-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EH6m6YDUbUy3bOsNlE0pnhW/LKfvXnZ4e8EOPuvoi9RusX2j8c9jMlfYLElM3LUC QOmZ8s/2W3dLMZk3jGl+Ag== 0000950136-02-003229.txt : 20021114 0000950136-02-003229.hdr.sgml : 20021114 20021114170819 ACCESSION NUMBER: 0000950136-02-003229 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBECOMM SYSTEMS INC CENTRAL INDEX KEY: 0001031028 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 113225567 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22839 FILM NUMBER: 02826123 BUSINESS ADDRESS: STREET 1: 375 OSER AVENUE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162319800 MAIL ADDRESS: STREET 1: 375 OSER AVENUE CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: WSI COMMUNICATIONS INC DATE OF NAME CHANGE: 19970121 10-Q 1 file001.txt QUARTERLY REPORT UNITED STATES 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 September 30, 2002 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 GLOBECOMM SYSTEMS INC. (Exact name of Registrant as specified in its charter) DELAWARE 11-3225567 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 45 OSER AVENUE, 11788 HAUPPAUGE, NY (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 231-9800 Indicate by check mark 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 [ ] As of November 11, 2002, there were 12,569,217 shares of the registrant's common stock, $0.001 par value, outstanding. 1 GLOBECOMM SYSTEMS INC. Index to the September 30, 2002 Form 10-Q
Page Part I -- Financial Information ---- Item 1. Consolidated Financial Statements ....................................................................3 Consolidated Balance Sheets--As of September 30, 2002 (unaudited) and June 30, 2002...................3 Consolidated Statements of Operations (unaudited)--For the three months ended September 30, 2002 and 2001.........................................................................4 Consolidated Statement of Changes in Stockholders' Equity (unaudited)--For the three months ended September 30, 2002............................................................................5 Consolidated Statements of Cash Flows (unaudited)--For the three months ended September 30, 2002 and 2001.........................................................................6 Notes to Consolidated Financial Statements (unaudited)................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................11 Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................................24 Item 4. Controls and Procedures..............................................................................25 Part II -- Other Information Item 1. Legal Proceedings....................................................................................25 Item 2. Changes in Securities and Use of Proceeds............................................................25 Item 3. Defaults Upon Senior Securities......................................................................25 Item 4. Submission of Matters to a Vote of Security Holders..................................................25 Item 5. Other Information....................................................................................25 Item 6. Exhibits and Reports on Form 8-K.....................................................................25 Signatures...........................................................................................29
2 PART I -- FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS GLOBECOMM SYSTEMS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, JUNE 30, 2002 2002 ---- ---- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 36,827 $ 38,708 Restricted cash 588 588 Accounts receivable, net 9,319 14,999 Inventories 9,245 8,594 Prepaid expenses and other current assets 1,070 1,239 Deferred income taxes 138 138 ---------------------------------- Total current assets 57,187 64,266 Fixed assets, net 27,488 28,484 Goodwill 7,204 7,204 Other assets 340 343 ---------------------------------- Total assets $ 92,219 $ 100,297 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,065 $ 12,918 Deferred revenues 2,773 3,541 Accrued payroll and related fringe benefits 1,268 957 Other accrued expenses 2,347 2,076 Deferred liabilities 600 600 Capital lease obligation 482 472 ---------------------------------- Total current liabilities 17,535 20,564 Deferred liabilities, less current portion 3,682 3,060 Capital lease obligation, less current portion 9,509 9,633 Commitments and contingencies Stockholders' equity: Series A Junior Participating, shares authorized, issued and outstanding: none at September 30, 2002 and June 30, 2002 - - Common stock, $.001 par value, 22,000,000 shares authorized, shares issued: 12,933,062 at September 30, 2002 and June 30, 2002 13 13 Additional paid-in capital 123,598 123,598 Accumulated deficit (59,723) (54,260) Accumulated other comprehensive loss (128) (44) Treasury stock, at cost, 349,745 shares at September 30, 2002 and June 30, 2002 (2,267) (2,267) ---------------------------------- Total stockholders' equity 61,493 67,040 ---------------------------------- Total liabilities and stockholders' equity $ 92,219 $ 100,297 ==================================
See accompanying notes. 3 GLOBECOMM SYSTEMS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED --------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2002 2001 --------------------------------- Revenues from ground segment systems, networks and enterprise solutions $ 8,164 $ 18,034 Revenues from data communications services 4,270 6,186 --------------------------------- Total revenues 12,434 24,220 --------------------------------- Costs and operating expenses: Costs from ground segment systems, networks and enterprise solutions 7,692 16,177 Costs from data communications services 6,289 7,111 Selling and marketing 1,632 1,606 Research and development 265 247 General and administrative 1,956 2,107 --------------------------------- Total costs and operating expenses 17,834 27,248 --------------------------------- Loss from operations (5,400) (3,028) Other income (expense): Interest income 170 423 Interest expense (233) (243) --------------------------------- Net loss $ (5,463) $ (2,848) ================================= Basic and diluted net loss per common share $ (0.43) $ (0.22) ================================= Weighted-average shares used in the calculation of basic and diluted net loss per common share 12,583 12,718 =================================
See accompanying notes. 4 GLOBECOMM SYSTEMS INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 (IN THOUSANDS) (UNAUDITED)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER TREASURY STOCK TOTAL -------------- PAID-IN ACCUMULATED COMPREHENSIVE ------------------ STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT LOSS SHARES AMOUNT EQUITY ----------------------------------------------------------------------------------------------- Balance at June 30, 2002 12,933 $ 13 $ 123,598 $ (54,260) $ (44) 350 $ (2,267) $ 67,040 Comprehensive loss: Net loss (5,463) (5,463) Gain from foreign currency translation 8 8 Unrealized loss on available-for-sale equity securities (92) (92) ----------- Total comprehensive loss (5,547) ----------------------------------------------------------------------------------------------- Balance at September 30, 2002 12,933 $ 13 $ 123,598 $ (59,723) $ (128) 350 $ (2,267) $ 61,493 ===============================================================================================
See accompanying notes. 5 GLOBECOMM SYSTEMS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED --------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2002 2001 --------------------------------- OPERATING ACTIVITIES: Net loss $ (5,463) $ (2,848) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 1,092 1,028 Provision for doubtful accounts 42 63 Change in deferred liabilities 622 - Changes in operating assets and liabilities: Accounts receivable 5,659 4,494 Inventories (648) 2,980 Prepaid expenses and other current assets 78 46 Other assets 3 9 Accounts payable (2,873) (3,515) Deferred revenue (770) (1,294) Accrued payroll and related fringe benefits 310 295 Other accrued expenses 268 (192) --------------------------------- Net cash (used in) provided by operating activities (1,680) 1,066 --------------------------------- INVESTING ACTIVITIES: Purchases of fixed assets (96) (219) --------------------------------- Net cash used in investing activities (96) (219) --------------------------------- FINANCING ACTIVITIES: Payments under capital leases (114) (104) --------------------------------- Net cash used in financing activities (114) (104) --------------------------------- Effect of foreign currency translation on cash 9 63 --------------------------------- Net (decrease) increase in cash and cash equivalents (1,881) 806 Cash and cash equivalents at beginning of period 38,708 45,038 --------------------------------- Cash and cash equivalents at end of period $ 36,827 $ 45,844 =================================
See accompanying notes. 6 GLOBECOMM SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results for such periods have been included. The consolidated balance sheet at June 30, 2002 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The results of operations for the three months ended September 30, 2002, are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2003, or for any future period. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended June 30, 2002 and the accompanying notes thereto contained in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 30, 2002. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, NetSat Express, Inc., or NetSat, and Globecomm Systems Europe Limited (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Sale of Stock by Subsidiary The Company recognizes changes in the ownership percentage of its subsidiaries caused by issuances of the subsidiary's stock as an adjustment to additional paid-in capital in the consolidated statements of changes in stockholders' equity. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue in accordance with Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements, for its production-type contracts that are sold separately as standard satellite ground segment systems when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, collectibility is reasonably assured, delivery has occurred and the contractual performance specifications have been met. The Company's standard satellite ground segment systems produced in connection with these contracts are typically short-term (less than twelve months in term) and manufactured using a standard modular production process. Such systems require less engineering, drafting and design efforts than the Company's long-term complex production-type projects. Revenue is recognized on the Company's standard satellite ground segment systems upon shipment and acceptance of factory performance testing which is when title transfers to the customer. The amount of revenues recorded on each standard production-type contract is reduced by the customers' contractual holdback amount, which typically requires 10% to 30% of the contract value to be retained by the 7 customer until installation and final acceptance is complete. The customer generally becomes obligated to pay 70% to 90% of the contract value upon shipment and acceptance of factory performance testing. Installation is not deemed to be essential to the functionality of the system since installation does not require significant changes to the features or capabilities of the system, does not require complex software integration and interfacing and the Company has not experienced any difficulties installing such equipment. In addition, the customer or other third party vendors can install the system. The estimated relative fair value of the installation services is determined by management, which is typically less than the customer's contractual holdback percentage. If the holdback is less than the fair value of installation, the Company will defer recognition of revenues, determined on a contract-by-contract basis equal to the fair value of the installation services. Payments received in advance by customers are deferred until shipment and are presented as deferred revenues in the accompanying consolidated balance sheets. The Company recognizes revenue using the percentage-of-completion method of accounting upon the achievement of certain contractual milestones in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, for its non-standard, complex production-type contracts for the production of satellite ground segment systems and equipment that are generally integrated into the customers' satellite ground segment network. The equipment and systems produced in connection with these contracts are typically long-term (in excess of twelve months in term) and require significant customer-specific engineering, drafting and design effort in order to effectively integrate all of the customizable earth station equipment into the customers' ground segment network. These contracts generally have larger contract values, greater economic risks and substantive specific contractual performance requirements due to the engineering and design complexity of such systems and related equipment. Progress payments received in advance by customers are netted against the inventory balances in the accompanying consolidated balance sheets. Contract costs generally include purchased material, direct labor, overhead and other indirect costs. Anticipated contracted losses are recognized, as they become known. Revenues from data communications services are derived primarily from Internet access service fees. Service revenues from Internet access are recognized ratably over the period in which services are provided. Payments received in advance of providing Internet access services are deferred until the period such services are provided and are presented as deferred revenues in the accompanying consolidated balance sheets. Costs from Ground Segment Systems, Networks and Enterprise Solutions Costs from ground segment systems, networks and enterprise solutions consist primarily of the costs of purchased materials, direct labor and related overhead expenses, project-related travel, living costs and subcontractor costs. Costs associated with hardware and equipment sales consist primarily of the purchase of the related products. Costs from Data Communications Services Costs from data communications services relating to Internet access service fees consist primarily of satellite space segment charges and Internet connectivity fees. Satellite space segment charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of services to and from leased satellites, depreciation relating to a capitalized satellite transponder lease and network operations expenses which consist primarily of costs associated with the operation of the Network Operation Center (the "NOC"), including teleport services and maintaining a twenty-four hour a day, seven-day a week staff to monitor the operations of the NOC. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired primarily from the buyback of the minority interests of NetSat. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and other indefinite life intangible assets are no longer amortized, but instead tested for impairment at least annually. The net carrying value of goodwill is approximately $7,204,000, at September 30, 2002 and June 30, 2002, 8 which relates to the data communications solutions reporting unit. Comprehensive loss Comprehensive loss for the three months ended September 30, 2002 of approximately $5,547,000 includes a foreign currency translation gain of approximately $8,000 and an unrealized loss on available-for-sale equity securities of approximately $92,000. The Company's comprehensive loss for the three months ended September 30, 2001 of approximately $2,874,000 includes a foreign currency translation gain of approximately $63,000 and an unrealized loss on available-for-sale equity securities of approximately $89,000. Income Taxes In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income. For the three months ended September 30, 2002 and the year ended June 30, 2002, due to the uncertainty regarding the Company's ability to utilize its net operating losses in the future, the Company provided a valuation allowance against its operating losses and temporary differences except for approximately $138,000 representing state investment tax credit carryforwards that will be utilized during fiscal 2003 to offset state capital taxes on the Company's consolidated state tax return. 2. BASIC AND DILUTED NET LOSS PER COMMON SHARE The Company computes net loss per share in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic and diluted net loss per common share is computed by dividing the net loss for the period by the weighted-average number of common and dilutive equivalent shares outstanding for the period. Common equivalent shares consist of the incremental common shares issuable upon the conversion of preferred stock (using an if-converted method) and incremental shares issuable upon the exercise of stock options and warrants (using the treasury stock method). Incremental common equivalent shares are excluded from the calculation of diluted net loss per share if their effect is anti-dilutive. Diluted net loss per share for the three months ended September 30, 2002 and 2001, excludes the effect of approximately 5,000 and 120,000 stock options respectively, as their effect would have been anti-dilutive. 3. INVENTORIES Inventories consist of the following:
SEPTEMBER 30, JUNE 30, 2002 2002 ----------------------------------- (UNAUDITED) (IN THOUSANDS) Raw materials and component parts $ 887 $ 876 Work-in-progress 8,358 7,718 ----------------------------------- $ 9,245 $ 8,594 ===================================
At September 30, 2002 and June 30, 2002, there were no progress payments to net against inventories under long-term contracts. 4. SEGMENT INFORMATION The Company operates through two business segments. Its ground segment systems, networks and enterprise solutions segment, through Globecomm Systems Inc. and Globecomm Systems Europe Limited, is engaged in the design, assembly and installation of ground segment systems, networks and enterprise solutions. Its data communications services segment, through NetSat, is engaged in providing high-speed, satellite-delivered data 9 communications to developing markets worldwide. NetSat also provides Internet access to customers who have limited or no access to terrestrial network infrastructure 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 following is the Company's business segment information for the three months ended September 30, 2002 and 2001 and as of September 30, 2002 and June 30, 2002:
THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 ------------------------------------- (UNAUDITED) (IN THOUSANDS) Revenues: Ground segment systems, networks and enterprise solutions $ 8,164 $ 18,034 Data communications services 4,270 6,186 ------------ ------------ Total revenues $ 12,434 $ 24,220 ============ ============ Loss from operations: Ground segment systems, networks and enterprise solutions $ (2,643) $ (1,163) Data communications services (2,760) (1,867) Interest income 170 423 Interest expense (233) (243) Intercompany eliminations 3 2 ------------ ------------ Net loss $ (5,463) $ (2,848) ============ ============ Depreciation and amortization: Ground segment systems, networks and enterprise solutions $ 511 $ 446 Data communications services 584 585 Intercompany eliminations (3) (3) ------------ ------------ Total depreciation and amortization $ 1,092 $ 1,028 ============ ============ Expenditures for long-lived assets: Ground segment systems, networks and enterprise solutions $ 46 $ 139 Data communications services 50 80 ------------ ------------ Total expenditures for long-lived assets $ 96 $ 219 ============ ============
SEPTEMBER 30, JUNE 30, 2002 2002 (UNAUDITED) ------------------------------------- (IN THOUSANDS) Assets: Ground segment systems, networks and enterprise solutions $ 118,159 $ 123,484 Data communications services 20,322 20,106 Intercompany eliminations (46,262) (43,293) ------------------------------------- Total assets $ 92,219 $ 100,297 =====================================
10 5. COMMITMENTS AND CONTINGENCIES In October 2002, the Company reached an agreement with one of its vendors, which modified and reduced the Company's satellite bandwidth obligations. Under the terms of this agreement, the Company paid $7.6 million, which included a one-time termination fee of $3.6 million and $4.0 million, which primarily related to outstanding invoices and an additional security deposit, assigned $31.6 million of future contract revenues to the vendor and reduced the Company's future space segment obligations by $52.2 million. Accordingly, the Company recorded a charge to costs from data communications services of $0.8 million in the second quarter of fiscal 2003, representing the difference between the $3.6 million termination fee and the corresponding reduction in a deferred liability of $2.8 million, which was to be amortized into income over the remaining term of the lease. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion of our financial condition and results of operations with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains, in addition to historical information, forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, based on our current expectations, assumptions, estimates and projections. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as, among others, the decline in demand for our services and products due to economic and industry-specific conditions, the risks associated with operating in international markets and our dependence on a limited number of contracts for a high percentage of our revenue. These risks and others are more fully described in the "Risk Factors" section of this Quarterly Report and in our other filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. OVERVIEW Since our inception, a majority of our revenues have been generated by ground segment systems, networks and enterprise solutions business. Contracts for these ground segment systems and networks and communications services have been fixed-price contracts in a majority of cases. 