
countries, and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is likely that a number of laws and
regulations may be adopted at the local, national or international levels with
respect to the Internet, covering issues such as user privacy and expression,
pricing of products and services, taxation, advertising, intellectual property
rights, information security or the convergence of traditional communication
services with Internet communications. For example, the Telecommunications Act
of 1996 (the constitutionality of certain portions of which is currently under
challenge) was recently enacted in the United States, and imposes criminal
penalties via the Communications Decency Act 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.
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
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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 $0.5
million for each of Messrs. Miller, DiCicco, Woodring, Yablonski and Melfi, all
of whom are officers of the Company. The Company believes that its future
success also will depend significantly upon its ability to attract, motivate
and retain additional highly skilled technical, managerial and marketing
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting, assimilating and
retaining the personnel it requires to grow and operate profitably.
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.
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 three patent applications pending in the
United States and a PCT application, corresponding to one of the United States
applications, is pending in a number of foreign jurisdictions. The Company also
intends to seek further patents on its technology, if appropriate. There can be
no assurance that patents will be 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.
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The Company has filed applications for trademark registration of
Globecomm Systems Inc. in the United States, China, the European Union and the
Russian Federation and of NetSat Express in the United States, Singapore, the
European Union, the Russian Federation and Brazil, and intends to seek
registration of other trademarks in the future. There can be no assurance that
registrations will be granted from any of the Company's pending or future
applications, or that any registrations that are granted to the Company will
prevent others from using similar trademarks in connection with related goods
and services.
RISK OF CONCENTRATED OWNERSHIP
As of February 8, 1999, the Company's officers and directors, and
their affiliates beneficially own approximately 2,328,415 shares, constituting
approximately 24.3% 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.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock could be subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the Company or
its competitors, acceptance of satellite communication services in developing
countries, and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations, which have affected the
market price of securities of many companies in the telecommunications and high
technology industries. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock.
See "Quarterly Fluctuations."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to a variety of risks, including foreign
currency exchange rate fluctuations relating to certain purchases from foreign
vendors. In the normal course of business, the Company assesses these risks and
has established policies and procedures to manage its exposure to fluctuations
in foreign currency values.
The Company's objective to managing its exposure to foreign currency
exchange rate fluctuations is to reduce the impact of adverse fluctuations in
earnings and cash flows associated with foreign currency exchange rates for
certain purchases from foreign vendors, if applicable. Accordingly, the Company
utilizes foreign currency forward contracts to hedge its exposure on firm
commitments denominated in foreign currency. As of December 31, 1998, the
Company had only one such foreign currency forward contract to hedge its
exposure relating to a commitment to purchase approximately U.S. $3.2 million
of equipment from a vendor in Swedish Krona. The Company's hedge with respect
to this transaction reduces, but does not eliminate, the impact of foreign
currency exchange rate movements. If there were an adverse change in the
exchange rate of Swedish Krona of 10%, the expected effect on net income would
be immaterial.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
The effective date of the Company's first registration statement (the
"Registration Statement") filed on Form S-1 (Registration No.
333-22425) under the Securities Act of 1933, as amended, was August
7, 1997. The class of securities registered was Common Stock. The
Company incurred total expenses in the offering of $3,721,000 of
which $2,214,000 represented underwriting discounts and commissions
and $1,507,000 represented other expenses. All of such expenses were
direct or indirect payments to others. The net offering proceeds to
the Company after deducting the total expenses were $27,904,000.
From the effective date of the Registration Statement to December 31,
1998, the approximate amount of net offering proceeds used were $6.8
million to fund capital expenditures, and investments in strategic
suppliers, and $14.3 million for working capital purposes, increased
selling and marketing efforts, and increased internal research and
development expenses. All of such payments were direct or indirect
payments to others.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders was held on
November 19, 1998 (the "Annual Meeting").
(b) The matters voted upon at the Annual Meeting and the results
of the voting were as follows:
(i) The following individuals were elected by the
Stockholders to serve as Directors:
Board Member In Favor Withheld
------------ -------- --------
Benjamin Duhov 7,091,268 82,268
Herman Fialkov 7,091,268 82,268
Shelley A. Harrison 7,091,268 82,268
David E. Hershberg 7,089,768 83,768
Kenneth A. Miller 7,091,268 82,268
A. Robert Towbin 7,091,268 82,268
C.J. Waylan 7,091,268 82,268
Donald G. Woodring 7,091,268 82,268
Stephen C. Yablonski 7,089,768 83,768
(ii) The approval of the Company's 1999 Employee Stock
Purchase Plan was voted upon as follows: 6,447,663
shares in favor; 674,431 shares against; and 51,442
shares abstaining.
