S-1/A 1 h75643a3sv1za.htm FORM S-1/A sv1za
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As filed with the Securities and Exchange Commission on November 29, 2010
Registration No. 333-169723
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Amendment No. 3
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
RigNet, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
         
Delaware   4899   76-0677208
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
1880 S. Dairy Ashford, Suite 300
Houston, Texas 77077-4760
Telephone: 281-674-0100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
William D. Sutton
General Counsel
RigNet, Inc.
1880 S. Dairy Ashford, Suite 300
Houston, Texas 77077-4760
Telephone: 281-674-0100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
 
 
 
 
Copies to:
 
     
Brian P. Fenske
Fulbright & Jaworski L.L.P.
Fulbright Tower
1301 McKinney, Suite 5100
Houston, Texas 77010
(713) 651-5557
  Jeffrey D. Karpf
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
(212) 225-2000
 
 
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
 
 
 
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer o
  Accelerated filer o   Non-accelerated filer þ   Smaller reporting company o
         (Do not check if a smaller reporting company)    
 
 
 
 
CALCULATION OF REGISTRATION FEE
 
                         
            Proposed Maximum
    Proposed Maximum
    Amount of
Title of Each Class of
    Amount to be
    Offering Price per
    Aggregate Offering
    Registration
Securities to be Registered     Registered(1)     Share     Price     Fee(2)
Common Stock, $0.001 par value per share
    5,750,000     $16.00     $92,000,000     $6,560
                         
 
(1) Includes shares that the underwriters have the option to purchase to cover over-allotments, if any.
 
(2) Calculated pursuant to rule 457(a) under the Securities Act of 1933, as amended.
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 
Subject to Completion. Dated November 29, 2010.
 
(RIGNET LOGO)
 
RigNet, Inc.
 
5,000,000 Shares
Common Stock
 
 
This is the initial public offering of RigNet, Inc. We are offering 3,333,334 shares of our common stock. Selling stockholders are offering an additional 1,666,666 shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share. We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “RNET”.
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 15.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
                 
    Per Share   Total
 
Initial public offering price
  $             $          
Underwriting discounts and commissions
  $       $    
Proceeds to RigNet, before expenses
  $       $    
Proceeds to selling stockholders, before expenses
  $       $  
 
 
We have granted the underwriters the right to purchase up to 500,000 additional shares of common stock to cover over-allotments, and our selling stockholders have granted the underwriters the right to purchase up to 250,000 additional shares of common stock to cover over-allotments.
 
The underwriters expect to deliver the shares against payment in New York, New York on or about          , 2010.
 
Deutsche Bank Securities Jefferies & Company
 
Oppenheimer & Co. Simmons & Company
International        
 
Prospectus dated          , 2010.


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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in each case included elsewhere in this prospectus. Unless otherwise indicated, all information regarding share amounts and prices have been adjusted to reflect the four-to-one reverse stock split which became effective on November 24, 2010.
 
Overview
 
We are a leading data network infrastructure provider serving the remote communications needs of the oil and gas industry. Through a controlled and managed Internet Protocol/Multiprotocol Label Switching, or IP/MPLS, global network, we deliver voice, data, video and other value-added services such as real-time management services, under a multi-tenant model. These turnkey solutions simplify the management of communications services, freeing our customers to focus attention on their core drilling and production operations. Our customers use our secure communications and private extranet to manage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure is either unavailable or unreliable. We offer our clients what is often the sole means of communications with their remote operations, including offshore and land-based drilling rigs, offshore production facilities, energy support vessels and support offices. To ensure the maximum reliability demanded by our customers, we deliver our services through our IP/MPLS global network, tuned and optimized for remote communications with satellite endpoints, that serves oil and gas customers in both North America and internationally. As of September 30, 2010, we were operating as the primary provider of remote communications and collaborative applications to over 375 customers in over 800 physical locations in approximately 30 countries on six continents.
 