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 our business is frequently concentrated in a limited number of large contracts, a significant cost overrun on any contract could have a material adverse effect on our business, financial condition and results of operations. Contract costs generally include purchased material, direct labor, overhead and other indirect costs. Anticipated contract losses are recognized in the period identified. Costs from ground segment systems, networks and enterprise solutions consist primarily of the costs of purchased materials, direct labor and related overhead expenses, project-related travel, living costs and subcontractor salaries. Costs from data communications services consist primarily of satellite space segment charges, Internet connectivity fees, network operations expenses and depreciation. Satellite space segment charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of services to and from the satellite leased from operators. Network operations expenses consist primarily of costs associated with the operation of the network operations center on a twenty-four hour a day, seven day a week basis, including personnel and related costs. Depreciation relates to a capitalized transponder lease and the network operations center. Selling and marketing expenses consist primarily of salaries, travel and living costs for sales and marketing personnel. Research and development expenses consist primarily of salaries and related overhead expenses for engineers. General and administrative expenses consist of expenses associated with our management, finance, contract and administrative functions. Our business has been adversely affected by the current global economic slowdown and, in particular, the significant challenges facing the telecommunications industry worldwide. These challenges include excess bandwidth resulting from weak consumer and business demand, which has fallen far short of expectations, and the attendant financial distress facing both traditional telecommunication carriers and the new generation of competitive local exchange carriers. Moreover, as a result of the uncertainties facing the economy, corporations have seriously 11 restricted their capital expenditures to those that are absolutely necessary. The reduction in demand has been accompanied by significant pricing pressures and intensifying competition, while the financial difficulties of industry participants and customers have created risks associated with collectibility of accounts receivable. We have experienced a decline in bookings of contract orders as customers and prospects delay projects. These negative trends are expected to continue to impact our business and prospects for the foreseeable future. CRITICAL ACCOUNTING POLICIES Certain of our accounting policies require judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results may differ from these judgments under different assumptions or conditions. Our accounting policies that require management to apply significant judgment include: REVENUE RECOGNITION We recognize revenue in accordance with Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements, for our production-type contracts that are sold separately as standard satellite ground segment systems when persuasive evidence of an arrangement exists, the selling price is fixed or determinable, collectibility is reasonably assured, delivery has occurred and the contractual performance specifications have been met. Our standard satellite ground segment systems produced in connection with these contracts is typically short-term (less than twelve months in term) and manufactured using a standard modular production process. Such systems require less engineering, drafting and design efforts than our long-term complex production-type projects. Revenue is recognized on our standard satellite ground segment systems upon shipment and acceptance of factory performance testing which is when title transfers to the customer. The amount of revenues recorded on each standard production-type contract is reduced by the customer's contractual holdback amount, which typically requires 10% to 30% of the contract value to be retained by the customer until installation and final acceptance is complete. The customer generally becomes obligated to pay 70% to 90% of the contract value upon shipment and acceptance of factory performance testing. Installation is not deemed to be essential to the functionality of the system since installation does not require significant changes to the features or capabilities of the equipment, does not require complex software integration and interfacing and we have not experienced any difficulties installing such equipment. In addition, the customer or other third party vendors can install the equipment. The estimated relative fair value of the installation services is determined by management, which is typically less than the customer's contractual holdback percentage. If the holdback is less than the fair value of installation, we will defer recognition of revenues, determined on a contract-by-contract basis equal to the fair value of the installation services. Payments received in advance by customers are deferred until shipment and are presented as deferred revenues. We recognize revenue using the percentage-of-completion method of accounting upon the achievement of certain contractual milestones in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, for our non-standard, complex production-type contracts for the production of satellite ground segment systems and equipment that are generally integrated into the customers' satellite ground segment network. The equipment and systems produced in connection with these contracts are typically long-term (in excess of twelve months in term) and require significant customer-specific engineering, drafting and design effort in order to effectively integrate all of the customizable earth station equipment into the customers' ground segment network. These contracts generally have larger contract values, greater economic risks and substantive specific contractual performance requirements due to the engineering and design complexity of such systems and related equipment. Progress payments received in advance by customers are netted against the inventory balances. Revenues from data communications services are derived primarily from Internet access service fees. Service revenues from Internet access are recognized ratably over the period in which services are provided. Payments received in advance of providing Internet access services are deferred until the period such services are provided and are presented as deferred revenues. 12 COSTS FROM GROUND SEGMENT SYSTEMS, NETWORKS AND ENTERPRISE SOLUTIONS Costs related to our production-type contracts and our non-standard, complex production-type contracts rely on estimates based on total expected contract costs. We use reasonable, dependable estimates of the costs applicable to various elements. Since these contract costs depend on estimates, which are assessed continually during the term of these contracts, costs are subject to revisions as the contract progresses to completion. Revision in cost estimates are reflected in the period in which they become known. In the event an estimate indicates that a loss will be incurred at completion, we record the costs in the period identified. GOODWILL Goodwill represents the excess of the purchase price over the fair value of the net assets acquired primarily from the buyback of the minority interests of NetSat. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and other indefinite life intangible assets are no longer amortized, but instead tested for impairment at least annually. In assessing goodwill, we must make assumptions regarding the estimated future cash flows and other factors to determine the fair value of goodwill. Future events could cause us to conclude that impairment indicators exist and that the goodwill associated with NetSat is impaired. Any resulting impairment could have a material adverse effect on our financial condition and results of operations. ALLOWANCES FOR DOUBTFUL ACCOUNTS We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We assess the customer's ability to pay based on a number of factors, including our past transaction history with the customer and the credit worthiness of the customer. Management specifically analyzes accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of our customers were to deteriorate in the future, resulting in an impairment of their ability to make payments, additional allowances may be required. INVENTORIES Inventories consist primarily of work-in-progress from costs incurred in connection with specific customer contracts, which are stated at the lower of cost or market value. In assessing the realizability of inventories, we are required to make estimates of the total contract costs based on the various elements of the work-in-progress. It is possible that changes to these estimates could cause a reduction in the net realizable value of our inventories. RESULTS OF OPERATIONS Three Months Ended September 30, 2002 and 2001 Revenues from Ground Segment Systems, Networks and Enterprise Solutions. Revenues decreased by $9.9 million, or 54.7%, to $8.2 million for the three months ended September 30, 2002 compared to $18.0 million for the three months ended September 30, 2001. The decrease relates to a decrease in shipment and/or completion of contracts as a result of a decline in bookings of contract orders due to the continued uncertainty surrounding the global economic slowdown in the telecommunications industry, resulting in customers and prospects continuing to delay projects. We expect the trend in revenues that adversely affected our results of operations for the three months ended September 30, 2002 to continue to adversely impact us. Revenues from Data Communication Services. Revenues decreased by $1.9 million, or 31.0%, to $4.3 million for the three months ended September 30, 2002 compared to $6.2 million for the three months ended September 30, 2001. The decrease reflects changes in market conditions, including the global economic slowdown in the telecommunications industry, pricing pressures in the marketplace and penetration of fiber into areas we have traditionally provided services, coupled with the termination of services from our largest Middle East customer in August 2002. During October 2002, pursuant to an agreement reached with one of our vendors, we assigned $31.6 million of contracts which will reduce our future monthly recurring revenues by approximately $0.4 million. We 13 expect the trend in revenues that adversely affected our results of operations for the three months ended September 30, 2002 to continue to adversely impact us. Costs from Ground Segment Systems, Networks and Enterprise Solutions. Costs from ground segment systems, networks and enterprise solutions decreased by $8.5 million, or 52.5%, to $7.7 million for the three months ended September 30, 2002 from $16.2 million for the three months ended September 30, 2001. The decrease is attributable to a lower revenue base. Costs as a percentage of related revenues increased to 94.2% for the three months ended September 30, 2002 from 89.7% for the three months ended September 30, 2001. The decrease was mainly attributable to competitive margin pressure and a change in contract mix. Costs from Data Communications Services. Costs from data communications services decreased by $0.8 million, or 11.6%, to $6.3 million for the three months ended September 30, 2002 from $7.1 million for the three months ended September 30, 2001. The decrease is primarily due to the continued global economic slowdown in the telecommunications industry. Costs as a percentage of related revenues increased to 147.3% for the three months ended September 30, 2002 from 115.0% for the three months ended September 30, 2001. This increase is due to the inability of our lower revenue base to absorb the fixed costs of its unutilized transponder capacity. During October 2002, we reached an agreement with one of our vendors, which reduced our future space segment transponder obligations by $52.2 million, or 72%, with this vendor. This agreement will reduce our future monthly space segment costs by approximately $0.8 million. Selling and Marketing. Selling and marketing expenses remained relatively consistent for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Research and Development. Research and development expenses remained relatively consistent for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. General and Administrative. General and administrative expenses decreased by $0.2 million, or 7.2%, to $2.0 million for the three months ended September 30, 2002 compared to $2.1 million for the three months ended September 30, 2001. The decrease in general and administrative expenses is primarily due to a reduction in salary and salary related expenses. General and administrative expenses as a percentage of revenues increased to 15.7% for the three months ended September 30, 2002 from 8.7% for the three months ended September 30, 2001 principally due to the decrease in our revenues. Interest Income. Interest income decreased by $0.3 million, or 59.8%, to $0.2 million for the three months ended September 30, 2002 compared to $0.4 million for the three months ended September 30, 2001. The decrease is primarily the result of a decrease in cash and cash equivalents due to cash used in our operations during the past twelve months ended September 30, 2002, coupled with a decline in interest rates. Interest Expense. Interest expense remained relatively consistent for the three months ended September 30, 2002 compared to the three months ended September 30, 2001. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, we had working capital of $39.7 million, including cash and cash equivalents of $36.8 million, restricted cash of $0.6 million, net accounts receivable of $9.3 million, inventories of $9.3 million, prepaid expenses and other current assets of $1.1 million and deferred income taxes of $0.1 million, offset by $10.1 million in accounts payable, $2.8 million in deferred revenues and $4.7 million in accrued expenses and other current liabilities. Net cash used in operating activities during the three months ended September 30, 2002 was $1.7 million, which primarily related to the net loss of $5.5 million and a decrease in accounts payable of $2.9 million relating to the reduction in business levels, offset by a decrease in accounts receivable of $5.7 million due to collections on certain contract billings and the reduction in revenues, depreciation and amortization expense of $1.1 million related primarily to the network operation center and one satellite space segment transponder. Effective April 11, 2002, we amended our bank agreement and established a $5.0 million working capital line of credit. The modified credit facility bears interest at the prime rate (4.75% at September 30, 2002) and is 14 collateralized by a first security interest on most of our assets. The credit facility, which expires on April 10, 2003, contains certain financial covenants, with which we were in compliance at September 30, 2002. As of September 30, 2002, no amounts were outstanding under this credit facility, however, there are outstanding standby letters of credit, bid proposals and performance guarantees of approximately $2.0 million, which are applied against and reduce the amounts available under the working capital line of credit. We lease satellite space segment services and other equipment under various operating lease agreements, which expire in various years through 2008. Future minimum lease payments due on these leases through September 30, 2003 are approximately $14.9 million. In October 2002, we reached an agreement with one of our vendors, which modified and reduced our satellite bandwidth obligations. Under the terms of this agreement, we paid $7.6 million, which included a one-time termination fee of $3.6 million, and $4.0 million, which primarily related to outstanding invoices and an additional security deposit, assigned $31.6 million of future contract revenues to the vendor and reduced our future space segment obligations by $52.2 million. At September 30, 2002 we had contractual obligations and commercial commitments as follows (in thousands):
PAYMENTS DUE BY PERIOD LESS THAN 1 AFTER 5 TOTAL YEAR 1-3 YEARS 4-5 YEARS YEARS ------------------------------------------------------------------------ CONTRACTUAL OBLIGATIONS - ----------------------- Capital lease obligation $ 16,524 $ 1,387 $ 2,774 $ 2,774 $ 9,589 Operating leases (1) 82,988 14,910 32,627 28,349 7,102 ------------------------------------------------------------------------ Total contractual cash obligations $ 99,512 $ 16,297 $ 35,401 $ 31,123 $ 16,691 OTHER COMMERCIAL COMMITMENTS - ---------------------------- Standby letters of credit $ 1,359 $ 711 $ 8 $ - $ 640 Performance guarantees 607 607 - - - ------------------------------------------------------------------------ Total commercial commitments $ 1,966 $ 1,318 $ 8 $ - $ 640
(1) In October 2002, we reached an agreement with one of our vendors, which modified and reduced our satellite bandwidth obligations. Under the terms of this agreement, we reduced our future space segment obligations by $52.2 million. On November 7, 2001, the Board of Directors authorized a stock repurchase program whereby we can repurchase up to $2.0 million of our outstanding stock, representing approximately 3.7% of the total shares outstanding on that date. Since November 2001, we repurchased, in aggregate, a total of 216,100 shares for $1.2 million. The timing, price, quantity and manner of future purchases will be at the discretion of management, depending on market conditions and other factors, subject to compliance with the applicable securities laws. We expect that our cash and working capital requirements for operating activities will increase as we continue to implement our business strategy. Management anticipates that we will experience negative cash flows due to continued operating losses as a result of a decrease in orders due to the continued global economic slowdown in the telecommunications industry. NetSat has had, and we expect it will continue to have, significant working capital requirements, which have, and will, put increased pressure on our capital resources. In October 2002, we reached an agreement with one of our vendors, which modified and reduced our satellite bandwidth obligations by $52.2 million, or 72% with this vendor. We are currently exploring additional alternative strategies to continue to reduce the drain on our resources caused by NetSat's losses. These include strategies to better utilize, or further reduce the cost of underutilized, transponder capacity, as well as strategies to deal with NetSat's funding needs. We cannot assure you that we will successfully achieve our goal of improving NetSat's working capital. Our future capital requirements will depend upon many factors, including the success of our marketing efforts in the ground segment systems, networks, and communications services business, the nature and timing of customer 15 orders, the extent to which we must conduct research and development efforts internally and potential acquisitions of complementary businesses, products or technologies. Based on current plans, we believe that our existing capital resources will be sufficient to meet working capital requirements through September 30, 2003. However, we cannot assure you that there will be no change that would consume available resources significantly before that time. For example, the terrorist attacks on the United States in 2001, as well as future events occurring in response to, or in connection with them, including, without limitation, future terrorist attacks against the United States or its allies or military or trade or travel disruptions impacting our ability to sell and market our products and services in the United States and internationally may impact our results of operations. Additional funds may not be available when needed and, even if available, additional funds may be raised through financing arrangements and/or the issuance of preferred or common stock or convertible securities on terms and prices significantly more favorable than those of the currently outstanding common stock, which could have the effect of diluting or adversely affecting the holdings or rights of our existing stockholders. If adequate funds are unavailable, we may be required to delay, scale back or eliminate some of our operating activities, including, without limitation, the timing and extent of our marketing programs, the extent and timing of hiring additional personnel and our research and development activities. We cannot assure you that additional financing will be available to us on acceptable terms, or at all. RISK FACTORS WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW AND EXPECT OUR LOSSES TO CONTINUE. We have incurred significant net losses since we began operating in August 1994. We incurred net losses of $5.5 million during the three months ended September 30, 2002, $17.3 million during the fiscal year ended June 30, 2002 and $18.7 million during the fiscal year ended June 30, 2001. As of September 30, 2002, our accumulated deficit was approximately $59.7 million. We anticipate that we will continue to incur net losses. Our ability to achieve and maintain profitability will depend upon our ability to generate significant revenues through new customer contracts and the expansion of our existing products and services, including our communications services. We cannot assure you that we will be able to obtain new customer contracts or generate significant additional revenues from those contracts or any new products or services that we introduce. Even if we become profitable, we may not sustain or increase our profits on a quarterly or annual basis in the future. SINCE SALES OF SATELLITE COMMUNICATIONS EQUIPMENT ARE DEPENDENT ON THE GROWTH OF COMMUNICATIONS NETWORKS, AS MARKET DEMAND FOR THESE NETWORKS DECLINES, OUR REVENUE AND PROFITABILITY ARE LIKELY TO DECLINE. We derive, and expect to continue to derive, a significant amount of revenue from the sale of satellite ground segment systems and networks. If the long-term growth in demand for communications networks does not occur as we expect, the demand for our satellite ground segment systems and networks may decline or grow more slowly than we expect. As a result, we may not be able to grow our business, our revenue may decline from current levels and our results of operations may be harmed. The demand for communications networks and the products used in these networks is affected by various factors, many of which are beyond our control. For example, general economic conditions have deteriorated and affected the overall rate of capital spending by our customers. Also, many companies are finding it increasingly difficult to raise capital to finish building their communications networks and, therefore, are placing fewer orders with our customers. The current economic slowdown has resulted in a softening of demand from our customers. We believe that this slowdown is generally the result of slower than forecasted growth in a number of key segments, including communications infrastructure equipment, resulting from a reduction in the capital spending of service providers. We cannot predict the extent to which this softening of demand will continue. Further, increased competition among satellite ground segment systems and networks manufacturers has increased pricing pressures. RISKS ASSOCIATED WITH OPERATING IN INTERNATIONAL MARKETS COULD RESTRICT OUR ABILITY TO EXPAND GLOBALLY AND HARM OUR BUSINESS AND PROSPECTS. We market and sell our products and services in the United States and internationally. We anticipate that international sales will continue to account for a significant portion of our total revenues for the foreseeable future with a significant portion of the international revenue coming from developing countries. We presently conduct our international sales in the following geographic areas: Africa, the Asia-Pacific Region, Australia, Central and South America, Eastern and Central Europe and the Middle East. There are some risks inherent in conducting our business 16 internationally, including: o general political and economic instability in international markets, as well as a result of the terrorist attacks in the United States on September 11, 2001 and the related outbreak of hostilities, could impede our ability to deliver our products and services to customers and harm our results of operations; o changes in regulatory requirements could restrict our ability to deliver services to our international customers; o export restrictions, tariffs, licenses and other trade barriers could prevent us from adequately equipping our network facilities; o differing technology standards across countries may impede our ability to integrate our products and services across international borders; o protectionist laws and business practices favoring local competition may give unequal bargaining leverage to key vendors in countries where competition is scarce, significantly increasing our operating costs; o increased expenses associated with marketing services in foreign countries could effect our ability to compete; o relying on local subcontractors for installation of our products and services could adversely impact the quality of our products and services; o difficulties in staffing and managing foreign operations could effect our ability to compete; o potentially adverse taxes could adversely affect our results of operations; o complex foreign laws and treaties could affect our ability to compete; and o difficulties in collecting accounts receivable could adversely affect our results of operations. These and other risks could impede our ability to manage our international operations effectively, limit the future growth of our business, increase our costs and require significant management attention. IF WE ARE NOT SUCCESSFUL IN SELLING OUR COMMUNICATIONS SERVICES TO OUR CUSTOMERS FOR WHOM WE HAVE HISTORICALLY PROVIDED SATELLITE GROUND SEGMENT SYSTEMS AND NETWORKS, OUR RESULTS OF OPERATIONS WILL BE HARMED. We have historically provided our customers with satellite ground segment systems and networks on a project-by-project basis. We intend on marketing to our customers our communications services. These services not only provide the implementation of the satellite ground segment systems and networks but also provide for the ongoing operation and maintenance of these systems and networks. If we are not successful in selling these communications services to our existing customers, it will harm our results of operations. IF NETSAT DOES NOT EXECUTE ITS BUSINESS STRATEGY OR IF THE MARKET FOR ITS SERVICES FAILS TO DEVELOP OR DEVELOPS MORE SLOWLY THAN IT EXPECTS, OUR RESULTS OF OPERATIONS WILL BE HARMED AND OUR STOCK PRICE MAY BE ADVERSELY AFFECTED. NetSat's revenues from data communications services have decreased during the three months ended September 30, 2002. Its future revenues will be reduced by $31.6 million of customer contracts assigned to a vendor pursuant to a settlement agreement reached in October 2002. NetSat's future revenues and results of operations are dependent on its execution of its business strategy and development of the market for its current and future services. In particular, the current level and manner of utilization of NetSat's transponder space, as well as a decrease in orders currently being experienced, continues to harm our results of operation. Despite the agreement reached with one of the Company's vendors on October 25, 2002, which modified and reduced the Company's satellite 17 bandwidth obligations, we cannot assure you that the transponder space will be efficiently and substantially utilized or that an increase in orders will be realized. NetSat has had, and we expect will continue to have, significant cash requirements, which have and will decrease our cash resources. If NetSat does not