(iii) The appointment of Ernst & Young LLP as independent
auditors of the Company to serve for the year ending
June 30, 1999 was voted upon as follows: 7,145,398
shares in favor; 13,094 shares against; and 15,044
shares abstaining.
Item 5. Other Information
None
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation (filed herewith).
3.1(a) Certificate of Designation of Series A Junior Participating Preferred
Stock (filed herewith).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.3 of the Company's Annual Report on Form 10K
for the year ended June 30, 1998).
4.2 See Exhibits 3.1 and 3.3 for provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws of the
Registrant defining rights of holders of Common Stock of the
Registrant. (incorporated by reference to Exhibit 4.2 of the
Registrant's Registration Statement on Form S-1, File No. 333-22425
(the "Registration Statement")).
10.1 Form of Registration Rights Agreement dated as of February 1997
(incorporated by reference to exhibit 10.1 of the Registration
Statement).
10.2 Form of Registration Rights Agreement dated May 30, 1996 (incorporated
by reference to exhibit 10.2 of the Registration Statement).
10.3 Form of Registration Rights Agreement dated December 31, 1996, as
amended (incorporated by reference to exhibit 10.3 of the Registration
Statement).
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
(incorporated by reference to exhibit 10.4 of the Registration
Statement).
10.5 Investment Agreement dated February 12, 1996 by and between Shiron
Satellite Communications (1996) Ltd. and the Registrant (incorporated
by reference to exhibit 10.5 of the Registration Statement).
10.6* Stock Purchase Agreement dated as of August 30, 1996 by and between
C-Grams Unlimited Inc. and the Registrant (incorporated by reference
to exhibit 10.6 of the Registration Statement).
10.7 Memorandum of Understanding dated December 18, 1996 by and between
NetSat Express, Inc. and Applied Theory Communications, Inc.
(incorporated by reference to exhibit 10.7 of the Registration
Statement).
10.8 Stock Purchase Agreement dated as of August 23, 1996 by and between
NetSat Express, Inc. and Hughes Network Systems, Inc. (incorporated by
reference to exhibit 10.8 of the Registration Statement).
10.9 Employment Agreement dated as of January 27, 1997 between the
Registrant and David E. Hershberg (incorporated by reference to
exhibit 10.9 of the Registration Statement).
10.10 Employment Agreement dated as of January 27, 1997 between the
Registrant and Kenneth A. Miller (incorporated by reference to exhibit
10.10 of the Registration Statement).
10.11 Purchase and Sale Agreement, 45 Oser Avenue, Hauppauge, New York,
dated December 12, 1996 by and between Eaton Corporation and the
Registrant (incorporated by reference to exhibit 10.13 of the
Registration Statement).
10.12 1997 Stock Incentive Plan (incorporated by reference to exhibit 99.1
of the Registrant's Registration Statement on Form S-8, File No.
333-70527 (the "S-8 Registration Statement")).
10.13 Investment Agreement dated August 21, 1998 by and between McKibben
Communications LLC and the Registrant (incorporated by reference to
Exhibit 10.13 of the Company's Annual Report on Form 10K for the year
ended June 30, 1998).
10.14 1999 Employee Stock Purchase Plan (incorporated by reference to
exhibit 99.8 of the S-8 Registration Statement).
23
<PAGE>
10.15 Rights Agreement, dated as of December 3, 1998, between the Company
and American Stock Transfer and Trust Company, which includes the form
of Certificate of Designation for the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Rights Certificate as
Exhibit B and the Summary of Rights to Purchase Series A Preferred
Shares as Exhibit C (incorporated by reference to exhibit 4 of
Registrant's Current Report on Form 8-K dated December 3, 1998).
27 Financial Data Schedule (filed herewith).
* Confidential treatment granted for portions of this agreement.
(b) Reports on Form 8-K
On December 4, 1998, the Registrant filed a report on Form
8-K to describe under Item 5 the terms of the Rights Agreement dated
as of December 3, 1998 between the Company and American Stock Transfer
and Trust Company, as Rights Agent (the "Rights Agreement"). The
Registrant filed under Item 7 as Exhibits the Rights Agreement, press
release and form of letter to stockholders regarding the adoption of
the Rights Agreement.