The emergence of highly sophisticated processing and visualization systems has allowed oil and gas companies to make decisions based on reliable and secure real-time information carried by our network from anywhere in the world to their home offices. We supply our customers with solutions to enable broadband data, voice and video communications with quality, reliability, security and scalability that is superior to conventional switched transport networks. We do not own satellites or earth stations/teleports and procure bandwidth and equipment from third parties on behalf of our customers on a provider-neutral basis. Key aspects of our services include:
 
  •  managed solutions offered at a per rig, per day subscription rate primarily through customer agreements with terms that typically range from one month to three years, with some customer agreement terms as long as five years;
 
  •  enhanced end-to-end IP/MPLS global network to ensure significantly greater network reliability, faster trouble shooting and service restoration time and quality of service for various forms of data traffic;
 
  •  enhanced end-to-end IP/MPLS network allows new components to be plugged into our network and be immediately available for use (plug-and-play);
 
  •  a network designed to accommodate multiple customer groups resident at a site, including rig owners, drillers, operators, service companies and pay-per-use individuals;
 
  •  value-added services, such as WiFi hotspots, Internet kiosks and video conferencing, benefiting the multiple customer groups resident at a site;


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  •  proactive network monitoring and management through a network operations center that actively manages network reliability at all times and serves as an in-bound call center for trouble shooting, 24 hours per day, 365 days per year;
 
  •  engineering and design services to determine the appropriate product and service solution for each customer;
 
  •  installation of on-site equipment designed to perform in extreme and harsh environments with minimal maintenance; and
 
  •  maintenance and support through locally-deployed engineering and service support teams and warehoused spare equipment inventories.
 
Our business operations are divided into three reportable segments: eastern hemisphere, western hemisphere and U.S. land.
 
Eastern Hemisphere
 
Our eastern hemisphere segment services are performed out of our Norway, Qatar, United Kingdom and Singapore based offices for customers and rig sites located on the eastern side of the Atlantic Ocean primarily off the coasts of the U.K., Norway and West Africa, around the Indian Ocean in Qatar, Saudi Arabia and India, around the Pacific Ocean near Australia, and within the South China Sea. As of September 30, 2010, this segment was serving approximately 138 jackup, semi-submersible and drillship rigs and approximately 110 other sites, which include production facilities, energy support vessels, land rigs, and related remote support offices and supply bases.
 
For the year ended December 31, 2009, our eastern hemisphere segment produced revenues of $60.9 million, representing 75.3% of our total revenue, Adjusted EBITDA of $32.0 million, compared to our total Adjusted EBITDA of $29.1 million and net income of $24.7 million, compared to our total net loss of $19.6 million. Adjusted EBITDA is not a financial measure under U.S. generally accepted accounting principles, or GAAP, and is included in this prospectus to provide investors with a supplemental measure of our operating performance. See “Summary Consolidated Financial Data” below for our description of Adjusted EBITDA and reconciliation from net income, the most directly comparable GAAP financial measure. See the notes to our consolidated financial statements included elsewhere in this prospectus for more segment financial information.
 
Western Hemisphere
 
Our western hemisphere segment services are performed out of our United States and Brazil based offices for customers and rig sites located on the western side of the Atlantic Ocean primarily off the coasts of the United States, Mexico and Brazil, and within the Gulf of Mexico, but excluding land rigs and other land-based sites in North America. As of September 30, 2010, this segment was serving approximately 87 jackup, semi-submersible and drillship rigs and approximately 143 other sites, which include production facilities, energy support vessels and related remote support offices and supply bases.
 
For the year ended December 31, 2009, our western hemisphere segment produced revenues of $11.2 million, representing 13.9% of our total revenue, Adjusted EBITDA of $4.6 million, compared to our total Adjusted EBITDA of $29.1 million, and net income of $2.2 million, compared to our total net loss of $19.6 million.
 