efficiently and substantially utilize its transponder space capacity or increase its level of orders, its cash requirements may increase and our results of operations will be harmed. CURRENCY DEVALUATIONS IN THE FOREIGN MARKETS IN WHICH WE OPERATE COULD DECREASE DEMAND FOR OUR PRODUCTS AND SERVICES. We denominate our foreign sales in U.S. dollars. Consequently, decreases in the value of local currencies relative to the U.S. dollar in the markets in which we operate could adversely affect the demand for our products and services by increasing the price of our products and services in the currencies of the countries in which they are sold. The difficult economic conditions in international markets and the resulting foreign currency devaluations have led to a decrease in demand for our products and services, and the decrease in bookings received by us from these foreign regions has adversely affected our results of operations for the three months ended September 30, 2002 and the fiscal year ended June 30, 2002. We expect that these negative trends will continue to adversely impact our results of operations. YOU SHOULD NOT RELY ON OUR QUARTERLY OPERATING RESULTS AS AN INDICATION OF OUR FUTURE RESULTS BECAUSE THEY ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY. Our future revenues and results of operations may significantly fluctuate due to a combination of factors, including: o delays and/or a decrease in the booking of new contracts; o general political and economic conditions in the United States and abroad as a result of the terrorist attacks on September 11, 2001 and the related outbreak of hostilities; o the length of time needed to initiate and complete customer contracts; o the demand for and acceptance of our existing products and services; o the cost of providing our products and services; o the introduction of new and improved products and services by us or our competitors; o market acceptance of new products and services; o the mix of revenue between our standard products, custom-built products and our communications services; o the timing of significant marketing programs; o our ability to hire and retain additional personnel; o the competition in our markets; and o difficult global economic conditions and the currency devaluations in international markets which have, and may continue to, adversely impact our quarterly results. Accordingly, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. It is possible that in future periods our results of operations may be below the expectations of public market analysts and investors, which could cause the trading price of our common stock to 18 decline. OUR MARKETS ARE HIGHLY COMPETITIVE AND WE HAVE MANY ESTABLISHED COMPETITORS, AND WE MAY LOSE MARKET SHARE AS A RESULT. The markets in which we operate are highly competitive and this competition could harm our ability to sell our products and services on prices and terms favorable to us. Our primary competitors in the satellite ground segment and networks market include vertically integrated satellite systems providers like Nippon Electric Corporation, systems integrators like IDB Systems, a division of MCI WorldCom Inc. and equipment manufacturers who also provide integrated systems like Andrew Corporation and Vertex-RSI. In the communications services and Internet access services markets, we compete with other satellite communication companies who provide similar services, like Loral CyberStar, Inc. and PanAmSat Corporation and Verestar, as well as other ISPs. In addition, we may compete with other communications service providers, MCI WorldCom Inc., and satellite owners like New Skies Satellites N.V. and Intelsat. We anticipate that our competitors may develop or acquire services that provide functionality that is similar to that provided by our services and that those services may be offered at significantly lower prices or bundled with other services. These competitors may have the financial resources to withstand substantial price competition and may be in a better position to endure difficult economic conditions in international markets, and may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Moreover, many of our competitors have more extensive customer bases, broader customer relationships and broader industry alliances than we do that they could use to their advantage in competitive situations. The markets in which we operate have limited barriers to entry and we expect that we will face additional competition from existing competitors and new market entrants in the future. Moreover, our current and potential competitors have established or may establish strategic relationships among themselves or with third parties to increase the ability of their products and services to address the needs of our current and prospective customers. Existing and new competitors with their potential strategic relationships may rapidly acquire significant market share, which would harm our business and financial condition. IF THE SATELLITE COMMUNICATIONS INDUSTRY FAILS TO CONTINUE TO DEVELOP OR NEW TECHNOLOGY MAKES IT OBSOLETE OUR BUSINESS AND FINANCIAL CONDITION WILL BE HARMED. Our business is dependent on the continued success and development of satellite communications technology, which competes with terrestrial communications transport technologies like terrestrial microwave, coaxial cable and fiber optic communications systems. Fiber optic communications systems have penetrated areas in which we have traditionally provided services. If the satellite communications industry fails to continue to develop, or any technological development significantly improves the cost or efficiency of competing terrestrial systems relative to satellite systems, then our business and financial condition would be materially harmed. WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDS TO MEET OUR CAPITAL REQUIREMENTS IN THE FUTURE. We have incurred negative cash flows from operations in each year since our inception. We believe that our available cash resources will be sufficient to meet our working capital and capital expenditure requirements through September 30, 2003. However, our future liquidity and capital requirements are difficult to predict, as they depend on numerous factors, including the success of our existing product and service offerings, as well as competing technological and market developments. In particular, NetSat has had significant cost requirements, which are expected to continue in the future. We may need to raise additional funds in order to meet additional working capital requirements and to support additional capital expenditures. Should this need arise, additional funds may not be available when needed and, even if additional funds are available, we may not find the terms favorable or commercially reasonable. If adequate funds are unavailable, we may be required to delay, reduce or eliminate some of our operating activities, including marketing programs, hiring of additional personnel and research and development programs. If we raise additional funds by issuing equity securities, our existing stockholders will own a smaller percentage of our capital stock and new investors may pay less on average for their securities than, and could have rights superior to, existing stockholders. 19 A LIMITED NUMBER OF CUSTOMER CONTRACTS ACCOUNT FOR A HIGH PERCENTAGE OF OUR REVENUES, AND THE INABILITY TO REPLACE A KEY CUSTOMER CONTRACT WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, BUSINESS AND FINANCIAL CONDITION. We rely on a small number of customer contracts for a large portion of our revenues and expect that a significant portion of our revenues will continue to be derived from a limited number of customer contracts. We anticipate that our operating results in any given period will continue to depend to a significant extent upon revenues from large contracts with a small number of customers. As a result of this concentration of our customer base, an inability to replace one or more of these large customer contracts would materially adversely affect our results of operations and financial condition. WE ANTICIPATE SIGNIFICANT REVENUES FROM FIVE CONTRACTS AND A MODIFICATION OR TERMINATION OF ALL OR ANY OF THESE CONTRACTS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. We have agreements with five customers to provide equipment and services, which we expect to generate a substantial potion of our revenues. If any of these customers are unable to implement their business plans, the market for their services declines, or all or any of the customers modifies or terminates its agreement with us, our results of operations and financial condition would be harmed. WE ARE PAID A FIXED PRICE IN MOST OF OUR CUSTOMER CONTRACTS, AND ANY VARIATION BETWEEN THE FIXED PRICE AND THE ACTUAL COST OF PERFORMANCE MAY HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. A majority of our customer contracts are on a fixed-price basis. The profitability of these contracts is subject to inherent uncertainties in the cost of performance, including costs related to unforeseen obstacles and unexpected problems encountered in engineering, design and testing of our products and services. Because a significant portion of our revenues is dependent upon a small number of customers, if the fixed price is significantly less than the actual cost of performance on any one contract, our results of operations and financial condition could be adversely affected. IF OUR PRODUCTS AND SERVICES ARE NOT ACCEPTED IN DEVELOPING COUNTRIES WITH EMERGING MARKETS, OUR REVENUES WILL BE IMPAIRED. We anticipate that a substantial portion of the growth in the demand for our products and services will come from customers in developing countries due to a lack of basic communications infrastructure in these countries. However, we cannot guarantee an increase in the demand for our products and services in developing countries or that customers in these countries will accept our products and services at all. Our ability to penetrate emerging markets in developing countries is dependent upon various factors including: o the speed at which communications infrastructure, including terrestrial microwave, coaxial cable and fiber optic communications systems, which compete with satellite-based services, is built; o the effectiveness of our local resellers and sales representatives in marketing and selling our products and services; and o the acceptance of our products and services by customers. If our products and services are not accepted, or the market potential we anticipate does not develop, our revenues will be impaired. WE DEPEND UPON CERTAIN KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN THESE EMPLOYEES. Our future performance depends on the continued service of our key technical, managerial and marketing personnel; in particular, David Hershberg, Kenneth Miller, Patrick Flemming, Stephen Yablonski and Donald Woodring. The employment of any of our key personnel could cease at any time. 20 UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY DAMAGE OUR BUSINESS. We regard our trademarks, trade secrets and other intellectual property as beneficial to our success. Unauthorized use of our intellectual property by third parties may damage our business. We rely on trademark, trade secret and patent protection and contracts including confidentiality and license agreements with our employees, customers, strategic collaborators, consultants and others to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without our authorization. We currently have been granted two patents in the United States, one for remote access to the Internet using satellites, and the other for satellite communication with automatic frequency control, and have two patent applications pending in the United States and one Patent Cooperation Treaty ("PCT") patent application pending for implementing fax and data communications using internet protocols. We also intend to seek further patents on our technology, if appropriate. We cannot assure you that patents will be issued for any of our pending or future patents or that any claims allowed from such applications will be of sufficient scope, or be issued in all countries where our products and services can be sold, to provide meaningful protection or any commercial advantage to us. Also, our competitors may be able to design around our patents. The laws of some foreign countries in which our products and services are or may be developed, manufactured or sold may not protect our products and services or intellectual property rights to the same extent as do the laws of the United States and thus make the possibility of piracy of our technology and products and services more likely. We have filed applications for trademark registration of Globecomm Systems Inc., Globecomm, and GSI in the United States and various other countries, and have been granted registrations for some of these terms in Europe and Russia. We have received trademark registrations for NetSat in the United States, the European Community, Russia, and Brazil. We have various other trademarks registered or pending for registration in the United States and in other countries and may seek registration of other trademarks and service marks in the future. We cannot assure you that registrations will be granted from any of our pending or future applications, or that any registrations that are granted will prevent others from using similar trademarks in connection with related goods and services. DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE TIME CONSUMING AND EXPENSIVE, AND IF WE ARE NOT SUCCESSFUL, COULD CAUSE SUBSTANTIAL EXPENSES AND DISRUPT OUR BUSINESS. We cannot be sure that our products, services, technologies, and advertising we employ in our business do not or will not infringe valid patents, trademarks, copyrights or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. Prosecuting infringers and defending against intellectual property infringement claims could be time consuming and expensive, and regardless of whether we are or are not successful, could cause substantial expenses and disrupt our business. We may incur substantial expenses in defending against these third party claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability and/or may materially disrupt the conduct of, or necessitate the cessation of, our business. WE MAY NOT BE ABLE TO KEEP PACE WITH TECHNOLOGICAL CHANGES, WHICH WOULD MAKE OUR PRODUCTS AND SERVICES BECOME NON-COMPETITIVE AND OBSOLETE. The telecommunications industry, including satellite-based communications services, is characterized by rapidly changing technologies, frequent new product and service introductions and evolving industry standards. If we are unable, for technological or other reasons, to develop and introduce new products and services or enhancements to existing products and services in a timely manner or in response to changing market conditions or customer requirements, our products and services would become non-competitive and obsolete, which would harm our business, results of operations and financial condition. WE DEPEND ON OUR SUPPLIERS, SOME OF WHICH ARE OUR SOLE OR A LIMITED SOURCE OF SUPPLY, AND THE LOSS OF THESE SUPPLIERS WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. We currently obtain most of our critical components and services from single or limited sources and generally do not maintain significant inventories or have long-term or exclusive supply contracts with our source vendors. We have from time to time experienced delays in receiving products from vendors due to lack of 21 availability, quality control or manufacturing problems, shortages of materials or components or product design difficulties. We may experience delays in the future and replacement services or products may not be available when needed, or at all, or at commercially reasonable rates or prices. If we were to change some of our vendors, we would have to perform additional testing procedures on the service or product supplied by the new vendors, which would prevent or delay the availability of our products and services. Furthermore, our costs could increase significantly if we need to change vendors. If we do not get timely deliveries of quality products and services, or if there are significant increases in the prices of these products or services, it could have a material adverse effect on our business, results of operations and financial condition. WE RELY ON NETSAT, OUR WHOLLY-OWNED SUBSIDIARY, FOR SPACE SEGMENT ON SATELLITES. IF ITS BUSINESS FAILS OR WE ARE OTHERWISE UNABLE TO CONTINUE TO RELY ON NETSAT FOR THIS SUPPLY, OUR BUSINESS MAY BE HARMED. We currently depend on NetSat for a portion of our transponder space on satellites. We do not have a long-term agreement in place with NetSat, as most of our needs are filled on a purchase order basis. If NetSat is unable to develop its business or if we are unable to continue to rely on their supply for space segment, then we will have to find alternative suppliers. If we are unable to find another supplier of transponder space or if we are unable to find one on terms favorable to us, then our business may be harmed. OUR NETWORK MAY EXPERIENCE SECURITY BREACHES, WHICH COULD DISRUPT OUR SERVICES. Our network infrastructure may be vulnerable to computer viruses, break-ins, denial of service attacks and similar disruptive problems caused by our customers or other Internet users. Computer viruses, break-ins, denial of service attacks or other problems caused by third parties could lead to interruptions, delays or cessation in service to our customers. There currently is no existing technology that provides absolute security, and the cost of minimizing these security breaches could be prohibitively expensive. We may face liability to customers for such security breaches. Furthermore, these incidents could deter potential customers and adversely affect existing customer relationships. SATELLITES UPON WHICH WE RELY MAY BE DAMAGED OR LOST, OR MALFUNCTION. The damage, loss or malfunction of any of the satellites used by us, or a temporary or permanent malfunction of any of the satellites upon which we rely, would likely result in the interruption of our satellite-based communications services. This interruption would have a material adverse effect on our business, results of operations and financial condition. OUR STOCK PRICE IS HIGHLY VOLATILE. Our stock price has fluctuated substantially since our initial public offering, which was completed in August 1997. The market price for our common stock, like that of the securities of many telecommunications and high technology industry companies, is likely to remain volatile based on many factors, including the following: o quarterly variations in operating results; o announcements of new technology, products or services by us or any of our competitors; o acceptance of satellite-based communication services and Internet access services in developing countries with emerging markets; o changes in financial estimates or recommendations by security analysts; or o general market conditions, including, but not limited to, results of the terrorist attacks on September 11, 2001. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation of this type is often extremely expensive and diverts management's attention and resources, 22 which could significantly harm our business. A THIRD PARTY COULD BE PREVENTED FROM ACQUIRING YOUR SHARES OF STOCK AT A PREMIUM TO THE MARKET PRICE BECAUSE OF OUR ANTI-TAKEOVER PROVISIONS. Various provisions with respect to votes in the election of directors, special meetings of stockholders, and advance notice requirements for stockholder proposals and director nominations of our amended and restated certificate of incorporation, bylaws and Section 203 of the General Corporation Laws of the State of Delaware could make it more difficult for a third party to acquire us, even if doing so might be beneficial to you and our other stockholders. In addition, we have a poison pill in place that could make an acquisition of us by a third party more difficult. RISKS RELATED TO GOVERNMENT APPROVALS WE ARE SUBJECT TO MANY GOVERNMENT REGULATIONS, AND FAILURE TO COMPLY WITH THEM WILL HARM OUR BUSINESS. OPERATIONS AND USE OF SATELLITES We are subject to various federal laws and regulations, which may have negative effects on our business. We operate Federal Communication Commission, or FCC, licensed earth stations in Hauppauge, New York, subject to the Communications Act of 1934, as amended, or the FCC Act, and the rules and regulations of FCC. Pursuant to the FCC Act and rules, we have obtained and are required to maintain radio transmission licenses from the FCC for both domestic and foreign operations of our earth stations. These licenses should be renewed by the FCC in the normal course as long as we remain in compliance with FCC rules and regulations. However, we cannot guarantee that the FCC will grant additional licenses when our existing licenses expire, nor are we assured that the FCC will not adopt new or modified technical requirements that will require us to incur expenditures to modify or upgrade our equipment as a condition of retaining our licenses. We are also required to comply with FCC regulations regarding the exposure of humans to radio frequency radiation from our earth stations. These regulations, as well as local land use regulations, restrict our freedom to choose where to locate our earth stations. FOREIGN OWNERSHIP We may, in the future, be required to seek FCC approval for foreign ownership if we operate as a common carrier and ownership of our stock exceeds the specified criteria. Failure to comply with these policies may result in an order to divest the offending foreign ownership, fines, denial of license renewal, and/or license revocation proceedings against the licensee by the FCC. FOREIGN REGULATIONS Regulatory schemes in countries in which we may seek to provide our satellite-delivered data communications services may impose impediments on our operations. Some countries in which we intend to operate have telecommunications laws and regulations that do not currently contemplate technical advances in telecommunications technology like Internet/intranet transmission by satellite. We cannot assure you that the present regulatory environment in any of those countries will not be changed in a manner, which may have a material adverse impact on our business. Either we or our local partners typically must obtain authorization for each country in which we provide our satellite-delivered data communications services. The regulatory schemes in each country are different, and thus there may be instances of noncompliance of which we are not aware. We cannot assure you that our 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 we wish to offer our products and services or that restrictions applicable thereto will not be unduly burdensome. REGULATION OF THE INTERNET Due to the increasing popularity and use of the Internet it is possible that a number of laws and regulations may be adopted at the local, national or international levels with respect to the Internet, covering issues including user privacy and expression, pricing of products and services, taxation, advertising, intellectual property rights, information 23 security or the convergence of traditional communication services with Internet communications. It is anticipated that a substantial portion of our Internet operations will be carried out in countries that may impose greater regulation of the content of information coming into the country than that which is generally applicable in the United States; for example, privacy regulations in 35 countries in Europe and content restrictions in countries including the Republic of China. To the extent that we provide content as a part of our Internet services, it will be subject to laws regulating content. Moreover, the adoption of laws or regulations may decrease the growth of the Internet, which could in turn decrease the demand for our Internet services or increase our cost of doing business or in some other manner have a material adverse effect on our business, operating results and financial condition. In addition, the applicability to the Internet of existing laws governing issues including property ownership, copyrights and other intellectual property issues, taxation, libel and personal privacy is uncertain. The vast majority of these 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 these laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace which could reduce demand for our products and services, could increase our 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 our business, financial condition and results of operations. TELECOMMUNICATIONS TAXATION, SUPPORT REQUIREMENTS, AND ACCESS CHARGES All telecommunications carriers providing domestic services in the United States are required to contribute a portion of their gross revenues for the support of universal telecommunications services; and some telecommunications services are subject to special taxation and to contribution requirements to support services to special groups, like persons with disabilities. Our services may be subject to new or increased taxes and contribution requirements that could affect our profitability, particularly if we are not able to pass them through to customers for either competitive or regulatory reasons. Internet services are currently exempt from charges that long distance telephone companies pay for access to the networks of local telephone companies in the United States. Efforts have been made from time to time, and may be made again in the future, to eliminate this exemption. If these access charges are imposed on telephone lines used to reach Internet service providers and/or if flat rate telephone services for Internet access are eliminated or curtailed, the cost to customers who access our satellite facilities using telephone company-provided facilities could increase to an extent that could discourage the demand for our services. Likewise, the demand for our services in other countries may be affected by the availability and cost of local telephone or other telecommunications facilities to reach our facilities. EXPORT OF TELECOMMUNICATIONS EQUIPMENT The sale of our ground segment systems, networks, and communications services 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 our competitive position. In addition, in order to ship our products into other countries, the products must satisfy the technical requirements of that particular country. If we were unable to comply with such requirements with respect to a significant quantity of our products, our sales in those countries could be restricted, which could have a material adverse effect on our business, results of operations and financial condition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are 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, we assess these risks and have established policies and procedures to manage our exposure to fluctuations in foreign currency values. Our objective to managing our 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, we utilize from time to time foreign currency forward contracts to hedge our exposure on firm commitments denominated in foreign currency. During the three months ended September 30, 2002 and the fiscal year ended June 30, 2002, we had no such foreign currency forward contracts. 