24
<PAGE>
INDEX TO EXHIBITS:
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation (filed herewith).
3.1(a) Certificate of Designation of Series A Junior Participating Preferred
Stock (filed herewith).
3.3 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.3 of the Company's Annual Report on Form 10K
for the year ended June 30, 1998).
4.2 See Exhibits 3.1 and 3.3 for provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws of the
Registrant defining rights of holders of Common Stock of the
Registrant. (incorporated by reference to Exhibit 4.2 of the
Registrant's Registration Statement on Form S-1, File No. 333-22425
(the "Registration Statement")).
10.1 Form of Registration Rights Agreement dated as of February 1997
(incorporated by reference to exhibit 10.1 of the Registration
Statement).
10.2 Form of Registration Rights Agreement dated May 30, 1996 (incorporated
by reference to exhibit 10.2 of the Registration Statement).
10.3 Form of Registration Rights Agreement dated December 31, 1996, as
amended (incorporated by reference to exhibit 10.3 of the Registration
Statement).
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
(incorporated by reference to exhibit 10.4 of the Registration
Statement).
10.5 Investment Agreement dated February 12, 1996 by and between Shiron
Satellite Communications (1996) Ltd. and the Registrant (incorporated
by reference to exhibit 10.5 of the Registration Statement).
10.6* Stock Purchase Agreement dated as of August 30, 1996 by and between
C-Grams Unlimited Inc. and the Registrant (incorporated by reference
to exhibit 10.6 of the Registration Statement).
10.7 Memorandum of Understanding dated December 18, 1996 by and between
NetSat Express, Inc. and Applied Theory Communications, Inc.
(incorporated by reference to exhibit 10.7 of the Registration
Statement).
10.8 Stock Purchase Agreement dated as of August 23, 1996 by and between
NetSat Express, Inc. and Hughes Network Systems, Inc. (incorporated by
reference to exhibit 10.8 of the Registration Statement).
10.9 Employment Agreement dated as of January 27, 1997 between the
Registrant and David E. Hershberg (incorporated by reference to
exhibit 10.9 of the Registration Statement).
10.10 Employment Agreement dated as of January 27, 1997 between the
Registrant and Kenneth A. Miller (incorporated by reference to exhibit
10.10 of the Registration Statement).
10.11 Purchase and Sale Agreement, 45 Oser Avenue, Hauppauge, New York,
dated December 12, 1996 by and between Eaton Corporation and the
Registrant (incorporated by reference to exhibit 10.13 of the
Registration Statement).
10.12 1997 Stock Incentive Plan (incorporated by reference to exhibit 99.1
of the Registrant's Registration Statement on Form S-8, File No.
333-70527 (the "S-8 Registration Statement")).
10.13 Investment Agreement dated August 21, 1998 by and between McKibben
Communications LLC and the Registrant (incorporated by reference to
Exhibit 10.13 of the Company's Annual Report on Form 10K for the year
ended June 30, 1998).
10.14 1999 Employee Stock Purchase Plan (incorporated by reference to
exhibit 99.8 of the S-8 Registration Statement).
10.15 Rights Agreement, dated as of December 3, 1998, between the Company
and American Stock Transfer and Trust Company, which includes the form
of Certificate of Designation for the Series A Junior Participating
Preferred Stock as Exhibit A, the form of Rights Certificate as
25
<PAGE>
Exhibit B and the Summary of Rights to Purchase Series A Preferred
Shares as Exhibit C (incorporated by reference to exhibit 4 of
Registrant's Current Report on Form 8-K dated December 3, 1998).
27 Financial Data Schedule (filed herewith).
* Confidential treatment granted for portions of this agreement.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBECOMM SYSTEMS INC.
(Registrant)
Date: February 11, 1999 /s/ David E. Hershberg
-----------------------
David E. Hershberg
Chief Executive Officer and Chairman
of the Board of Directors
Date: February 11, 1999 /s/ Andrew C. Melfi
---------------------
Andrew C. Melfi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
27
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GLOBECOMM SYSTEMS INC.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
Globecomm Systems Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "General
Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is Globecomm Systems
Inc., and that this corporation was originally incorporated in Delaware under
the name Worldcomm Systems Inc., on August 17, 1994, pursuant to the General
Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in
the best interests of this corporation and its stockholders, and authorizing
the appropriate officers of this corporation to solicit the consent of the
stockholders therefore, which resolution setting forth the proposed amendment
and restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I.