U.S. Land
 
Our U.S. land segment provides remote communications services for drilling rigs and production facilities located onshore in North America. Our U.S. land segment services are performed out of our Louisiana based office for customers and rig sites located in the


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continental United States. As of September 30, 2010, this segment was serving approximately 384 onshore drilling rigs and other remote sites. Our product suite consists of broadband voice, data and Internet access services along with rig location communications such as wired and wireless intercoms and two-way radios. This segment leverages the same network infrastructure and network operations center used in our western hemisphere segment. We provide installation and service support from nine service centers and equipment depots located in key oil and gas producing areas around the continental United States.
 
For the year ended December 31, 2009, our U.S. land segment produced revenues of $9.9 million, representing 12.2% of our total revenue, Adjusted EBITDA of $2.0 million, compared to our total Adjusted EBITDA of $29.1 million, and net loss of $4.5 million, compared to our total net loss of $19.6 million.
 
Our Market Opportunity
 
Oil and gas companies operate their remote locations through global “always-on” networks driving demand for communications services and managed services solutions that can operate reliably in increasingly remote areas under harsh environmental conditions.
 
Oil and gas companies with geographically dispersed operations are particularly motivated to use secure and highly reliable broadband networks due to several factors:
 
  •  oil and gas companies rely on secure real-time data collection and transfer methods for the safe and efficient coordination of remote operations;
 
  •  long-term growth of global demand for crude oil and natural gas and increases in commodity prices are expected to improve the outlook for new rig construction and dormant rig reactivation;
 
  •  technological advances in drilling techniques, driven by declining production from existing oil and gas fields and strong hydrocarbon demand, have enabled increased exploitation of offshore deepwater reserves and development of unconventional reserves (e.g. shales and tight sands) and require real time data access to optimize performance; and
 
  •  transmission of increased data volumes and real-time data management and access to key decision makers enable customers to maximize operational results, safety and financial performance.
 
Competitive Strengths
 
Our mission is to continue to establish ourselves as the leading data network infrastructure provider within the oil and gas industry. We seek to maximize our growth and profitability through focused capital investments that enhance our competitive strengths. We believe that our competitive strengths include the following:
 
  •  mission-critical services delivered by a trusted provider with deep industry expertise and multi-national operations;
 
  •  operational leverage and multiple paths to growth supported by a plug-and-play IP/MPLS global platform;
 
  •  scalable systems using standardized equipment that leverages our global infrastructure;
 
  •  flexible, provider-neutral technology platform;
 
  •  high-quality customer support with full time monitoring and regional service centers; and
 
  •  long-term relationships with leading companies in the oil and gas industry.


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Growth Strategy
 
We increased revenues from $29.2 million in 2006 to $89.9 million in 2008, substantially through the successful execution of our business plan. Our revenues in 2009 were $80.9 million, despite challenging industry conditions in 2009 driven by the global economic downturn.
 
To serve our customers and grow our business, we intend to pursue aggressively the following strategies:
 
  •  expand our share of growing onshore and offshore drilling rig markets;
 
  •  increase secondary customer penetration;
 
  •  commercialize additional value-added products and services;
 
  •  extend our presence into adjacent upstream energy segments and other remote communications segments; and
 
  •  selectively pursue strategic acquisitions.
 
Risks Associated with Our Business
 
Our business is subject to numerous risks, including those described in the section entitled “Risk Factors” immediately following this prospectus summary. These risks represent challenges to the implementation of our strategy and the success of our business and the occurrence of any of these risks could harm our business, financial condition and results of operations. These risks include the following:
 
  •  The recent oil spill from the Macondo well in the Gulf of Mexico has led to the United States government’s imposition of moratoria on drilling offshore the United States in waters greater than 500 feet and delays in the approval of applications to drill in both deepwater and shallow water areas, which may reduce the need for our services in the United States Gulf of Mexico, and we cannot assure you that these rigs will be redeployed to other locations where we provide services.
 
  •  The recent oil spill in the Gulf of Mexico has led to tighter safety requirements and other restrictions on offshore drilling in the Gulf of Mexico and this oil spill and other similar spills that may occur may lead to other restrictions or regulations on offshore drilling in the Gulf of Mexico or in other areas around the world, which may reduce drilling and thus the need for our services in those areas.
 