24 Our results of operations and cash flows are subject to fluctuations due to changes in interest rates primarily from our investment of available cash balances in money market funds with portfolios of investment grade corporate and government securities, and secondly, our fixed long-term capital lease agreement. Under our current positions, we do not use interest rate derivative instruments to manage exposure to interest rate changes. ITEM 4. CONTROLS AND PROCEDURES QUARTERLY EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II -- OTHER INFORMATION Item 1. Legal Proceedings On August 6, 2002, we issued a notice of termination to a major customer in the Middle East for failure to pay for services rendered, and included a demand for full payment of the past due balance and specified liquidated damages for early termination. The customer responded by issuing its own notice of termination claiming certain breaches of the contract by NetSat, which claims we have denied. The contract requires settlement of disputes by arbitration to be held in New York. We intend to fully pursue all available remedies to recover monies owed for services rendered and for liquidated damages, including arbitration if required and have retained outside counsel to assist in this matter. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 25 Index to Exhibits: Exhibit No. 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 3.2 Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 4.2 See Exhibits 3.1 and 3.2 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 10.14 of the 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 10-K for the year ended June 30, 1998). 26 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 Exhibit B and the Summary of Rights to Purchase Series A Preferred Shares as Exhibit C (incorporated by reference to Exhibit 4 of Company's Current Report on Form 8-K dated December 3, 1998). 10.16 Common Stock Purchase Agreement dated August 11, 1999 between NetSat Express, Inc. and Globix Corporation (incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the year ended June 30, 1999). 10.17 Series A Preferred Stock Purchase Agreement dated August 11, 1999 between NetSat Express, Inc. and George Soros (incorporated by reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the year ended June 30, 1999). 10.18 Common Stock Purchase Agreement dated October 28, 1999 between NetSat Express, Inc., Globecomm Systems Inc. and Reuters Holdings Switzerland SA (incorporated by reference to Exhibit 10.18 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1999). 10.19 Negotiable Promissory Note, dated April 1, 2001, between the Registrant and Donald Woodring (incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the year ended June 30, 2001). 10.20 Employment Agreement, dated as of October 9, 2001, by and between Stephen C. Yablonski and the Company (incorporated by reference to Exhibit 10.20 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.21 Employment Agreement, dated as of October 9, 2001, by and between Andrew C. Melfi and the Company (incorporated by reference to Exhibit 10.21 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.22 Employment Agreement, dated as of October 9, 2001, by and between Donald G. Woodring and the Company (incorporated by reference to Exhibit 10.22 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.23 Employment Agreement, dated as of October 9, 2001, by and between Paul J. Johnson and the Company (incorporated by reference to Exhibit 10.23 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.24 Employment Agreement, dated as of October 9, 2001, by and between Paul Eterno and the Company (incorporated by reference to Exhibit 10.24 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.25 Promissory Note Secured By Stock Pledge Agreement, dated September 4, 2001, by and between David E. Hershberg and the Company (incorporated by reference to Exhibit 10.25 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.26 Promissory Note Secured By Stock Pledge Agreement, dated September 4, 2001, by and between Kenneth A. Miller and the Company (incorporated by reference to Exhibit 10.26 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 27 10.27 Employment Agreement, dated as of January 25, 2002, by and between G. Patrick Flemming and the Company (incorporated by reference to Exhibit 10.27 of the Company's Quarterly Report on Form 10-Q, for the quarter ended December 31, 2001). 10.28** Settlement Agreement, dated as of October 1, 2002, by and between Loral Skynet(R), a division of Loral SpaceCom Corporation and the Company (filed herewith). 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). * Confidential treatment granted for portions of this agreement. ** Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed with the Securities and Exchange Commission. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission on August 27, 2002 with respect to a notification of termination of services from one of its major customers in the Middle East. The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission on October 29, 2002 with respect to an agreement with one of its vendors to reduce its future satellite bandwidth obligations. 28 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: November 14, 2002 /s/ DAVID E. HERSHBERG ---------------------- David E. Hershberg Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: November 14, 2002 /s/ ANDREW C. MELFI ------------------- Andrew C. Melfi Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 29 CERTIFICATION FOR FORM 10-Q --------------------------- FOR PERIOD ENDED SEPTEMBER 30, 2002 ----------------------------------- I, David E. Hershberg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Globecomm Systems Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ DAVID E. HERSHBERG ---------------------- David E. Hershberg Chairman of the Board and Chief Executive Officer 30 CERTIFICATION FOR FORM 10-Q --------------------------- FOR PERIOD ENDED SEPTEMBER 30, 2002 ----------------------------------- I, Andrew C. Melfi, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Globecomm Systems Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ ANDREW C. MELFI ------------------- Andrew C. Melfi Vice President, Chief Financial Officer and Treasurer 31 Index to Exhibits: Exhibit No. 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 3.2 Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999). 4.2 See Exhibits 3.1 and 3.2 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 10.14 of the 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 10-K 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). 32 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 Company's Current Report on Form 8-K dated December 3, 1998). 10.16 Common Stock Purchase Agreement dated August 11, 1999 between NetSat Express, Inc. and Globix Corporation (incorporated by reference to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the year ended June 30, 1999). 10.17 Series A Preferred Stock Purchase Agreement dated August 11, 1999 between NetSat Express, Inc. and George Soros (incorporated by reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the year ended June 30, 1999). 10.18 Common Stock Purchase Agreement dated October 28, 1999 between NetSat Express, Inc., Globecomm Systems Inc. and Reuters Holdings Switzerland SA (incorporated by reference to Exhibit 10.18 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 1999). 10.19 Negotiable Promissory Note, dated April 1, 2001, between the Registrant and Donald Woodring (incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the year ended June 30, 2001). 10.20 Employment Agreement, dated as of October 9, 2001, by and between Stephen C. Yablonski and the Company (incorporated by reference to Exhibit 10.20 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.21 Employment Agreement, dated as of October 9, 2001, by and between Andrew C. Melfi and the Company (incorporated by reference to Exhibit 10.21 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.22 Employment Agreement, dated as of October 9, 2001, by and between Donald G. Woodring and the Company (incorporated by reference to Exhibit 10.22 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.23 Employment Agreement, dated as of October 9, 2001, by and between Paul J. Johnson and the Company (incorporated by reference to Exhibit 10.23 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.24 Employment Agreement, dated as of October 9, 2001, by and between Paul Eterno and the Company (incorporated by reference to Exhibit 10.24 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.25 Promissory Note Secured By Stock Pledge Agreement, dated September 4, 2001, by and between David E. Hershberg and the Company (incorporated by reference to Exhibit 10.25 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.26 Promissory Note Secured By Stock Pledge Agreement, dated September 4, 2001, by and between Kenneth A. Miller and the Company (incorporated by reference to Exhibit 10.26 of the Company's Quarterly Report on Form 10-Q, for the quarter ended September 30, 2001). 10.27 Employment Agreement, dated as of January 25, 2002, by and between G. Patrick Flemming and the Company (incorporated by reference to Exhibit 10.27 of the Company's Quarterly Report on Form 10-Q, for the quarter ended December 31, 2001). 10.28** Settlement Agreement, dated as of October 1, 2002, by and between Loral Skynet(R), a division of Loral SpaceCom Corporation and the Company (filed herewith). 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). * Confidential treatment granted for portions of this agreement. ** Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain provisions. Omitted material for which confidential treatment has been requested has been filed with the Securities and Exchange Commission. 33 EX-10.28 3 file002.txt SETTLEMENT AGREEMENT *** Certain confidential portions of this Exhibit were omitted by means of blackout of the text (the "Mark"). This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the Mark, pursuant to the Company's application requesting confidential treatment under Rule 24b-2 under the Securties Exchange Act of 1934, as amended. SETTLEMENT AGREEMENT This Settlement Agreement is made on 1-Oct-2002 by and between Globecomm Systems Inc., a corporation organized and existing under the laws of the State of Delaware and having its primary place of business at 45 Oser Avenue, Hauppauge, New York 11788 (hereinafter "GSI") and Loral Skynet(R), a division of Loral SpaceCom Corporation, a corporation organized and existing under the laws of the State of Delaware, and having a place of business at 500 Hills Drive, Bedminster, New Jersey 07921 (hereafter "SKYNET"); each of them referred to individually as a "Party" and collectively as the "Parties". WHEREAS, on 28-June-2002 GSI gave SKYNET a guaranty securing certain specified payment obligations undertaken by GSI's wholly-owned subsidiary NetSat Express, Inc. (hereinafter "NetSat") in an agreement between SKYNET and NetSat (the "Skynet-NetSat Agreement") (said guaranty hereinafter referred to as the "Corporate Guaranty"), attached hereto for reference as Attachment 1; and WHEREAS, NetSat Express, Inc. has defaulted on its payment obligations in the agreement underlying the Corporate Guaranty; and WHEREAS, SKYNET has asserted its right to file claims against GSI under the Corporate Guaranty for payments based on an acceleration clause contained in the underlying agreement and GSI has rejected the applicability of the acceleration clause to the Corporate Guaranty and asserted its rights to pursue its legal remedies; and WHEREAS, SKYNET and NetSat have agreed to terminate the agreement underlying the Corporate Guaranty, and that it is appropriate to terminate the Corporate Guaranty, in consideration of this Settlement Agreement and in consideration of NetSat assigning certain agreements (hereinafter referred to as the "Customer Contracts") to SKYNET as specified in the termination agreement between SKYNET and NetSat; and WHEREAS, SKYNET requires a guaranty of partial performance of one of the contracts assigned by NETSAT under the termination agreement between SKYNET and NETSAT and GSI has agreed to provide such a guaranty; and WHEREAS, SKYNET and GSI desire to settle their dispute regarding the Corporate Guaranty. NOW THEREFORE, in consideration of the above and the mutual covenants and agreements contained herein, GSI and SKYNET hereby agree as follows: 1. GSI shall pay SKYNET, an amount equal to [***] as full and final settlement of any amounts which may be owed now or hereafter by GSI to SKYNET under the Corporate Guaranty. Said settlement shall be paid in the following manner: [***] to be paid immediately upon execution of this Agreement; and [***] payable within ten (10) days after the execution of this Agreement; and [***] payable upon receipt by NETSAT of - ------------------------------------------------------------------------------- Settlement Agreement Page 1 of 4 25-Oct-02 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission payment from [***] for October-2002 services under the [***] Customer Contract assigned to SKYNET by NETSAT. Payments to be made pursuant to this Section 1 shall be made in immediately available U.S. dollars by electronic funds wire transfer as follows: Wire Information: [***] Bank Name: [***] Bank Account: [***] Loral Account: [***] To ensure accuracy, GSI should also include the Account number [***]. 2. Concurrently with the execution hereof, GSI and SKYNET shall enter into a separate agreement for satellite space segment services to be provided by SKYNET to GSI under terms as contained in Attachment 2 hereto, and an Amendment to the agreement between NetSat and SKYNET dated 29 November 2001, as amended, assigning to GSI said agreement. 3. [***] The indemnification provided in this paragraph 3 is subject to and expressly conditioned on the following: i. SKYNET shall notify GSI in writing of the nature of the claim as soon as practicable and, in any event, not more than ten days after SKYNET receives notice of the assertion of the claim; and ii. GSI may, in its sole and absolute discretion, elect to take over the defense of any claim and SKYNET shall provide GSI with all information requested concerning the claim or the defense of the claim and shall otherwise cooperate with GSI in GSI's defense of the claim; and - ------------------------------------------------------------------------------- Settlement Agreement Page 2 of 4 25-Oct-02 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission iii. In the event GSI does not elect to take over the defense of any claim, SKYNET shall defend the claim in the same manner that it would defend a similar, un-indemnified claim against SKYNET, and shall keep GSI informed of the status of the claim; and iv. SKYNET shall not consent to the entry of any judgment, enter into any settlement or pay any claim without first obtaining GSI's express written consent for such entry of judgment, settlement or payments. The indemnification provided in this paragraph 3 shall not be deemed a waiver or limitation of any right GSI may have in law or at equity to recover any damages or amounts, including damages or amounts resulting from this indemnification, from SKYNET due to SKYNET's breach of this Agreement or any other agreement between GSI and SKYNET. 4. [***] 5. All disputes arising in connection with the present Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the United Nations Commission of International Trade Law (UNCITRAL Rules) by one or more arbitrators appointed in accordance with said Rules; where said rules require the appointment of an arbitrator by an independent organization, the Parties agree that such arbitrator shall be appointed by the American Arbitration Association. The arbitration shall take place in New York City, New York, USA, and shall be conducted in English. The arbitrator shall apply the substantive (not the conflicts) law of New York. The award shall be in United States dollars. Judgment upon the award rendered in the arbitration may be entered in any court having jurisdiction thereof. Each Party shall bear its own expenses (including attorney's fees) and an equal share of the expenses of the arbitrator and the fees of the arbitration. Nothing in this Agreement shall be construed to preclude any party from seeking injunctive relief in order to protect its rights pending mediation or arbitration. A request by a party to a court for such injunctive relief shall not be deemed a waiver of the obligation to arbitrate. 6. General. a. A waiver by either party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach thereof. b. This Agreement shall be governed by and construed under the laws of the State of New York, USA, without giving effect to its conflict of law principles. - ------------------------------------------------------------------------------- Settlement Agreement Page 3 of 4 25-Oct-02 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission c. This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. d. The Parties acknowledge and agree that notwithstanding anything to the contrary contained in this Agreement, neither of them shall transfer or assign its rights and/or obligations under this Agreement to any third parties without the express written consent of the other, which consent shall not be unreasonably withheld, except for consent to the transfer or assignment of less than the whole of the rights and/or obligations under this Agreement, in which case it shall be reasonable for either Party to withhold its consent. Notwithstanding the previous sentence, SKYNET expressly shall have the right to assign this Agreement including its rights, duties and obligations hereunder, to its parent corporation to a bank (but only SKYNET's right to payments hereunder may be assigned to a bank without GSI's consent), or in connection with the merger or acquisition of its satellite business. e. To facilitate execution, this Agreement may be executed in two identical counterparts; and the signature of each party shall appear on each counterpart. Either counterpart shall constitute an original, binding version of this Agreement. Facsimile signatures shall have the same legal effect as original signatures and this Agreement shall be binding upon the receipt of facsimile signature of each of the Parties. Notwithstanding the foregoing, each party shall deliver to the other a signed copy bearing the former's original signature within a reasonable period of time following execution of this Agreement. 7. This Settlement Agreement, including the Attachment 2 hereto, constitutes the entire agreement between GSI and SKYNET relative to payments due now or hereafter under the Corporate Guaranty, and supercedes any other oral or written agreements, commitments or understandings that relate to the Corporate Guaranty. The terms of this Settlement Agreement are confidential and neither Party shall disclose the existence or terms of this Settlement Agreement without the prior written consent of the other, except to the limited extent that any such disclosure is required by applicable law, rule, or regulation, including any disclosure requirements imposed on publicly traded companies by the Securities and Exchange Commission. IN WITNESS WHEREOF, the Parties hereto have entered into this Settlement Agreement as of the day and year first above written. GLOBECOMM SYSTEMS INC. LORAL SKYNET, A DIVISION OF LORAL SPACECOM CORPORATION SIGNATURE: /s/ David E. Hershberg SIGNATURE: /s/ Eric Zahler ---------------------------- -------------------------- PRINTED NAME: David E. Hershberg PRINTED NAME: Eric Zahler ------------------------- ----------------------- TITLE: CEO TITLE: President -------------------------------- ------------------------------ DATE: 25-Oct-2002 DATE: 10/25/02 --------------------------------- ------------------------------------ - ------------------------------------------------------------------------------- Settlement Agreement Page 4 of 4 25-Oct-02 ATTACHMENT 1 - CORPORATE GUARANTY CORPORATE GUARANTY ------------------ THIS GUARANTY is given by Globecomm Systems Inc., a Delaware corporation with an address at 45 Oser Avenue, Hauppauge, New York 11788 (hereinafter referred to as the "Guarantor") to and in favor of Loral Skynet, a Division of Loral SpaceCom Corporation, (hereinafter referred to as the "Secured Party"), as of the 28th day of June 2002. WHEREAS, the Secured Party and NetSat Express, Inc., a Delaware Corporation having its principal place of business at 45 Oser Avenue, Hauppauge, New York 11788 ("NetSat") are parties to that certain Agreement Concerning Skynet Space Segment Service dated 7-March-2000, as amended (the "Agreement"); WHEREAS, NetSat is a wholly owned subsidiary of the Guarantor, and Guarantor has agreed to ensure the performance by NetSat of certain specified obligations under the Agreement; WHEREAS, under the Agreement, NetSat undertakes various obligations and responsibilities in favor of the Secured Party; and WHEREAS, Secured Party has agreed to enter into an amendment of the Agreement only upon execution and delivery of this Guaranty by the Guarantor; NOW, THEREFORE, in order to induce Secured Party to enter into the amendment of the Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. GUARANTY. Guarantor hereby unconditionally, absolutely and irrevocably guaranties payment by NetSat of its obligations under the Agreement for West to East Capacity transponder 4(K1) and East to West Capacity transponder 2(K7) beginning from the date of this Guaranty and continuing through the end of the term of the Agreement (the "Obligations"). This guaranty is limited to the payments due under the Agreement for the transponders specifically listed herein and shall not be extended to any other obligations or payments due by NetSat under the Agreement. The Obligations guaranteed hereunder are as provided in Attachment 1 hereto. 2. MODIFICATION OF OBLIGATIONS; EFFECT OF OTHER GUARANTY. The Guarantor consents that the Obligations may from time to time, in whole or in part, be renewed, extended, modified, accelerated, compromised, settled or released by Secured Party; that any security or other guaranty in addition to this Guaranty may be taken by Secured Party from the Guarantor or any other party in order to secure the payment or performance of the Obligations; and that any security or other guaranty taken by Secured Party from the Guarantor or any other party to secure the payment or performance of the Obligations or any right of setoff, may from time to time, in whole or in part, be exchanged, sold, waived, released, surrendered or otherwise dealt with by Secured Party; all without any notice to, further assent by, or loss of any right against, the Guarantor and without in any way - -------------------------------------------------------------------------------- Globecomm Systems Corporate Guaranty in favor of Loral Skynet Page 1 of 5 affecting or releasing the liability of the Guarantor hereunder, except that, in the event any change results in an increase in the monthly recurring payments guaranteed hereunder or the total payments due guaranteed hereunder, such increase shall not be effective unless agreed to in writing by Guarantor. Secured Party shall not be liable for any failure to collect or realize upon or otherwise enforce its rights to payment or other discharge of the Obligations or any security or other guaranty taken therefore, or any part thereof, or for any delay in so doing, nor shall Secured Party be under any obligation to take any action whatsoever with regard thereto. 