The name of this corporation is Globecomm Systems Inc.
ARTICLE II.
The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE III.
The purpose of this corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law.
ARTICLE IV.
A. This corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which this corporation is authorized to issue is
25,000,000 shares. 22,000,000 shares, par value $.001 per share, shall be
Common Stock and 3,000,000 shares, par value $.001 per share, shall be
Preferred Stock.
B. The number of authorized shares of Common Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock
of this corporation entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware.
ARTICLE V.
A. Common Stock.
(a) General. All shares of Common Stock will be
identical and will entitle the holders thereof to the same rights, powers and
privileges. The rights, powers and privileges of the holders of the Common
Stock are subject to and qualified by the rights of holders of the Preferred
Stock.
(b) Dividends. Dividends may be declared and
paid on the Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any preferential dividend
rights of any then outstanding Preferred Stock.
(c) Dissolution, Liquidation or Winding Up. In
the event of any dissolution, liquidation or winding up of the affairs of this
corporation, whether voluntary or involuntary, each issued and outstanding
share of Common Stock shall entitle the holder thereof to receive an equal
portion of the net assets of this corporation available for distribution to the
holders of Common Stock, subject to any preferential rights of any then
outstanding Preferred Stock.
(d) Voting Rights. Except as otherwise required
by law or this Amended and Restated Certificate of Incorporation, each holder
of Common Stock shall have one vote in respect of each share of stock held of
record by such holder on the books of this corporation for the election of
directors and on all matters submitted to a vote of stockholders of this
corporation. Except as otherwise required by law or provided herein, holders of
Common
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<PAGE>
Stock shall vote together with holders of Common Stock as a single class,
subject to any special or preferential voting rights of any then outstanding
Preferred Stock. There shall be no cumulative voting.
(e) Redemption. The Common Stock is not redeemable.
(f) Stock Split. Upon the effectiveness of this
Amended and Restated Certificate of Incorporation, each outstanding share of
Common Stock, par value $.01 per share, shall be changed into 2.85 shares of
Common Stock, par value $.001. Each holder of record of a certificate for one
or more shares of Common Stock of the corporation as of the close of business
on the date this Amended and Restated Certificate of Incorporation becomes
effective shall be entitled to receive as soon as practicable, and without
surrender of such certificate, a certificate or certificates representing 1.85
additional shares of Common Stock, par value $.001, for each one share of
Common Stock represented by the certificate of such holder.
B. Preferred Stock. The Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of ARTICLE IV, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of Delaware,
to establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences, and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
-3-
<PAGE>
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of this
corporation, and the relative rights or priority, if any, of payment of shares
of that series; and
(h) Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of Preferred Stock shall be
paid or declared and set apart for payment before any dividends shall be paid
or declared and set apart for payment on the Common Stock with respect to the
same dividend period.
If upon any voluntary or involuntary liquidation, dissolution
or winding up of this corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to pay
such holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
C. This Amended and Restated Certificate of Incorporation is
being filed in connection with this 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 to 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.
ARTICLE VI.
In furtherance of and not in limitation of powers conferred
by statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of this corporation.
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<PAGE>
ARTICLE VII.
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE VIII.
A director of this corporation shall not be personally liable
to this corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such
repeal or modification.
-5-
<PAGE>
ARTICLE IX.
This corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, indemnify each person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was, or has agreed to become, a director or officer of this
corporation, or is or was serving, or has agreed to serve, at the request of
this corporation, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan), or by reason of any action
alleged to have been taken or omitted in such capacity, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with
such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by this corporation of
expenses in defending an action or proceeding in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by the
person indemnified to repay such payment if it is ultimately determined that
such person is not entitled to indemnification under this Article, which
undertaking may be accepted without reference to the financial ability of such
person to make such repayment.
This corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of
Directors of this corporation.
The indemnification rights provided in this Article (i) shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. This corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of this corporation or
other persons serving this corporation and such rights may be equivalent to, or
greater or less than, those set forth in this Article.
ARTICLE X.
This corporation reserves the right to amend, alter, change
or repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein are granted subject to this reservation.
-6-
<PAGE>
ARTICLE XI.