4. NATURE OF LIABILITY. This Guaranty shall be a general, continuing, absolute, irrevocable and unconditional guaranty of performance and payment to the extent set forth herein, and not of collection, and nothing except the final payment, performance and/or discharge in full of the obligations guaranteed hereunder in accordance with the terms of the Agreement shall release Guarantor from its liability under this Guaranty. Secured Party may, in its sole and absolute discretion, proceed against Guarantor to enforce its rights hereunder without being obligated to first or concurrently proceed against any other party or under the Agreement. 5. REINSTATEMENT OF GUARANTY. This Guaranty shall continue to be effective or be reinstated, as the case may be, with respect to Guarantor, if at any time payment or performance, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by Secured Party upon the insolvency or bankruptcy of NetSat or any other party liable for any of the Obligations, or upon or as a result of the appointment of a custodian, receiver, intervener or conservator for NetSat, such other party, or any substantial part of the property of NetSat or such other party, or otherwise, all as though payment or performance had not been made. 6. NO WAIVER BY SECURED PARTY OF RIGHTS AND POWERS. No failure on the part of Secured Party to exercise, and no delay in exercising, any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Secured Party of any right or power hereunder preclude any other further exercise thereof or of any other right or power. 7. REPRESENTATIONS OF GUARANTOR. Acknowledging Secured Party's reliance on all of the Guarantor's covenants, representations and warranties contained in this Guaranty, the Guarantor represents and warrants to Secured Party, that: (a) Guarantor has full right, power and authority to execute, deliver and perform this Guaranty, including all necessary approvals of its Board of Directors; (b) this Guaranty constitutes the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms; (c) there is no material default under, or provision to which Guarantor is subject that materially adversely affects its financial condition contained in, any indenture, instrument or agreement to which Guarantor is a party or is otherwise bound, or under or contained in any order, regulation, ruling or requirement of a court or public body or authority by which Guarantor is bound; and - -------------------------------------------------------------------------------- Globecomm Systems Corporate Guaranty in favor of Loral Skynet Page 2 of 5 (d) the execution, delivery and performance of this Guaranty does not and will not violate any provision of law, or conflict with, or result in a breach of, any agreement to which Guarantor is a party or by which Guarantor is bound, and does not and will not result in the creation or imposition of any lien upon any assets or property of Guarantor. 8. COVENANTS OF GUARANTOR. The Guarantor covenants to Secured Party that from the date of this Guaranty until all of the Obligations are paid, performed or discharged in full, Guarantor will: (a) take such further action as may reasonably be requested by Secured Party to effect the purposes and intent of the Agreement including, without limitation, the execution and delivery of any further instruments, certificates and documents as may be reasonably requested by Secured Party for the purposes of carrying out the terms and conditions and reflecting the intention of and transactions contemplated by this Guaranty; and (b) upon the occurrence of a material adverse change in the financial condition of the Guarantor or any of its assets or property, give prompt notice of such occurrence to the Secured Party. 9. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Guaranty has been executed, delivered and accepted at Suffolk County, New York, and shall be interpreted, construed and performed, and the rights and liabilities of the parties hereto determined, in accordance with the laws of the State of New York, without regard to its choice of law principles. 10. ENTIRE AGREEMENT; AMENDMENTS; SEVERABILITY. This Guaranty constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. No amendment, waiver, discharge or termination of this Guaranty shall be effective except by an instrument in writing duly signed by the Guarantor. Whenever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty should be prohibited by or invalid under applicable law, such provisions shall be ineffective to the extent of such prohibition or invalidation, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. The parties intend that the terms of this Guaranty shall be enforced to the greatest extent permitted by applicable law. 11. BINDING EFFECT. This Guaranty shall be binding upon Guarantor and its successors and assigns and shall inure to the benefit of Secured Party, its successors, transferees and assigns. 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All agreements, covenants, representations and warranties of the Guarantor contained herein or made in writing by the Guarantor in connection with the transactions contemplated by Agreement shall survive the execution and delivery of this Guaranty and any investigation at any time made by the parties hereto. - -------------------------------------------------------------------------------- Globecomm Systems Corporate Guaranty in favor of Loral Skynet Page 3 of 5 13. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, express, certified or registered mail, return receipt requested, with postage prepaid, or sent by a nationally recognized overnight courier service that regularly maintains records of items picked up and delivered, as follows: If to Guarantor: Globecomm Systems Inc. 45 Oser Ave Hauppauge, New York 11788 Attention: Director of Contracts If to Secured Party: Loral Skynet 500 Hills Drive Bedminster, NJ 07921 Attention: Dan Zaffarese, Senior Contract Manager or to such other person or address as the parties shall furnish to each other in writing. Notices delivered personally shall be deemed communicated as of the date of actual receipt, mailed notices shall be deemed communicated as of the date two (2) days after mailing. 14. HEADINGS. The headings of the sections of this Guaranty are inserted for convenience only and shall not constitute a part or affect in any way the meaning or interpretation of this Guaranty. 15. REMEDIES CUMULATIVE. The remedies provided for herein shall be cumulative and shall not preclude assertion by Secured Party of any other rights or the seeking of any other remedies against Guarantor or any other party. 16. COUNTERPARTS. This Guaranty may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument. This Guaranty may be delivered by facsimile or similar electronic means and such copies shall have the same legal effect as original signatures. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty as of the date first above written. GIVEN BY: ACCEPTED BY: GLOBECOMM SYSTEMS INC. LORAL SYNET, A DIVISION OF LORAL SPACECOM CORPORATION SIGNATURE: /s/ Julia Hanft SIGNATURE: /s/ Ted Corus ------------------------- ------------------------------ PRINTED NAME: Julia Hanft PRINTED NAME: Ted Corus ---------------------- --------------------------- TITLE: Director of Contracts DATE: 7/17/02 ----------------------------- ----------------------------------- - -------------------------------------------------------------------------------- Globecomm Systems Corporate Guaranty in favor of Loral Skynet Page 4 of 5 CORPORATE GUARANTY IN FAVOR OF LORAL SKYNET ATTACHMENT 1 PAYMENTS OF NETSAT EXPRESS, INC. GUARANTEED BY GLOBECOMM SYSTEMS INC. In accordance with paragraph 1 of this Guaranty, the following are the sole payments of NetSat Express, Inc. guaranteed by Globecomm Systems Inc. hereunder:
Monthly Rate Transponder Service Satellite Term Per Transponder - ---------------------------------------------------------------------------------------------------- [***]
- -------------------------------------------------------------------------------- Globecomm Systems Corporate Guaranty in favor of Loral Skynet Page 5 of 5 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission ATTACHMENT 2 - AGREEMENT BETWEEN GSI & SKYNET Service Description Globecomm Systems Inc. / Telstar 6 & 12 25-Oct-02 Page 1 of 4 AGREEMENT BETWEEN GLOBECOMM SYSTEMS INC. AND LORAL SKYNET(R) CONCERNING SKYNET SPACE SEGMENT SERVICE This Agreement is made this on _________________ by and between Globecomm Systems Inc., a corporation organized and existing under the laws of the State of Delaware and having its primary place of business at 45 Oser Avenue, Hauppauge, New York 11788 (hereinafter referred to as "CUSTOMER" which expression shall include its successors and permitted assigns) and Loral Skynet(R), a division of Loral SpaceCom Corporation, a corporation organized and existing under the laws of the State of Delaware, and having a place of business at 500 Hills Drive, Bedminster, New Jersey 07921 (hereafter referred to as "Loral Skynet" or "SKYNET"), which expression shall include its successors and permitted assigns); each of them referred to individually as a "Party" and collectively as the "Parties". WITNESSETH: WHEREAS, SKYNET has satellite capacity available for the purpose of providing such capacity to customers; and WHEREAS, CUSTOMER desires to obtain transponder capacity service on the Telstar 6 and Telstar 12 Satellites to be used for satellite transmission service. NOW, THEREFORE, CUSTOMER and SKYNET, in consideration of the mutual covenants expressed herein, agree as follows: 1. SKYNET SERVICES 1.1 SKYNET offers and CUSTOMER hereby orders SKYNET transponder service consisting of service on one (1) 27 MHz 100 Watt Ku-Band Non-Preemptible transponder on Telstar 6 and one (1) 54 MHz 125 Watt Ku-Band transponder in the West-East direction on Telstar 12, for a term of service as indicated in Section 2 ("RATES AND TERM OF SERVICE"). Such service is composed of bare transponder capacity, with intrasatellite and intersatellite transponder management including Tracking, Telemetry and Control (TT&C) and maintenance of the satellite(s) used to provide the transponder (or space segment) capacity and protection as ordered by CUSTOMER ("the Service"). 1.2 The Service is furnished to CUSTOMER subject to the Agreement which consists of this Service Description and the following documents attached hereto and incorporated herein by reference: (a) General Terms and Conditions, Globecomm Systems Inc./Telstar 6 & 12 (b) Exhibit A - Circuit Parameters (c) Exhibit B - Satellite Access Procedures Service Description Globecomm Systems Inc. / Telstar 6 & 12 25-Oct-02 Page 2 of 4 2. RATES AND TERM OF SERVICE CUSTOMER shall pay a monthly rate for the Service, as set forth in Paragraph 2 of the General Terms and Conditions and the following table:
Monthly Rate Satellite Transponder Service Term Per Transponder - --------- ----------- ------- ---- --------------- [***]
3. SECURITY PAYMENT CUSTOMER shall provide security deposits in accordance with the following schedule: [***] 4. [***] *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission Service Description Globecomm Systems Inc. / Telstar 6 & 12 25-Oct-02 Page 3 of 4 5. WIRE TRANSFER INSTRUCTIONS All payments shall be made in immediately available U.S. dollars by electronic funds wire transfer as follows, except as SKYNET may otherwise designate in writing: Wire Information: [***] Bank Name: [***] Bank Account: [***] Loral Account: [***] To ensure accuracy, Customer should also include its SKYNET Account number and the invoice number for which payment is being made. 6. TRANSPONDER LOADING The monthly rate as set forth in Paragraph 2 ("RATES AND TERM OF SERVICE") for the Service includes intrasatellite and intersatellite transponder management for the uplink of carriers within power and bandwidth constraints per transponder, subject to intrasatellite and intersatellite coordination, for the CUSTOMER's initial loading plan ("Initial Loading Plan"). Any changes to such Initial Loading Plan shall be subject to the provisions of Paragraph 8 ("USE OF THE SERVICE") of the General Terms and Conditions. 7. NOTICES All notices, demands, requests, or other communications which may be or are required to be given, served, or sent by one party to the other party pursuant to this Agreement (except as otherwise specifically provided in this Agreement) shall be in writing and shall be delivered by confirmed facsimile, confirmed overnight mail, by hand or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to CUSTOMER: Globecomm Systems Inc. Attn: Julia Hanft, Director of Contracts 45 Oser Avenue Hauppauge, NY 11788 Phone: 631-457-1144 Fax: 631-231-9223 Billing Contact: Globecomm Systems Inc. Attn: Andrew C. Melfi, CFO 45 Oser Avenue Hauppauge, NY 11788 Phone: 631-457-1131 Fax: 631-231-1557 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission Service Description Globecomm Systems Inc. / Telstar 6 & 12 25-Oct-02 Page 4 of 4 If to SKYNET LORAL SKYNET Attn: R. Mortellaro, Marketing & Sales Vice President 500 Hills Drive, Room 3D09 Bedminster, NJ 07921 Phone: 908-470-2322 Fax: 908-470-2459 Copy to: LORAL SKYNET Attn: Dan Zaffarese, Senior Contract Manager 500 Hills Drive, Room 3D09 Bedminster, NJ 07921 Phone: 908-470-2352 Fax: 908-470-2599 Either party may designate by notice in writing a new address or addressee, to which any notice, demand, request, or communication may thereafter be so given, served or sent. Each notice, demand, request, or communication which shall be delivered, shall be deemed sufficiently given, served, sent or received for all purposes at such time as it is delivered to the addressee named above as to each party, with the signed messenger receipt, return receipt, or the delivery receipt being deemed conclusive evidence of such delivery. 8. ENTIRE AGREEMENT This Agreement along with matters incorporated herein by reference, constitutes the entire agreement between CUSTOMER and SKYNET relative to the Service, and this Agreement can be altered, amended or revoked only by an instrument in writing signed by both CUSTOMER and SKYNET. CUSTOMER and SKYNET agree hereby that any prior or contemporaneous oral and written agreements between and among themselves and their agents and representatives relative to the subject of this Agreement are superseded and replaced by this Agreement. Any provision of this Agreement found to be unenforceable or invalid by a court of competent jurisdiction shall in no way affect the validity or enforceability of any other provision except that if such invalid or unenforceable provision provided a material benefit to a party hereto, such party shall have the right to terminate the Agreement without liability to the other. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the day and year first above written, and agree to the terms and conditions set forth herein. GLOBECOMM SYSTEMS INC. LORAL SKYNET, A DIVISION OF LORAL SPACECOM CORPORATION Signature: Signature: ------------------------- --------------------------- Printed Name: Printed Name: ---------------------- ------------------------ Title: Title: ----------------------------- ------------------------------- Date: Date: ------------------------------ -------------------------------- General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 1 of 12 GENERAL TERMS AND CONDITIONS OF THE AGREEMENT BETWEEN CUSTOMER AND LORAL SKYNET CONCERNING SKYNET(R) CAPACITY 1. WARRANTY EXCLUSIONS SKYNET WARRANTS TO CUSTOMER THAT SKYNET WILL PERFORM THE SERVICES DEFINED HEREIN IN ACCORDANCE WITH GENERALLY ACCEPTED INDUSTRY STANDARDS AND IN ACCORDANCE WITH THE CIRCUIT PARAMETERS ATTACHED HERETO AS EXHIBIT A. SUBJECT TO THE ABOVE, SKYNET, ITS PARENT, THEIR SUBSIDIARIES AND THEIR AFFILIATES, SUBCONTRACTORS AND SUPPLIERS MAKE NO WARRANTY, EXPRESS OR IMPLIED, REGARDING THE PERFORMANCE OF THE SERVICE, AND SPECIFICALLY DISCLAIM ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 2. PAYMENT OF CHARGES A monthly charge applies each month or fraction thereof that Service is furnished. Monthly charges start on the first day the Service begins pursuant to Section 1 ("SKYNET SERVICES") of the Service Description. Charges accrue through and include the day that the Service is discontinued. When the billing date and the date that the Service is started, changed, or discontinued do not coincide, the charges will be adjusted to reflect the fractional part of the month involved. Any day or part thereof in which Service is provided shall be considered a full day. Any Service provided in a day (beginning and ending as determined by Greenwich Mean Time ("GMT")) shall be considered to have been rendered for a full day. Partial monthly billing is based on the actual number of days in each month. Monthly charges will be billed during the first week of each month in which service is being provided; payment is due on or before the first day of the following month, as specified on the bill. Service may be discontinued for nonpayment of bill ten (10) days beyond notice of payment past due. All payments by CUSTOMER to SKYNET hereunder shall be made in U.S. dollars; shall be deemed to be made upon receipt of collected funds by SKYNET; and shall be made via bank wire transfer to the bank account designated by SKYNET in Section 4 of the Service Description. Any and all transfer, exchange or similar fees associated with the payment of the bill are the responsibility of CUSTOMER. 2.1 SECURITY PAYMENT To safeguard its interests, SKYNET requires Customers to remit a security deposit. The amount of the security deposit and the date due are as specified in Section 3 of the Service Description ("SECURITY PAYMENT"). Failure to remit such required security payment in a timely manner shall be considered a material breach of this Agreement. Such deposit will be held as a guarantee for the payment of any or all charges due hereunder. This security deposit does not relieve the Customer of the responsibility for the prompt payment of bills upon presentation. The security deposit will be held by SKYNET and applied to the Customer's final bill(s). All of the security deposit amount in excess of the last billed amounts will be refunded to the Customer upon the expiration or earlier termination of this Agreement. 3. INTEREST ON LATE PAYMENTS In the event any payment is not received from CUSTOMER on the due date therefore, SKYNET reserves the right to add interest on the late payments at the rate of eighteen percent (18%) per annum, or the highest legally permissible rate of interest, whichever is lower, and all interest or discounting shall be compounded on a monthly basis. Such late payments, including interest, shall be payable with the amount due and calculated from the date payment was due until the date it is received by SKYNET. SKYNET shall provide separate invoices for any interest charged, or shall detail interest as a separate line item on invoices for services. 4. TAXES 4.1 Other than for taxes on SKYNET's net income, LORAL is a registered trademark of Loral Space and Communications Corporation/Ltd. SKYNET and its logo are registered trademarks of Loral SpaceCom Corporation. LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 2 of 12 CUSTOMER agrees to pay all applicable use, excise, sales, privilege, gross receipts, Universal Service Fund assessments, use and transfer taxes, similar taxes, duties, imposts, levies, value-added taxes, fees, assessments (including government and/or signatory "mark-up" on service(s)) or similar liabilities however denominated, ("Taxes") that are or may be directly levied by any applicable government authority on account of the Service or payments made under this Agreement, on or after the consummation of this Agreement. Taxes are not included in the charges for service and will be separately stated on CUSTOMER's invoice or statement of account. CUSTOMER may in good faith and by appropriate legal proceedings contest the validity, applicability or amount of any Taxes assessed or levied under the foregoing provisions, and SKYNET agrees to cooperate with CUSTOMER in any such contest and will permit CUSTOMER to contest the same, at CUSTOMER's cost and expense. Should SKYNET pay or be required to pay these Taxes, CUSTOMER shall promptly reimburse SKYNET for such payments upon receipt of an invoice from SKYNET. 4.2 Notwithstanding anything to the contrary contained in this Agreement, the nonpayment of any such contested Taxes by CUSTOMER in connection with such contest shall not be deemed a default hereunder until final determination (including appeals) in such contest and expiration of any date established for filing an appeal therein, except that it shall be a default if SKYNET has been required to pay such Taxes and CUSTOMER does not promptly reimburse SKYNET as set forth in 4.1 above. In the event CUSTOMER initiates or directs SKYNET to initiate any contest of the TAXES, CUSTOMER agrees to indemnify SKYNET for any interest or penalty assessed on Taxes finally adjudged to be due and owing by the appropriate local, state, national or federal tax authority. 5. NON-PREEMPTIBLE SERVICE "Non-Preemptible" Service is not protected in the event of Failure as defined in Section 6 ("SERVICE INTERRUPTION OR FAILURE") hereof. In the event any non-protected Service provided hereunder becomes a Failure as defined in Section 6 ("SERVICE INTERRUPTION OR FAILURE"), SKYNET may, in its sole discretion, attempt to restore Service on the satellite. If SKYNET is unable to restore Service on the satellite at the time of such failure, then SKYNET may, in its sole discretion, offer to restore the Service on an available transponder of the same frequency band, having the same bandwidth and the same or different power as the failed transponder, on the same satellite or on another SKYNET satellite then in orbit. However, if SKYNET offers to restore the affected Service on a satellite other than the satellite on which the failed Service was provided, then CUSTOMER may reject Service on such other satellite with notice to SKYNET within twenty four (24) hours of SKYNET having offered such Service to CUSTOMER. If SKYNET does not restore or attempt to restore Service, or CUSTOMER rejects such restoration, the Failed Service will terminate as of the moment of the Failure pursuant to Section 19.3 hereof 6. SERVICE INTERRUPTION OR FAILURE 6.1 Interruption - for the purpose of this Agreement an interruption ("Interruption") shall be defined as any period during which the Service fails to meet the circuit parameters set forth in Exhibit A ("CIRCUIT PARAMETERS") attached hereto and incorporated by reference, as measured by SKYNET at its applicable earth station, such that the Service is unavailable for its intended commercial purpose 6.2 Failure - for the purpose of this Agreement a failure ("Failure") shall be defined as any of the following: a) the inability, for any period of sixty (60) consecutive minutes, to pass signals through a transponder when it is illuminated with any authorized transmitted carrier, or b) an Interruption for any period of twenty four (24) consecutive hours, or c) ten (10) or more Interruptions of at least one (1) minute or longer per occurrence within any period of thirty (30) consecutive days. For purposes of this Section 6 ("SERVICE INTERRUPTION OR FAILURE"), measurement of periods of Interruption or Failure shall commence only upon CUSTOMER's written or verbal notification to SKYNET's applicable earth station and CUSTOMER having vacated its signal from the affected transponder to permit SKYNET's verification of the existence of the Interruption or Failure or at the time identified by SKYNET in any notice it provides to CUSTOMER. 6.3 The following shall not constitute an Interruption or Failure: (i) Service Testing - As described in Section 7.1 herein. LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 3 of 12 (ii) Emergency Testing - As described in Section 7.2 herein. (iii) The inability to provide the Service due to a Force Majeure condition as described in Section 9.5, hereof. 7. TESTING 7.1 Service Testing - SKYNET may perform service testing by providing a minimum of forty-eight (48) hours prior notice to CUSTOMER and after making reasonable efforts to coordinate such testing with CUSTOMER to minimize disruption of CUSTOMER's use of the Service. SKYNET shall limit such testing to circumstances in which testing is necessary to maintain or initiate new service on the Serving Satellite, to properly coordinate with other satellite users or operators, or to otherwise prudently manage its satellites while minimizing Service Testing to the greatest extent possible; 7.2 Emergency Testing - SKYNET may, at its sole discretion, perform Emergency Testing after providing CUSTOMER as much notice as is reasonably possible under the circumstances, and only for the purpose of restoring, or determining the cause of a failure of a component or subsystem on the Serving Satellite, in response to an order of a court with valid jurisdiction or the FCC, to determine the cause or source of interference, and/or to protect the overall satellite performance. 8. USE OF THE SERVICE The monthly rate as set forth in Section 2 ("RATES AND TERM OF SERVICE") of the Service Description includes management for the uplink of carriers to the transponder(s) provided hereunder for CUSTOMER's initial loading plan ("Initial Loading Plan"). If CUSTOMER desires to transmit to any transponder in any manner different ("Different Loading Plan") than its Initial Loading Plan, then the following shall apply: (i) If the Different Loading Plan involves Digital Carriers, then CUSTOMER shall provide the Different Loading Plan to SKYNET, no later than fourteen (14) days prior to the start date of such Different Loading Plan, identifying its characteristics. In the event that SKYNET is required to perform any maintenance or troubleshooting activity involving the affected Service, CUSTOMER must furnish the Different Loading Plan on demand, and (ii) If the Different Loading Plan involves the addition of or changes to an FM Television Carrier or any Other Type Of Carrier, then CUSTOMER shall provide a written request to SKYNET, no less than sixty (60) days prior to the desired start date of such Different Loading Plan, identifying the characteristics, and the desired start date of such Different Loading Plan. SKYNET shall coordinate such proposed Different Loading Plan to determine if its use could reasonably be expected to result in either intrasatellite or intersatellite interference, and, based on the results of such coordination, SKYNET shall either authorize or reject, the use of such proposed Different Loading Plan, in a timely fashion, in writing to CUSTOMER. Such authorization shall not be unreasonably withheld. (iii) Notwithstanding anything in this Agreement to the contrary, CUSTOMER may obtain SKYNET's authorization for more than one Different Loading Plan for any transponder provided hereunder, for any period of time, during the term of this Agreement. (iv) In the event that CUSTOMER uplinks to any transponder in any manner different from that authorized by SKYNET ("Unauthorized Loading Plan") pursuant to either its Initial Loading Plan or any other authorized Different Loading Plan for the affected transponder, whether analog or digital, SKYNET may, in its sole discretion, require CUSTOMER to discontinue the use of such Unauthorized Loading Plan until such time as SKYNET authorizes the use of such uplink such that it becomes a Different Loading Plan pursuant to the provisions of this Agreement, including by way of illustration and not of limitation, Section 8 hereof ("USE OF THE SERVICE"). 9. LIMITATION OF LIABILITY 9.1 WITH RESPECT TO ANY CLAIM OR SUIT, BY CUSTOMER OR BY ANY OTHERS, FOR DAMAGES ASSOCIATED WITH THE INSTALLATION, PROVISION, TERMINATION, MAINTENANCE, REPAIR OR RESTORATION OF SERVICE, AND SUBJECT TO SECTIONS 9.2. AND 9.5. FOLLOWING, SKYNET'S LIABILITY, IF ANY, SHALL NOT EXCEED AN AMOUNT EQUAL TO THE PROPORTIONATE CHARGE PROVIDED FOR LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 4 of 12 UNDER THIS AGREEMENT FOR THE SERVICE FOR THE PERIOD DURING WHICH THE SERVICE WAS AFFECTED, BUT IN NO CASE SHALL EXCEED $100,000.00. THIS LIABILITY FOR DAMAGES SHALL BE IN ADDITION TO ANY AMOUNTS THAT MAY OTHERWISE BE DUE CUSTOMER UNDER THIS AGREEMENT AS A CREDIT ALLOWANCE FOR INTERRUPTIONS DESCRIBED HEREIN. 9.2 SKYNET IS NOT LIABLE FOR DAMAGES ASSOCIATED WITH SERVICE, CHANNELS, OR EQUIPMENT, THAT IT DOES NOT FURNISH. 9.3 SKYNET, ITS PARENT, THEIR SUBSIDIARIES AND AFFILIATES, AND THE DIRECTORS, EMPLOYEES, AGENTS AND SUBCONTRACTORS OF ALL OF THEM, SHALL BE INDEMNIFIED, DEFENDED, AND HELD HARMLESS BY CUSTOMER AGAINST ALL CLAIMS, LOSSES, OR DAMAGES RESULTING FROM THE USE OF SERVICES FURNISHED PURSUANT TO THIS AGREEMENT, INVOLVING: 9.3.1. CLAIMS FOR LIBEL, SLANDER, INVASION OF PRIVACY, INFRINGEMENT OF COPYRIGHT, OR ANY CLAIM BASED ON THE CONTENT OF ANY TRANSMISSION ARISING FROM ANY COMMUNICATION; 9.3.2. CLAIMS FOR PATENT INFRINGEMENT ARISING FROM COMBINING OR USING THE SERVICE FURNISHED BY SKYNET IN CONNECTION WITH FACILITIES OR EQUIPMENT FURNISHED BY OTHERS; OR 9.3.3. ALL OTHER CLAIMS ARISING OUT OF ANY ACT OR OMISSION OF OTHERS RELATING TO SERVICES PROVIDED PURSUANT TO THIS AGREEMENT. 9.4 NO LICENSE UNDER PATENTS (OTHER THAN THE LIMITED LICENSE TO USE) IS GRANTED BY SKYNET OR SHALL BE IMPLIED OR ARISE BY ESTOPPEL, WITH RESPECT TO ANY SERVICE OFFERED UNDER THIS AGREEMENT. SKYNET WILL DEFEND CUSTOMER AGAINST CLAIMS OF PATENT INFRINGEMENT ARISING SOLELY FROM THE USE BY CUSTOMER OF SERVICES OFFERED UNDER THIS AGREEMENT AND WILL INDEMNIFY CUSTOMER FOR ANY DAMAGES AWARDED BASED SOLELY ON SUCH CLAIMS. 9.5 SKYNET SHALL NOT BE LIABLE FOR SERVICE INTERRUPTIONS RESULTING FROM ANY CAUSES BEYOND ITS REASONABLE CONTROL, INCLUDING, BUT NOT LIMITED TO, ACTS OF GOD, FIRE, FLOOD, ADVERSE WEATHER CONDITIONS, METEOROLOGICAL OR ATMOSPHERIC OCCURRENCES OR DISTURBANCES (INCLUDING, BUT NOT LIMITED TO, SUN OUTAGES) OR OTHER NATURAL EVENTS, AN IRREPARABLE SATELLITE COMPONENT FAILURE, REGARDLESS OF THE CAUSE(S) OF SUCH FAILURE, EXTERNALLY-CAUSED INTERFERENCE, ACTS OF GOVERNMENT (INCLUDING, BUT NOT LIMITED TO, ANY LAW, RULE, ORDER, REGULATION OR DIRECTION OF THE UNITED STATES GOVERNMENT OR OF ANY OTHER GOVERNMENT, OR OF ANY INSTRUMENTALITY THEREOF, OR OF ANY CIVIL OR MILITARY AUTHORITY); NATIONAL EMERGENCIES; INSURRECTIONS; RIOTS; ACTS OF WAR; CIVIL DISORDER; QUARANTINE RESTRICTIONS; EMBARGOES, STRIKES, LOCKOUTS, WORK STOPPAGES, LABOR DIFFICULTIES, OR ACTS OR OMISSIONS OF CUSTOMER OR ITS EMPLOYEES, AGENTS OR CONTRACTORS. EACH SUCH EVENT SHALL CONSTITUTE A FORCE MAJEURE. IN THE EVENT OF AN INTERRUPTION OR FAILURE AS DEFINED IN SECTION 6 HEREOF ("SERVICE INTERRUPTION OR FAILURE") THAT WOULD OTHERWISE QUALIFY FOR A CREDIT ALLOWANCE (AS DEFINED IN SECTION 11, HEREOF "CREDIT ALLOWANCE") BUT FOR THE FACT THAT SUCH INTERRUPTION OR FAILURE RESULTED FROM A FORCE MAJEURE, SKYNET'S OBLIGATION TO PROVIDE THE SERVICE AND CUSTOMER'S OBLIGATION TO PAY FOR THE SERVICE NOT YET PROVIDED WILL BE SUSPENDED UNTIL (I) THE SERVICE IS RESTORED; (II) SKYNET OFFERS TO PROVIDE ALTERNATIVE SERVICE THAT COMPLIES WITH THE CIRCUIT PARAMETERS, OR (III) UNTIL 30 DAYS HAVE ELAPSED, WHICHEVER IS LESS. IF WITHIN SUCH THIRTY (30) DAY PERIOD SKYNET IS ABLE TO EFFECT (I) OR (II) ABOVE, THE PARTIES' RESPECTIVE OBLIGATIONS HEREUNDER SHALL BE REINSTATED FOR THE REMAINDER OF THE TERM OF THIS AGREEMENT. IF SERVICE IS NOT REINSTATED AT THE END OF SUCH 30-DAY PERIOD, EITHER PARTY MAY TERMINATE THIS AGREEMENT BY PROVIDING WRITTEN NOTICE THEREOF. 9.6 NOTWITHSTANDING ANYTHING TO THE LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 5 of 12 CONTRARY, SKYNET SHALL NOT BE LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, OR FOR LOST PROFITS, SAVINGS OR REVENUES OF ANY KIND, WHETHER OR NOT SKYNET HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 10. LAUNCH SERVICES To the extent required by the launch services provider for launch services provided in connection with the launch of any satellite(s) contemplated by this Agreement, CUSTOMER shall have no right of action against the launch services contractor, other third party customers of the launch services contractor or their respective associates, for any loss or damage including, but not limited to, damage for bodily harm (including death) and damage to property suffered by CUSTOMER resulting from the performance of the launch services agreement by such parties. CUSTOMER further irrevocably agrees to a no-fault, no subrogation waiver of liability, and waives the right to make any claim or to instigate any judicial proceeding in connection with such claim, against the launch services contractor or their associates, in each case for any such damage suffered by CUSTOMER resulting from the performance of the launch services agreement by such parties. In the event that one or more associates of CUSTOMER (in their capacities as such) shall proceed against the launch services contractor, the third party customers or their associates as a result of any such damage suffered by CUSTOMER and caused by the launch services contractor, the third party customers or their associates resulting from the performance of the launch services agreement by such parties, CUSTOMER shall indemnify, hold harmless, dispose of any such claim and defend, when not contrary to the governing rules of procedures where the action takes place, the launch services contractor, such third party customers and their associates from any loss, damage, liability or expense, including reasonable attorney's fees, on account of such damage, injury or death, and shall pay all expenses and satisfy all judgments that may be incurred by or rendered against said indemnities in connection with such proceeding. As used herein, (i) the term "associates" means, with respect to any person, individuals or legal entities which act, directly or indirectly, on behalf of or at the direction of such person to fulfill the obligations of such person, including such person's employees, suppliers and subcontractors (when so acting) and (ii) the term "third party customers" means other customers of the launch services contractor that use the launch services contractor's launch services for the same launch. 11. CREDIT ALLOWANCES 11.1 Credit allowances, may be given to CUSTOMER for Interruptions and/or Failures as defined in Section 6 ("SERVICE INTERRUPTION OR FAILURE") above. These credit allowances will be applied against future payments or in the event of such Interruption or Failure during the final month of Service will result in a refund equal to the amount of the credit allowance. An Interruption or Failure period begins when CUSTOMER reports the service to be Interrupted or Failed and releases the affected Service for testing and repair or at the time identified by SKYNET in any notice it provides to CUSTOMER. An Interruption or Failure period ends when the Service is operative. If CUSTOMER reports a Service to be Interrupted or Failed but declines to release it for testing and repair, it is considered to be impaired, but not Interrupted or Failed. For calculation of such credit allowance each month is considered to have thirty (30) days. Credit allowances are given for each incidence of Interruption or Failure of more than thirty (30) minutes and are given in one-minute increments. Specific one minute Credit Allowances will be calculated based on the monthly charge for the affected Service. Credit Allowances will not be given for Interruptions or Failures that are a result of any of the following reasons: (a) Interruptions or Failures caused by the action or failure to act of CUSTOMER or others authorized by CUSTOMER to use the affected Service, not pursuant to the directions of SKYNET. (b) Interruptions or Failures during periods when CUSTOMER elects not to release the affected Service for testing. (c) Interruptions or Failures due to the effects of sun transit on receiving earth stations. (d) The inability to pass signals through a transponder due to a Force Majeure condition as described in Section 9.5 hereof. 11.2 SKYNET shall have the right to charge CUSTOMER for work carried out by SKYNET to locate, rectify and/or repair any fault(s) (i) not directly caused by any SKYNET provided Service, channel or equipment, (ii) if such fault(s) result from CUSTOMER's willful act, fault, or negligence, or (iii) if such fault(s) result from CUSTOMER's failure to comply with its obligations hereunder. In any such case as described in this Section 11.2, notwithstanding anything herein to the contrary, Credit Allowances will not be given. 12. CONTENT OF TRANSMISSIONS CUSTOMER is solely responsible for the content of transmissions using the Service. LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 6 of 12 13. SCRAMBLING Prior to commencing use of the Service provided under this Agreement, CUSTOMER, at its expense, shall provide SKYNET with any unscrambling devices that may be required for signal monitoring. CUSTOMER shall not use, or allow the use of, the Service provided hereunder for distribution of program material of a sexual or adult-oriented nature, to television viewers unless the programming is scrambled such that television viewers can receive the programming only through the use of an unscrambler authorized by CUSTOMER or CUSTOMER's authorized agent. 14. REFUSAL OF SERVICE SKYNET may terminate, prevent or restrict any communications using the Service as a means of transmission if such actions (a) are undertaken at the direction of a governmental agency with jurisdiction, including the Commission; or (b) are taken subsequent to the institution against SKYNET, CUSTOMER or any permitted assignees, any legal entity affiliated with any of them, or any of the directors, officers, agents or employees of the parties, permitted assignees or their affiliates, of criminal or administrative proceedings or investigations based upon the content of such communications, other than civil proceedings. SKYNET shall coordinate with CUSTOMER in good faith to assist in the resolution, if possible, of any such matters and will not terminate, prevent or restrict CUSTOMER's transmissions pursuant to this Paragraph if, upon notification by SKYNET of the institution of such proceedings, CUSTOMER is able to satisfy SKYNET, subject to SKYNET's sole and reasonable discretion, that (c) within forty-eight (48) hours the aforementioned proceedings have been or will be resolved to SKYNET's satisfaction; or (d) the relevant transmissions will terminate in the relevant jurisdiction and that they will not re-occur in the relevant jurisdiction. Nothing in this Paragraph shall affect any other term or condition hereof, including, without limitation, any obligation under Paragraph 9 hereof. 15. ASSIGNMENT/RESALE 15.1 ASSIGNMENT CUSTOMER acknowledges and agrees that notwithstanding anything to the contrary contained in this Agreement, CUSTOMER shall not transfer or assign its rights and/or obligations under this Agreement to any third parties without SKYNET's consent, which shall not be unreasonably withheld, except for consent to the transfer or assignment of less than the whole of CUSTOMER's rights and/or obligations under this Agreement, in which case it shall be reasonable for SKYNET to withhold its consent. SKYNET expressly shall have the right to assign this Agreement including its rights, duties and obligations hereunder, to its parent corporation or any present or future affiliate or subsidiary of SKYNET, to a bank, or in connection with the merger or acquisition of its satellite business. 15.2 RESALE For as long as this Agreement is not assigned, the following applies: To the extent not otherwise prohibited by rule, regulation or law, in the event CUSTOMER desires to resell all or any part of the Service to a third party, CUSTOMER is approved to do. CUSTOMER shall be solely responsible for any permitted resale and shall indemnify and hold SKYNET harmless for any claim or liability for damages made by any third party in connection with such resale. If this Agreement is assigned to any party other than a successor in interest or present or future affiliate or subsidiary of CUSTOMER, the following applies: To the extent not otherwise prohibited by rule, regulation or law, in the event CUSTOMER desires to resell all or any part of the Service to a third party, CUSTOMER shall notify SKYNET in writing no less than thirty (30) days prior to the scheduled date of such resale, that it has an agreement to permit a third party to use all or any part of the Service. SKYNET shall notify CUSTOMER in writing within fifteen 15 days of receipt of the aforementioned notification, advising CUSTOMER of SKYNET's decision to either allow the resale to such third party, or not to allow the resale. CUSTOMER shall be solely responsible for any permitted resale and shall indemnify and hold SKYNET harmless for any claim or liability for damages made by any third party in connection with such resale. 16. NON-INTERFERENCE CUSTOMER's radio transmissions (and those of its uplinking agents) to the satellite shall comply, in all material respects, with all governmental (whether national, international, federal, state, municipal, or otherwise) statutes, laws, rules, regulations, ordinances, codes, directives and orders, of any such governmental agency, body, or court (collectively "Laws") applicable to it regarding the operation of the satellite, transponder, space segment, and any backup satellite, transponder or space segments to which CUSTOMER is given LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 7 of 12 access pursuant to this Agreement. CUSTOMER shall not interfere with the use of any other satellite, transponder or space segment or cause physical harm to the satellite, transponder or any backup satellite, transponder or space segment to which CUSTOMER is given access pursuant to this Agreement, or any other satellite, transponder or space segment. Further, CUSTOMER will coordinate with (and will require its uplinking agents to coordinate with) SKYNET, in accordance with procedures reasonably established by SKYNET and uniformly applied to all users of satellites, transponders and / or space segments, its transmissions to the satellite, so as to minimize adjacent transponder, space segment and adjacent satellite interference. For purposes of this Section 16, interference shall also mean acts or omissions that cause a Service to fail to meet its Circuit Parameters. Without limiting the generality of the foregoing, CUSTOMER (and its uplinking agents) shall comply with all U.S. Federal Communications Commission ("FCC") rules and regulations regarding use of automatic transmitter identification systems (ATIS). 17. IMPROPER ILLUMINATION SKYNET transmission parameters are as set forth in Exhibit B ("SATELLITE ACCESS PROCEDURES"), attached hereto and incorporated by reference. Improper Illumination shall include transmissions that are other than as described in Exhibit B, transmissions at an incorrect frequency, transmissions at excessive power levels or any illumination which can cause harm or interference to any transponder, space segment or to any satellite. In the event improper illumination of any transponder and / or space segment provided under this Agreement is detected by SKYNET, CUSTOMER shall be notified and CUSTOMER shall take immediate corrective action to stop the improper illumination within five (5) minutes of notification from SKYNET. A charge of eleven hundred ($1,100.00) dollars per minute will apply for improper illumination that continues beyond the five minute period after notification, or attempted notification if there is no answer at the telephone number provided by CUSTOMER. Furthermore, if immediate corrective action is not taken by CUSTOMER, SKYNET shall have the right to take immediate action to protect its services or its interests, including but not limited to suspending or terminating CUSTOMER's Service on the affected transponder and / or space segment. If Service is terminated, CUSTOMER is responsible to pay for Service received through the time of termination. 18. GENERAL OBLIGATIONS In the event CUSTOMER breaches any of its material obligations in connection with the usage procedures and restrictions described in this Agreement, including, without limitation, Service usage, non-interference, government regulations, preemptive rights, and no-transfer, then SKYNET may, in its sole discretion and in addition to the exercise of its other rights against CUSTOMER, require CUSTOMER to cease transmissions to any or all of the affected transponder(s) provided hereunder and take any actions necessary to enforce SKYNET's rights. CUSTOMER will pay to SKYNET all expenses (including attorney's fees) incurred in connection with SKYNET's enforcement against CUSTOMER arising out of CUSTOMER's use of the affected Service(s). 19. TERMINATION This Agreement may be terminated prior to the end of its term as follows: 19.1 In the event of the breach of any of the material terms and conditions, representations and warranties contained herein, the non-breaching party may terminate upon written notice to the other citing the cause of such termination and providing such party with a fifteen (15) day cure period. 19.2 In the event that the satellite on which the Service is intended to be provided fails to reach and maintain a satisfactory orbit in the appropriate orbital position, or a failure by said satellite to go into satisfactory operation after achieving satisfactory orbit in the appropriate orbital position (any or all of the foregoing in this Section 19.2 being referred to herein as a "Launch Failure"), either party may terminate this Agreement with written notice to the other party and neither party will have any further liability to the other party except for SKYNET's liability to refund to CUSTOMER any monies paid to SKYNET for Service not received. 19.3 In the event of a Failure, as defined in Section 6, hereof (SERVICE INTERRUPTION OR FAILURE), of any Service for which SKYNET does not provide an acceptable restoration, as defined in Section 5 hereof, within (30) thirty days, the CUSTOMER or SKYNET may terminate this Agreement without liability except for such Service as has already been received. The termination date will be considered to be the date of the Failure. SKYNET shall not be entitled to terminate this Agreement for a failure that consists of a de minimis deviation from the Performance Parameters in Exhibit A. General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 8 of 12 20. EARLY TERMINATION LORAL SKYNET PROPRIETARY 20.1 Subject to Section 19 ("TERMINATION"), hereof, if this Agreement is terminated by SKYNET due to CUSTOMER's material breach prior to the termination date set forth in Section 1 ("SKYNET SERVICES") of the Service Description, SKYNET may, at its sole discretion, upon the conclusion of the required cure period, exercise one or more of the following remedies: A. Temporarily suspend the Service to CUSTOMER (either completely or with respect to any one or more Termination Sites) without terminating this Agreement until CUSTOMER cures the default, during which suspension CUSTOMER shall continue to remain liable for all charges and other amounts payable in accordance with the terms hereof; or B. Terminate this Agreement, and require CUSTOMER to immediately pay to SKYNET as liquidated damages for default of this Agreement and not as a penalty, an amount equal to [***] for the terminated portion of the Services, plus all other Charges and fees that had accrued prior to the date of termination, together with all other costs and expenses of collection, including reasonable attorneys' fees. 20.2 [***] 20.3 Any termination charges that may be assessed pursuant to this Section 20 shall be due and payable upon receipt by CUSTOMER of an invoice for such charges. Early termination charges apply regardless of whether or not Service has begun and are in addition to any other rights SKYNET may have hereunder. 21. CHANGES IN OPERATIONS OR PROCEDURES SKYNET is not responsible to CUSTOMER if a change in operations, procedures, or Transmission Parameters (i) affects any facilities, CUSTOMER equipment or CUSTOMER communications system in any way, or (ii) requires their modification in order to be used with the Service provided pursuant to this Agreement. However, if such changes can be reasonably expected to materially affect the operating or transmission characteristics of the Service, or render any CUSTOMER equipment or CUSTOMER communications system incompatible with the Service, SKYNET shall use reasonable efforts to provide adequate notice, in writing, to allow CUSTOMER an opportunity to maintain uninterrupted service. SKYNET shall have no obligation to change or modify any of its components, operations or procedures to be compatible with CUSTOMER. 22. TRANSPONDER ASSIGNMENT Assignment of the specific space segment, transponder and/or satellite to be used for the Service remains the sole prerogative of SKYNET. During the term of this Agreement SKYNET shall have the right to change any of the space segment, transponder and/or satellite assignments, but shall do so only if there is an operational concern, interference caused by CUSTOMER, or in order to protect the health of the satellite on which Service is being provided. If required, SKYNET will use reasonable efforts to give CUSTOMER not less than thirty (30) days prior written notice to CUSTOMER. Upon the effectiveness of such assignment change, the CUSTOMER must vacate the previously occupied frequencies. If such assignment changes results in CUSTOMER necessarily being required to make equipment changes, SKYNET will reimburse CUSTOMER for actual costs associated with such changes to a maximum of two (2) months of monthly recurring charges. LORAL SKYNET PROPRIETARY *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 9 of 12 23. FCC, OTHER GOVERNMENT, OR AGENCY THEREOF, COMPLIANCE If at any time SKYNET can no longer comply fully with the provisions of this Agreement because of FCC or other government or agency thereof rules and regulations which are inconsistent with this Agreement, CUSTOMER may either (1) terminate immediately this Agreement without any liability whatever by giving notice in writing within sixty (60) days of such action or (2) negotiate with SKYNET so to modify this Agreement as to conform with such new rules and regulations. If CUSTOMER elects to terminate in such event, SKYNET shall refund promptly any sums previously paid to SKYNET for Service not rendered. 