The number of directors of this corporation shall be fixed
from time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE XII.
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws of this corporation may provide. The books of
this corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of this
corporation.
The Stockholders of this corporation may not take any action
by written consent in lieu of a meeting."
* * *
THIRD: The foregoing amendment was approved by the holders of
the requisite number of shares of said corporation in accordance with Section
228 of the General Corporation Law.
FOURTH: That said amendments were duly adopted in accordance
with the provisions of Section 242 and 245 of the General Corporation Law.
-7-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chief Financial Officer of this
corporation this 5th day of August, 1997.
/s/ Andrew C. Melfi
--------------------------
Andrew C. Melfi
Chief Financial Officer
-8-
<PAGE>
EXHIBIT 3.1 (a)
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
GLOBECOMM SYSTEMS INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
----------------------------------
Globecomm Systems Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on December 3, 1998;
RESOLVED, that pursuant to the authority granted to and
vested in the Board of Directors of the Corporation (hereinafter called the
"Board of Directors" or the "Board") in accordance with the provisions of the
Certificate of Incorporation, as amended, the Board of Directors hereby creates
a series of Preferred Stock, par value $.001 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
1
<PAGE>
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be Three Hundred Thousand (300,000). Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends,
each holder of a share of Series A Preferred Stock, in preference to
the holders of shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a
share Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment
hereinafter set forth, One Thousand (1,000) times the aggregate per
share amount of all cash dividends, and One Thousand (1,000) times the
aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the
first issuance of a share or fraction of Series A Preferred Stock. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event under the preceding
sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the shares of Series A Preferred Stock as provided in paragraph (A)
of this Section immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided, however, that, in the event no
dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Distribution Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share of Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on each
outstanding share of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such share
of Series A Preferred Stock, unless the date of issue of such share is
prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such share shall begin to accrue from
the date of issue of such share, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such
2
<PAGE>
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to One Thousand (1,000) votes on all matters submitted to a
vote of the stockholders of the Corporation. In the event the
Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the shares of Series A Preferred
Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for
shares of any
3
<PAGE>
stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to
the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms
as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (1) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received One Thousand
Dollars ($1,000) per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"), provided that the holders
of shares of Series A Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 1,000 times the aggregate amount to be distributed per share to
holders of shares of Common Stock (the "Common Adjustment"), or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event (the "Adjustment Number").
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
4
<PAGE>
(C) In the event the Corporation shall at any time after the
Rights Dividend Declaration Date (as defined in the Corporaiton's Rights
Agreement dated December 3, 1998) (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect immediately prior to
such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any
such case each share of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to One Thousand (1,000)
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth
in the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Amended and Restated Certificate
of Incorporation of the Corporation shall not be amended in any manner which
would materially alter or change the powers, preferences or special rights of
the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least a majority of the outstanding
shares of Series A Preferred Stock, voting together as a single class.
5
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation by its Chief Executive Officer and its
corporate seal attested by its President this 3rd day of December, 1998.
/s/ David E. Hershberg
------------------------------------
Name: David E. Hershberg
Title: Chief Executive and Chairman
Attest:
/s/ Andrew C. Melfi
- ---------------------------------------
Name: Andrew C. Melfi
Title: V.P. and Chief Financial Officer
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Globecomm Systems Inc. Financial Statements, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 16,363 16,363
<SECURITIES> 0 0
<RECEIVABLES> 18,180 18,180
<ALLOWANCES> 0 0
<INVENTORY> 2,898 2,898
<CURRENT-ASSETS> 43,081 43,081
<PP&E> 12,017 12,017
<DEPRECIATION> 1,885 1,885
<TOTAL-ASSETS> 57,159 57,159
<CURRENT-LIABILITIES> 16,493 16,493
<BONDS> 0 0
0 0
0 0
<COMMON> 9 9
<OTHER-SE> 40,657 40,657
<TOTAL-LIABILITY-AND-EQUITY> 57,159 57,159
<SALES> 11,882 25,175
<TOTAL-REVENUES> 11,882 25,175
<CGS> 10,352 22,123
<TOTAL-COSTS> 10,352 22,123
<OTHER-EXPENSES> 2,918 6,502
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,116) (2,840)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,116) (2,840)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,116) (2,840)
<EPS-PRIMARY> (0.12) (0.31)
<EPS-DILUTED> (0.12) (0.31)
</TABLE>