24. NO POSSESSORY INTEREST / BANKRUPTCY CUSTOMER has, and will have, no possessory or other interest in the transponder(s) used to provide Service pursuant to this Agreement. CUSTOMER acknowledges that: (1) it has been advised of and fully understands the conditions and the consideration pursuant to which SKYNET provides and CUSTOMER accepts the Service and (2) the rates for the Service, as well as the termination charges as provided for in Section 20 (`EARLY TERMINATION") hereof, are fair and reasonable at the market on the date of commitment to the Service and the date of this Agreement. CUSTOMER recognizes that the transponder used for the provision of the Service contemplated under this Agreement is a commodity in limited supply and that those using full time transponder service, similar to the Service provided under this Agreement, usually enter into long-term commitments with service providers. Therefore, CUSTOMER understands that its acceptance of the Service precludes SKYNET from accepting any other customer for Service on the transponder(s) being used to provide Service to Customer. Because of this, CUSTOMER concedes that a failure to fulfill CUSTOMER's obligations under this Agreement would irreparably harm SKYNET. Therefore, in the event of any bankruptcy or similar proceeding on the part of CUSTOMER, CUSTOMER agrees that it will petition any relevant court for prompt action to accept or reject this Agreement, and to authorize the scheduled payments in full. 25. THIRD PARTY BENEFICIARIES / INDEPENDENT CONTRACTOR Nothing herein contained shall be deemed or construed by either party hereto or by any third party to create any rights, obligations, or interests in any third party, or to create any association, partnership, joint venture, the relation of principal and agent, the relation of employer and employee, or any fiduciary relationship of any kind between the parties hereto, it being understood that SKYNET shall perform all services hereunder as an independent contractor. 26. PUBLICITY AND ADVERTISING 26.1 Except as provided in Section 26.2 below, CUSTOMER shall not in any way or in any form publicize or advertise in any manner the fact that it is obtaining services from SKYNET pursuant to this Agreement, without the express written approval (which shall not be unreasonably withheld) of SKYNET, obtained in advance, for each item of such advertising or publicity. The foregoing prohibition shall include but not be limited to news releases, letters, correspondence, literature, promotional materials or displays of any nature or form. Each request for approval hereunder shall be submitted in writing to the representative designated in writing by SKYNET; and approval, in each instance, shall be effective only if in writing and signed by said representative. 26.2 Notwithstanding the prohibitions contained in Section 26.1 above, CUSTOMER may refer to the fact that it is securing services from SKYNET without SKYNET's prior approval so long as such statements are limited to a statement of such fact and are not an endorsement of any product or service by SKYNET. Further, the Parties acknowledge that CUSTOMER's wholly owned subsidiary, NetSat Express, Inc., has previously requested and received approval(s) for certain publicity and/or advertisements and SKYNET hereby extends such approval(s) to CUSTOMER. 26.3 SKYNET shall not in any way or in any form publicize or advertise in any manner the fact that it is providing services to CUSTOMER pursuant to this Agreement, without the express written approval (which shall not be unreasonably withheld) of CUSTOMER, obtained in advance, for each item of advertising or publicity. The foregoing prohibition shall include but not be limited to news releases, letters, correspondence, literature, promotional materials or displays of any nature or form. Each request for approval hereunder shall be submitted in writing to the representative designated in writing by CUSTOMER; and approval, in each instance, shall be effective only if in writing and signed by said representative. Nothing herein shall prevent SKYNET from providing the FCC or any other governmental agency, information concerning this Agreement as required by Law or in response to a request for information by such Governmental Agency. Notwithstanding the foregoing, SKYNET may refer to LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 10 of 12 the fact that it is providing the Service to CUSTOMER without CUSTOMER's prior approval so long as such statements are limited to a statement of such fact and are not an endorsement of any product or service by CUSTOMER. 26.4 Nothing in this Agreement shall prevent either Party from making such disclosures and statements relating to the other Party as may be reasonably required to comply with laws or regulations of the Securities and Exchange Commission ("SEC") or any similar laws and regulations requiring disclosure, provided that such disclosure is limited to that required to comply with such laws and regulations. Each filing Party agrees to take all reasonable, necessary steps to exclude the pricing and payment terms (the "Price Information") of this Agreement in such filing, to request confidential treatment of the Price Information under the Freedom of Information Act and the applicable rules of the SEC and to seek such other protections of the Price Information that may be available. 27. CONFIDENTIALITY This Agreement shall be kept strictly confidential, except for disclosure (1) to the extent required by the law or legal process, in which case the parties shall seek confidential treatment of the document and the information contained herein, (2) as a part of normal accounting and auditing procedures, (3) to each party's parent company, (4) to a bona fide potential purchaser of the applicable business, investment bankers and bona fide potential or actual lenders, or (5) to a governmental or regulatory agency requiring such Information, provided any such party shall have agreed to keep this Agreement confidential pursuant to an agreement containing terms substantially similar to those in Section 28 ("NONDISCLOSURE OF INFORMATION") hereof. 28. NONDISCLOSURE OF INFORMATION 28.1 Each Party to this Agreement may find it beneficial to disclose to the other Party documentation or other information which the disclosing Party considers proprietary ("Information"). Such Information may include but is not limited to, engineering, hardware, software or other technical information concerning the SKYNET network or CUSTOMER's network, and financial, accounting or marketing reports, analysis, forecasts, predictions or projections relating to the business of SKYNET or CUSTOMER generally. 28.2 It is specifically understood and agreed that Information disclosed pursuant to this Agreement shall be considered proprietary either because 1) it has been developed internally by the disclosing Party, or because 2) it has been received by the disclosing Party subject to a continuing obligation to maintain the confidentiality of the Information. 28.3 Information that is provided in a tangible form shall be marked in a manner to indicate that it is considered proprietary or otherwise subject to limited distributions provided herein. If the Information is provided orally or visually, the disclosing party shall clearly identify it as being proprietary at the time of disclosure, and within ten (10) working days of such disclosure, confirm the disclosure in writing to the other party. With respect to Information, the Party to whom the Information is disclosed and its employees and representatives shall: a. hold the Information in confidence and protect it in accordance with the security regulations by which it protects its own proprietary or confidential information, which it does not wish to disclose, but in any event with not less than reasonable care; b. restrict disclosure of the Information solely to those employees and representatives with a need to know and not disclose it to any other persons; c. advise those employees and representatives of their obligations with respect to the Information; and d. use the Information only in connection with implementing this Agreement and in continuing discussions and negotiations between the parties concerning the Service, except as may otherwise be agreed upon in writing. e. As used herein, "representatives" means directors, officers, subcontractors, consultants, and agents of a Party to this Agreement. 28.4 The party to whom Information is disclosed shall have no obligations to preserve the proprietary nature of any Information that: a. was previously known to it free of any obligations to keep it confidential; b. is disclosed to third parties by the disclosing party without restriction; c. is or becomes publicly available by other than unauthorized disclosure; or d. is independently developed by the receiving party. 28.5 The receiving party may disclose the Information pursuant to a court order or other governmental or regulatory compulsion provided that the disclosing party shall be given prompt notice of the receipt of LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 11 of 12 such order or other compulsion. 28.6 The receiving party agrees that all of its obligations undertaken under this non-disclosure agreement shall survive and continue for three (3) years after termination of this Agreement. The Information shall be deemed the property of the disclosing party and, upon request the other party will return all Information that is in tangible form to the disclosing party or destroy all such information. 29. WAIVERS A waiver by either party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach thereof. 30. GOVERNING LAW This Agreement shall be governed by and construed under the laws of the State of New York, USA, without giving effect to its conflict of law principles. 31. EXECUTION To facilitate execution, this Agreement may be executed in two identical counterparts; and the signature of each party shall appear on each counterpart. Either counterpart shall constitute an original, binding version of this Agreement. Facsimile signatures shall have the same legal effect as original signatures and this Agreement shall be binding upon the receipt of facsimile signature of each of the Parties. 32. SUCCESSION This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties hereto. 33. CUSTOMER COMPLIANCE Customer shall comply with any restrictions or conditions imposed by applicable government authorities on (i) Customer's receipt or use of the Service in any country in which Customer uses the Service, and (ii) Customer's use of the Service between or among any countries. Customer shall not use the Service in violation of any applicable law, rule or regulation. Further, Customer will obtain all necessary authorization and/or permits for the ground segment equipment, and shall strictly comply with the provisions set forth in the attached Satellite Access Procedures (Exhibit B). CUSTOMER's failure to comply with the provisions of this Section 33 shall not constitute a force majeure condition. 34. HEADINGS The headings used throughout this Agreement are for convenience only and are not a part of this Agreement and shall have no effect upon the construction and interpretation of this Agreement. 35. EXPORT CONTROL CUSTOMER will not use, distribute, transfer or transmit any products, software or technical information (even if incorporated into other products) provided under this Agreement except in compliance with U.S. export laws and regulations (the "Export Laws"). CUSTOMER will not, directly or indirectly, export or re-export the following items to any country which is in the then current list of prohibited countries specified in the applicable Export Laws:(a) software or technical data disclosed or provided to CUSTOMER by SKYNET or SKYNET's subsidiaries or affiliates; or (b) the direct product of such software or technical data. CUSTOMER agrees to promptly inform SKYNET in writing of any written authorization issued by the U.S. Department of State office of export licensing to export or re-export any such items referenced in (a) or (b). CUSTOMER also will not, without the prior written consent of SKYNET, export or re-export, directly or indirectly, any technical data or software furnished hereunder from the country in which SKYNET first provided the technical data or software to CUSTOMER hereunder, except to the United States. The obligations stated above in this clause will survive the expiration, cancellation or termination of this Agreement or any other related agreement. 36. ADDITIONAL ACTIONS AND DOCUMENTS SKYNET and CUSTOMER each agree to take all necessary actions to execute, deliver and file any additional documents and instruments, and to use best efforts to obtain necessary or appropriate consents and/or approvals in order to effectuate the provision of the Service in accordance with the terms and conditions of this Agreement. LORAL SKYNET PROPRIETARY General Terms and Conditions Globecomm Systems Inc. / Telstar 6 & 12 13-Nov-02 Page 12 of 12 37. RETIREMENT OF SATELLITE 37.1 SKYNET shall be entitled to retire the Serving Satellite without liability: (i) if fifty percent (50%) or more of the transponders on the satellite have failed or are unusable for any reason; (ii) in the event that the satellite's station-keeping fuel, required to meet + 0.05 degrees, becomes depleted to a level sufficient only to ensure removal of the Serving Satellite from its assigned orbital position; (iii) if required to do so by any governmental authority with appropriate jurisdiction; or (iv) if SKYNET reasonably determines that (ii) above can be delayed by moving such Serving Satellite into an inclined orbit; or (v) if special circumstances require retirement, and such appropriate governmental authority as is required for retirement is obtained. 37.2 SKYNET will use all reasonable efforts to provide CUSTOMER written notice of a decision to retire the Serving Satellite prior to the expiration of this Agreement as far in advance of the date of retirement as circumstances allow. Upon retirement of the Serving Satellite, all subsequent performance obligations of the parties under this Agreement shall terminate. 38. CUSTOMER RESPONSIBILITIES 38.1 Unless otherwise specified in this Agreement, no terrestrial facilities shall be provided by SKYNET, and CUSTOMER shall be responsible to install, license and maintain the terrestrial facilities, which communicate to and from the Serving Satellite. CUSTOMER warrants to SKYNET that all required licenses/approvals have been or will be obtained to operate such facilities, if any, prior to the start date of the Service. CUSTOMER shall indemnify SKYNET and its affiliates for any liabilities that SKYNET or any of its affiliates may incur as a result of CUSTOMER'S failure to obtain such licenses/approvals. CUSTOMER will not transmit or otherwise act in any manner that violates the technical requirements of the Satellite Access Procedures. CUSTOMER shall always provide the necessary capability at its transmit facilities to cease transmission immediately upon notice from SKYNET communicated via phone and/or facsimile. SKYNET may, but is not obligated to, inspect CUSTOMER-provided facilities to insure compliance with this requirement. 38.2 CUSTOMER shall provide to SKYNET all pertinent technical characteristics of CUSTOMER-provided equipment used in connection with the Service as specified in Exhibit B ("SATELLITE ACCESS PROCEDURES"). 39. ARBITRATION All disputes arising in connection with the present Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the United Nations Commission of International Trade Law (UNCITRAL Rules) by one or more arbitrators appointed in accordance with said Rules; where said rules require the appointment of an arbitrator by an independent organization, the Parties agree that such arbitrator shall be appointed by the American Arbitration Association. The arbitration shall take place in New York City, New York, USA, and shall be conducted in English. The arbitrator shall apply the substantive (not the conflicts) law of New York. The award shall be in United States dollars. Judgment upon the award rendered in the arbitration may be entered in any court having jurisdiction thereof. Each Party shall bear its own expenses (including attorney's fees) and an equal share of the expenses of the arbitrator and the fees of the arbitration. Nothing in this Agreement shall be construed to preclude any party from seeking injunctive relief in order to protect its rights pending mediation or arbitration. A request by a party to a court for such injunctive relief shall not be deemed a waiver of the obligation to arbitrate. LORAL SKYNET PROPRIETARY ATTACHMENT 3 - [***] AGREEMENT *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission TERMS & CONDITIONS FOR NETSAT EXPRESS SATELLITE CAPACITY This Agreement ("Agreement") is made on 10-May-2001, by and between NetSat Express, Inc. ("NSX") 45 Oser Ave, Hauppauge NY 11788 and [***] ("Buyer") for Satellite Services. 1. APPLICABLE TERMS AND CONDITIONS ------------------------------- This Agreement represents the general provisions that apply to all Satellite Capacity Services provided by NSX pursuant to Satellite Capacity Order Form(s) issued by Buyer and accepted by NSX, as indicated by NSX signature thereon. The Order Form defines the bandwidth amount, satellite, monthly recurring charges, activation fee, start date for services and duration of services. Each Order Form will reference this Agreement Number (as shown in the footer of each page hereof). Upon execution by both parties, the Order Form is incorporated herein by reference and made a part hereof. This Agreement is intended to accommodate multiple Order Forms; additional Order Forms will be incorporated herein upon acceptance by NSX. The terms and conditions in this Agreement supercede any conflicting terms and conditions in any Order Form. Nothing in this Agreement requires NSX to accept any Order Form submitted by Buyer and Buyer acknowledges that all Order Form(s) for Services are submitted subject to NSX acceptance, as indicated by NSX signature on the Order Form(s). 2. SERVICES PROVIDED ----------------- NSX shall (i) provide Satellite Capacity on the satellite and in the bandwidth amount listed on the Order Form(s); (ii) assist Buyer with link budgets, load plans, and other similar requirements to describe Buyer's intended use of the satellite; and (iii) provide engineering and technical support for outage reporting. Unless otherwise stated in the Order Form(s), Buyer shall be responsible for all terrestrial services to transmit to and receive from the satellite. Unless otherwise provided, "Services" shall mean the services described in this Article 2. 3. RIGHT OF FIRST REFUSAL ---------------------- Upon execution by both parties of an Order for 27 MHz of bandwidth on satellite Telstar 12, transponder 10, Buyer shall have a right of first refusal on any additional satellite capacity for the same satellite and transponder until 1-Aug-01. The right of first refusal shall mean that prior to accepting any Order(s) for satellite capacity on satellite Telstar 12, transponder 10, NSX shall notify Buyer of the amount of available capacity and Buyer shall have until 1-Aug-01 to submit a signed Order Form for such capacity or notify NSX that it does not wish to purchase the capacity. Upon receipt of notice that Buyer does not wish to purchase the capacity, or if no notice or Order Form is received by 1-Aug-01, Buyer shall have no further rights and NSX may sell the capacity to other customers. Should Buyer submit an Order Form for such capacity prior to 1-Aug-01, NSX shall accept the Order from Buyer, subject only to agreement on price, which price shall be negotiated in good faith between NSX and Buyer, and NSX use of the satellite capacity for internal use. Internal use shall include use necessary to satisfy contracts executed prior to the date of notification to Buyer that the capacity was available. NSX and Buyer acknowledge that as of the effective date of this Agreement, no additional satellite capacity, above the 27 MHz to be ordered by Buyer, is available on satellite Telstar 12 transponder 10. This right of first refusal shall expire on 1-Aug-01 and thereafter NSX shall have no obligation to notify Buyer of the satellite capacity availability. 4. USE RESTRICTIONS ---------------- Buyer shall comply with the NetSat Acceptable Use Policy provided as Exhibit B, as may be changed from time to time; Operational Requirements, Technical Appendix, and any and all attachments to this Agreement or the Order Form(s); the Terms and Conditions from the Satellite Service Provider provided as Exhibit A (if applicable); and all applicable governmental laws, rules and regulations, including any export laws of the United States or restrictions on Buyer receipt of Service applicable in any country in which Buyer uses the Service. The Service shall be used by Buyer solely for transmission of its own multi-carrier digital telecommunications services, including the provision of value-added communications services by Buyer to its end customers, provided that Buyer is responsible for all facilities communicating with the Satellite and for coordinating the use of the Service with NSX. Buyer acknowledges that certain of the use restrictions relate to content transmitted over the satellite capacity and that NSX and the Satellite Services Provider shall not monitor such content for compliance but shall, upon report of improper use from any source, whether private or public, take action to suspend or terminate Buyer's use of the satellite capacity. In such event, Buyer will be notified of the nature of the alleged improper use. In the event the Satellite Service Provider terminates its services to NSX as a result of such reported improper use, NSX shall have the right to terminate services hereunder with no further obligation to Buyer. 5. ALLOWANCE FOR SERVICE INTERRUPTIONS ----------------------------------- a) Buyer shall be entitled to service interruption credit upon proper and timely notification to NSX and acceptance by the Satellite Service Provider. The credit provided shall be applied - -------------------------------------------------------------------------------- NetSat Express, Inc. Confidential Information Agreement SCA-01-005 Initials:_____ Page 1 of 5 _____ Date: 8-May-01 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission TERMS & CONDITIONS FOR NETSAT EXPRESS SATELLITE CAPACITY against future payments. Interruptions begin when the problem is reported to the Satellite Service Provider and the Buyer releases the affected satellite capacity to the Satellite Service Provider for testing and repair. An Interruption ends when the satellite capacity is operative. The credit shall be calculated as a pro-rata portion of the monthly recurring fee, based on a 30-day month, for the period of the Interruption. Unless otherwise provided in the Order Form(s), credits are given for each incidence of interruption of more than thirty (30) minutes and are given in one-minute increments. Credits will not be given for interruptions that are a result of: i) the action or failure to act of Buyer or others authorized by Buyer to use the affected satellite capacity; ii) the effects of sun transit on receiving earth stations; or iii) a Force Majeure condition. b) NSX shall have the right to charge Buyer for work carried out by NSX or the Satellite Service Provider to locate, rectify and/or repair any fault(s) i) not directly caused by any Satellite Service Provider's service, channel or equipment; ii) resulting from Buyer's willful act, fault, or negligence; or iii) resulting from Buyer's failure to comply with its obligations hereunder. 6. PAYMENT AND INVOICING --------------------- A sum equal to the first month's Monthly Recurring Charge, activation fee, and security deposit as noted on the Order Form, must be paid via wire transfer within ten (10) days of the execution of the Order Form. Payments by direct wire transfers shall be made to the NSX bank account designated on the invoice. All payments by Buyer to NSX hereunder shall be made in U.S. dollars. At Buyer's option, Buyer may secure the deposit by irrevocable letter of credit in a form and issued by a bank acceptable to NSX. All Monthly Recurring Charges are due and payable monthly in advance. All bank fees shall be for the account of Buyer. Monthly Recurring Charges shall commence on the Start Date defined on the Order Form for the period between the Start Date and the end of that calendar month. Thereafter, Monthly Recurring Charges shall be due on the first day of each calendar month. If any payment or portion thereof is not received by the due date, NSX shall have the right to draw down on the deposit for the period in arrears. BUYER shall within five (5) days of such draw down, replenish the deposit or letter of credit to the full original amount. In the event the deposit or letter of credit is not replenished, or Buyer's account is otherwise not current in accordance with the terms of this Agreement, NSX may terminate service in accordance with Article 9. Payment shall be deemed made only upon receipt by NSX of collected funds via bank wire transfer to an NSX designated bank account. 5. LATE PAYMENT ------------ Any late payment that is not received on the due date shall bear interest at the lower rate of 1 1/2% per month or the highest rate allowed by law, calculated from the date payment was due until the date it is actually received. 7. TAXES AND OTHER CHARGES ----------------------- Buyer is solely responsible for any taxes which may be assessed by any local, state, national, public or quasi-public governmental entity as a result of the Service provided to Buyer and/or Buyer's use of the Service. Any use, excise, sales or privilege taxes, duties, value-added taxes, fees, royalties, assessments (including government and/or signatory "mark-up" on space segment) or similar liabilities, however denominated, which may now or hereafter be levied on the Satellite Services provided or payments made under this Agreement, chargeable to or against NSX by any applicable government authority, shall be passed through to, and be payable by Buyer in addition to any other charges set forth in this Agreement. 8. EARLY TERMINATION BY BUYER -------------------------- a) In the event Buyer terminates an Order prior to the end of the term stated thereon, Buyer shall notify NSX in writing of such termination; stop using the Services as of the effective date of termination; and immediately pay NSX as liquidated damages for default, and not as a penalty, [***]. In addition to the liquidated damages, Buyer shall pay immediately upon termination all other fees and payments that accrued prior to the date of termination; all costs and expenses of collection, including reasonable attorney fees; and any costs incurred by NSX to remove, jam, block, or otherwise cause Buyer to stop using the Service. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission b) Buyer may terminate this Agreement for cause if NSX fails to comply in any material respect with the covenants, agreements or conditions herein, which are not corrected for thirty (30) days after receipt of written notice from Buyer specifying the alleged failure. In the event Buyer terminates this Agreement as a result of NSX failure to - -------------------------------------------------------------------------------- NetSat Express, Inc. Confidential Information Agreement SCA-01-005 Initials:_____ Page 2 of 5 _____ Date: 8-May-01 TERMS & CONDITIONS FOR NETSAT EXPRESS SATELLITE CAPACITY comply, no further payments shall be due except for payments for goods or Services provided prior to and including the termination date. 9. TERMINATION BY NSX ------------------ NSX reserves the right to suspend or terminate Services to Buyer for failure to comply in any material respect with the covenants or conditions herein ("Buyer default"), or in the event of a filing of bankruptcy, insolvency, appointment of a receiver, trustee, or other assignment for the benefit of creditors by or against Buyer. Upon notification of such termination, Buyer shall immediately cease utilizing the space segment. NSX may if required, effect such suspension or termination by jamming or otherwise interfering with Buyer's signal or use of the satellite capacity. Upon termination by NSX for Buyer default, Buyer shall immediately pay NSX as liquidated damages for default, and not as a penalty, [***]. In addition to the liquidated damages, Buyer shall pay immediately upon termination for any reason all other fees and payments that accrued prior to the date of termination; all costs and expenses of collection, including reasonable attorney fees; and any costs incurred by NSX to remove, jam, block, or otherwise cause Buyer to stop using the Service. 10. SATELLITE RETIREMENT -------------------- Notwithstanding anything to the contrary in this Agreement, Buyer acknowledges and agrees that NSX is providing a Satellite Link, which has been previously procured from a Satellite Service Provider by NSX. In the event the Satellite Service Provider ceases to operate the satellite for any reason other than a willful breach by NSX of the NSX-Satellite Service Provider Agreement, NSX shall have the right to immediately terminate this Agreement and all Order Form(s) issued hereunder related to that satellite. Thereafter, Buyer and NSX shall have no further obligation, save for Buyer's obligation to pay for services provided up to and including the date of termination. 11. BUYER COVENANTS --------------- Buyer will not alter, tamper with, adjust or repair the Satellite Services. Buyer shall not permit nor assist or permit others to abuse or fraudulently use Satellite Services in violation of any United States or local laws, regulations, or governmental orders. Buyer shall pay all NSX invoices on receipt or as otherwise stated on the invoice. 12. WARRANTY -------- a) NSX warrants that it will provide the satellite capacity and other services set forth in Article 2 hereof and the applicable Order Form(s) in accordance with generally accepted industry standards and in accordance with the technical parameters, satellite access procedures, and other requirements contained in the Satellite Service Provider terms attached hereto as Exhibit A. NSX's sole obligation and liability and Buyer's exclusive remedy under this warranty is limited to the Allowance for Service Interruptions provided in Article 5 hereof. Buyer's remedy is subject to the notification and other provisions of Article 5. b) THE FORGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. BUYER WAIVES, RELEASES, AND RENOUNCES ALL OTHER RIGHTS, CLAIMS, AND REMEDIES, INCLUDING WITHOUT LIMITATION THOSE WITH RESPECT TO LOSS OF USE OR OTHER SECONDARY OR CONSEQUENTIAL DAMAGES, HOWEVER OCCASIONED, AND WHETHER OR NOT GROWING OUT OF OR BASED UPON NSX'S NEGLIGENCE, ACTUAL OR IMPUTED. 13. LIMITATION ON LIABILITY ----------------------- a) NSX shall not be liable for claims or damages caused by Buyer's fault, negligence, or Buyer's failure to perform any obligation hereunder, including obligations contained in the Satellite Service Provider terms provided at Exhibit A; claims against Buyer by any third party; any act or omission of any other party furnishing products or services; and the installation or removal of equipment furnished by any service provider, including NSX, except where caused by the gross negligence of NSX. b) NSX shall not be liable for unauthorized access to or alteration, theft or destruction of data, programs, procedures or information transmitted or received by Buyer caused by accident, fraudulent means or devices, or any other method. c) NSX will not be liable under any circumstances for any lost profits or other consequential damages, even if NSX has been advised of the possibility of such damages. *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission d) IN NO EVENT WILL NSX LIABILITY IN CONTRACT OR IN TORT EXCEED THE LESSER OF THE ACTUAL MONTHLY - -------------------------------------------------------------------------------- NetSat Express, Inc. Confidential Information Agreement SCA-01-005 Initials:_____ Page 3 of 5 _____ Date: 8-May-01 TERMS & CONDITIONS FOR NETSAT EXPRESS SATELLITE CAPACITY RECURRING CHARGES AND ACTIVATION FEES PAID BY BUYER TO NSX UNDER THIS AGREEMENT OR THE MONTHLY RECURRING CHARGES TIMES SIX MONTHS PLUS THE ACTIVATION FEES, BUT IN NO EVENT GREATER THAN THE ACTUAL DAMAGES PROVEN BY BUYER AS DIRECTLY ATTRIBUTABLE TO NSX. 14. INDEMNIFICATION --------------- Buyer shall defend and indemnify NSX, including any of its parent, subsidiaries, or affiliated companies; the Satellite Service Provider; and the Satellite Owner from any claims, liabilities, losses, costs, or damages, including attorney fees and costs, arising out of: a) Buyer's use of the Service and/or the content of material transmitted thereon, including any actual or alleged libel, slander, obscenity, indecency, infringement of copyright, or breach in the privacy or security of transmissions; b) Buyer's breach of its obligations under this Agreement, including the terms of the Satellite Service Provider as provided in Exhibit A; c) Disputes between or among Buyer and its end customers, transmission recipients, or its program, data or other transmission content suppliers; and d) Any warranty, representation or statement Buyer may make to a third party in connection with the transmissions over the Satellite. 15. ASSIGNMENT ---------- Buyer may not assign this Agreement without the prior written consent of NSX, which consent shall not be unreasonably withheld. NSX may assign all or part of its right, title or interest in this Agreement and any or all sums due or to become due pursuant to this Agreement for any reason. Upon receipt of written notice of a permitted assignment hereunder, each party shall perform all its obligations hereunder to or for the benefit of the assignee and execute and deliver such documentation as may be reasonably required under this Agreement. 16. NO RESALE --------- The service is provided for Buyer's own use and in no event shall Buyer be permitted to resell the Service in whole or in part to any other person or entity except as expressly provided as part of value added communication services to Buyer's end customers, in circumstances where Buyer provides its end customers substantially more communication facilities than "bare" space segment capacity. 17. NO PROPERTY INTEREST SUBORDINATION ---------------------------------- This Agreement is a service contract and does not grant, and Buyer shall not assert, any right, interest or lien in any property or assets of NSX or the Satellite Service Provider including any Satellite or related equipment that they may own. 18. CONFIDENTIALITY --------------- NSX and Buyer shall hold in confidence the information contained in and exchanged in connection with this Agreement. Neither party shall release any information concerning any of the terms of this Agreement or any Order issued hereunder without the express written consent of the other party. Any press release or other public notice regarding this Agreement or any Order issued hereunder must be approved in writing by the non-disclosing party, which approval may include the format, content, timing, and method of release of the information. Notwithstanding the foregoing, disclosure, on a confidential basis, by either party to its principals, auditors, attorneys, investors, lenders, insurance agents, and proposed and actual successors in interest is permitted, and NSX may include Buyer's name and a general description of the nature of the Services provided in any general listing of NSX customers. 19. FORCE MAJEURE ------------- NSX shall not be liable for any failure of or delay in performance hereunder arising out of or resulting from causes beyond its reasonable control including but not limited to acts of God; fire; flood; adverse weather conditions, meteorological or atmospheric occurrences or disturbances (including, but not limited to, sun outages, sun spots, and other solar activity); other natural events; war, warlike operations, insurrections, or riots; acts of any government including laws, regulations, or orders; and labor troubles causing cessation, slowdown, or interruption of services, whether such events or actions affected NSX directly, the Satellite Service Provider, or any other NSX subcontractor or vendor. 20. ADDITIONAL PROVISIONS --------------------- a) This Agreement may not be amended, altered or modified except in writing, duly executed by both parties. b) This Agreement, along with the incorporated Order Form(s), references, attachments, exhibits and schedules, contains the entire Agreement between the parties with respect to the subject matter of this Agreement, and supersedes all prior oral or written agreements, commitments, or understandings. c) The waiver or failure to enforce any provision of this Agreement shall not operate as a waiver of - -------------------------------------------------------------------------------- NetSat Express, Inc. Confidential Information Agreement SCA-01-005 Initials:_____ Page 4 of 5 _____ Date: 8-May-01 TERMS & CONDITIONS FOR NETSAT EXPRESS SATELLITE CAPACITY any future breach of such provision or any other provision. d) If any paragraph or term of this Agreement shall be determined to be unenforceable, illegal, or invalid, the remaining provisions and terms shall remain in full force and effect. e) This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts shall together constitute but one and the same Agreement. f) All notices or other communications which may be or are required to be given to NSX under this Agreement shall be in writing, delivered to 45-19 Oser Avenue, Hauppauge, NY 11788 USA, Attention: Manager of Contracts; email: contracts@netsatx.net, fax +1-631-231-9223. All notices or other communications which may be or are required to be given to Buyer under this Agreement shall be in writing, delivered to the address, email, or fax number listed in the Order Form. g) In the event of a dispute or disagreement between the parties in connection with the interpretation, compliance, validity or enforceability of any provision of this Agreement, until a decision is rendered the parties will continue to comply with this Agreement including payment for services. 21. GOVERNING LAW ------------- This Agreement shall be governed by and construed under the laws of the State of New York, USA, without giving effect to its conflict of law principles. NETSAT EXPRESS, INC. BUYER: [***] ----------------------------- SIGNATURE: /S/ Kenneth Miller SIGNATURE: [***] ----------------------------- ------------------------- PRINTED NAME: Kenneth Miller PRINTED NAME: [***] -------------------------- ---------------------- TITLE: Chief Executive Officer TITLE: [***] --------------------------------- ----------------------------- DATE: 5/10/2001 DATE: 5/10/2001 ---------------------------------- ------------------------------ - -------------------------------------------------------------------------------- NetSat Express, Inc. Confidential Information Agreement SCA-01-005 Initials:_____ Page 5 of 5 _____ Date: 8-May-01 *** Portions of this page have been omitted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission TERMS & CONDITIONS FOR NETSAT EXPRESS SATELLITE CAPACITY EXHIBIT A - SATELLITE SERVICE PROVIDER TERMS LORAL SKYNET TELSTAR SATELLITES 1) USE OF THE SERVICE Buyer shall provide an initial loading plan ("Initial Loading Plan") prior to the Order start date. If Buyer desires to transmit to any transponder in any manner different ("Different Loading Plan") than its Initial Loading Plan, then the following shall apply: a) If the Different Loading Plan involves Digital Carriers, Buyer shall provide the Different Loading Plan to NSX, no later than twenty-one (21) days prior to the start date of such Different Loading Plan, identifying its characteristics. In the event that NSX or the Satellite Service Provider is required to perform any maintenance or troubleshooting activity involving the affected satellite capacity, Buyer must furnish the Different Loading Plan on demand. b) If the Different Loading Plan involves the addition of or changes to an FM Television Carrier or any Other Type Of Carrier, Buyer shall provide a written request to NSX, no less than ninety (90) days prior to the desired start date of such Different Loading Plan, identifying the characteristics, and the desired start date of such Different Loading Plan. NSX shall coordinate such proposed Different Loading Plan with the Satellite Service Provider to determine if its use could reasonably be expected to result in either intra-satellite or inter-satellite interference, and, based on the results of such coordination, the Satellite Service Provider shall either authorize or reject the use of such proposed Different Loading Plan, and NSX shall forward such authorization or rejection in writing to Buyer. Authorization shall not be unreasonably withheld. c) Notwithstanding anything in this Agreement to the contrary, Buyer may obtain authorization for more than one Different Loading Plan for any transponder provided hereunder, for any period of time, during the term of this Agreement. d) In the event Buyer uplinks to any transponder in any manner different from that authorized ("Unauthorized Loading Plan") pursuant to either its Initial Loading Plan or any other authorized Different Loading Plan for the affected transponder, whether analog or digital, NSX may, in its sole discretion, require Buyer to discontinue the use of such Unauthorized Loading Plan until such time as the Satellite Service Provider authorizes the use of such uplink such that it becomes a Different Loading Plan pursuant to the provisions of this Agreement. 2) SCRAMBLING Prior to commencing use of the satellite capacity provided under this Agreement, Buyer, at its expense, shall provide NSX with any unscrambling devices that may be required for signal monitoring. Buyer shall not use, or allow the use of, the satellite capacity provided hereunder for distribution of program material of a sexual or adult-oriented nature to television viewers unless the programming is scrambled such that television viewers can receive the programming only through the use of an unscrambler authorized by Buyer or Buyer's authorized agent. 3) NON-INTERFERENCE Buyer's radio transmissions (and those of its uplinking agents) to the satellite shall comply, in all material respects, with all governmental (whether national, international, federal, state, municipal, or otherwise) statutes, laws, rules, regulations, ordinances, codes, directives and orders, of any such governmental agency, body, or court (collectively "Laws") applicable to it regarding the operation of the satellite, transponder, space segment, and any backup satellite, transponder or space segments to which Buyer is given access pursuant to this Agreement. Buyer shall not interfere with the use of any other satellite, transponder or space segment or cause physical harm to the satellite, transponder or transponder, any backup satellite, transponder or space segment to which Buyer is given access pursuant to this Agreement, or any other satellite, transponder or space segment. Further, Buyer will coordinate with (and will require its uplinking agents to coordinate with) NSX and the Satellite Service Provider, in accordance with procedures reasonably established by NSX and the Satellite Service Provider, its transmissions to the satellite so as to minimize adjacent transponder, space segment and adjacent satellite interference. For purposes of this section, interference shall also mean acts or omissions that cause a satellite to fail to meet its circuit parameters. Without limiting the generality of the foregoing, Buyer (and its uplinking agents) shall comply with all U.S. Federal Communications Commission ("FCC") rules and regulations regarding use of automatic transmitter identification systems (ATIS). 4) IMPROPER ILLUMINATION The transmission parameters are as set forth in the "SATELLITE ACCESS PROCEDURES" attached hereto and incorporated by reference. Improper Illumination shall include transmissions that are other than as described in Exhibit B, transmissions at an incorrect frequency, transmissions at excessive power levels or any illumination which can cause harm or interference to any transponder, space segment or to any satellite. In the event improper illumination of any transponder and / or space segment provided under this Agreement is detected by NSX or the Satellite Service Provider, Buyer shall be notified and shall take immediate corrective action to stop the improper illumination within five (5) minutes of notification from NSX. A charge of eleven hundred ($1,100.00) dollars per minute will apply for improper illumination that continues beyond the five minute period after notification, or attempted notification if there is no answer at the telephone number provided by Buyer. Furthermore, if immediate corrective action is not taken by Buyer, NSX shall have the right to take immediate action to protect its and the Satellite Service Provider's services or interests, including but not limited to suspending or terminating Buyer's use of the affected transponder and / or space segment. Any such termination would be a termination due to breach of the Buyer, entitling NSX to all appropriate remedies provided for in this Agreement. - -------------------------------------------------------------------------------- NetSat Express, Inc. Confidential Information Agreement SCA-01-005 Initials:_____ Exhibit A _____ Form Date: 20-Nov-00 [NETSAT EXPRESS GRAPHIC OMITTED] NETSAT EXPRESS ACCEPTABLE USE POLICY 1) This Acceptable Use Policy ("Policy") specifies the actions prohibited by NSX to users of the NSX network. NSX reserves the right to modify the Policy at any time. 2) The NSX network may be used only for lawful purposes. Transmission, distribution or storage of any material in violation of any applicable law or regulation is prohibited. This includes, without limitation, material protected by copyright, trademark, trade secret or other intellectual property right used without proper authorization; material that is obscene, defamatory, or constitutes an illegal threat or harassment; fraudulent or other material amounting to illegal misrepresentation; fraudulent or other illegal use of private material; or material that violates export control laws. 3) Violations of system or network security are prohibited, and may result in criminal and civil liability. NSX will investigate incidents involving such violations and may involve and will cooperate with law enforcement if a criminal violation is suspected. Examples of system or network security violations include, without limitation, the following: a) Unauthorized access to or use of data, systems or networks, including any attempt to probe, scan or test the vulnerability of a system or network or to breach security or authentication measures without express authorization of the owner of the system or network. b) Unauthorized monitoring of data or traffic on any network or system without express authorization of the owner of the system or network c) Interference with service to any user, host or network including, without limitation, mail bombing, flooding, deliberate attempts to overload a system and broadcast attacks. d) Forging of any TCP-IP packet header or any part of the header information in an email or a newsgroup posting. e) Sending unsolicited mail messages, including, without limitation, commercial advertising and informational announcements, is explicitly prohibited. A user shall not use another site's mail server to relay mail without the express permission of the site. f) Posting the same or similar message to one or more newsgroups (excessive cross-posting or multiple-posting, also known as "SPAM") is explicitly prohibited. 4) Buyer is responsible for protection of its passwords. Buyer will not use or permit anyone to use NSX service to guess or obtain passwords or to access other systems or networks without authorization. 5) Buyer is prohibited from using Internet Relay Chat scripts or programs that interfere with or deny service to other users on any server or host or from employing any means or method to adversely affect other users. Buyer is also prohibited from engaging in activities that have the effect of harassing other users. 6) Buyer may not use any IP address which is not assigned by NSX. 7) INDIRECT OR ATTEMPTED VIOLATIONS OF THE POLICY, AND ACTUAL OR ATTEMPTED VIOLATIONS BY A THIRD PARTY ON BEHALF OF BUYER OR BUYER'S END USER, SHALL BE CONSIDERED VIOLATIONS OF THE POLICY BY BUYER. 8) Violations of the Acceptable Use Policy will result in immediate suspension and/or termination of service by NSX. NSX reserves the right to reveal the name and contact information of Buyer and any of Buyer's downstream users to relevant authorities or parties involved in any criminal investigation or civil litigation alleging violations of this policy. EX-99.1 4 file003.txt CERTIFICATION SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Globecomm Systems Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David E. Hershberg, Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and. (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ DAVID E. HERSHBERG -------------------------------------- Chairman of the Board of Directors and Chief Executive Officer November 14, 2002 EX-99.2 5 file004.txt CERTIFICATION SECTION 906 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Globecomm Systems Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew C. Melfi, Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and. (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ ANDREW C. MELFI --------------------------------------- Vice President, Chief Financial Officer and Treasurer November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----