  •  We rely on third parties to provide satellite capacity for our services and are subject to service interruptions, capacity restraints or other failures by the third party satellite and other communications providers we utilize.
 
  •  We are subject to the volatility of the global oil and gas industry and our business is likely to fluctuate with the level of global activity for oil and natural gas exploration, development and production.
 
  •  We may face difficulties in obtaining regulatory approvals for our provision of telecommunication services, and we may face changes in regulation in the future.
 
  •  We have identified a material weakness, a significant deficiency and other deficiencies in our internal controls for the year ended December 31, 2009 and a significant deficiency and other deficiencies in our internal controls for the year ended December 31, 2008 that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.


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Principal Stockholders
 
Immediately after the completion of this offering, the following groups of stockholders will own the percentages of our outstanding voting power set forth in the table below.
 
                 
    Assuming No Exercise
    Assuming Full Exercise
 
    of Over-Allotment Option (1)     of Over-Allotment Option (1)  
 
Funds Affiliated with
               
Altira Group LLC
    15.3 %     14.4 %
Sanders Morris Harris Group, Inc. 
    13.8 %     12.9 %
Cubera Secondary (GP) AS
    26.5 %     24.9 %
Our Directors and Executive Officers as a group (2)
    1.8 %     1.7 %
Our Other Existing Stockholders
    7.3 %     6.9 %
Public Investors in this Offering
    35.3 %     39.2 %
 
 
(1) Excludes common stock subject to options and warrants, including those that are currently exercisable or exercisable within 60 days of September 30, 2010. For beneficial ownership calculations that include such options and warrants, see “Principal and Selling Stockholders” included elsewhere in this prospectus.
 
(2) Excludes ownership of outstanding voting power of any funds affiliated with Altira Group LLC, Sanders Morris Harris Group, Inc., and Cubera Secondary (GP) AS.
 
We are currently controlled by Altira Group LLC, or Altira, Sanders Morris Harris Group, Inc., or Sanders Morris, and Cubera Secondary (GP) AS, or Cubera. As of September 30, 2010, Altira owned 24.5% of our outstanding voting power, Sanders Morris owned 22.5% and Cubera owned 39.0%. In connection with the conversion of all of our outstanding shares of preferred stock and accrued and unpaid dividends on our series B and series C preferred stock and the payment of the major event preference for our outstanding preferred stock: Altira will receive approximately 1,419,814 shares of our common stock, or a value of approximately $21.3 million, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus; Sanders Morris will receive approximately 1,253,578 shares of our common stock, or a value of approximately $18.8 million, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus; and Cubera will receive approximately 2,449,121 shares of our common stock, or a value of approximately $36.7 million, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus. There will be no shares of preferred stock outstanding upon completion of this offering. See “Related Party Transactions — Principal Stockholders” and “Risk Factors — Risks Related to this Offering — Some of our stockholders could together exert control over our Company after completion of this offering” for additional information.
 
Corporate Information
 
RigNet, Inc. was incorporated in Delaware on July 6, 2004. Our predecessor began operations in 2000 as RigNet Inc., a Texas corporation. In July 2004, our predecessor merged into us, RigNet, Inc., a Delaware corporation. Our principal executive offices are located at 1880 S. Dairy Ashford, Suite 300, Houston, Texas 77077-4760 and our telephone number is +1 (281) 674-0100. Our corporate website address is www.rig.net. We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it part of this prospectus.
 
For convenience in this prospectus, “RigNet”, the “Company”, “we”, “us” and “our” refer to RigNet, Inc., a Delaware corporation and its subsidiaries, taken as a whole, unless otherwise noted.


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THE OFFERING
 
Common stock offered by RigNet 3,333,334 shares
 
Common stock offered by the selling stockholders 1,666,666 shares
 
  Total common stock offered
5,000,000 shares
 
 
Total common stock to be outstanding after this offering 14,183,042 shares
 
Use of proceeds We intend to use the net proceeds from this offering as follows:
 
• $400,000 of the proceeds will be used to pay an IPO success bonus to some of our key employees, including some of our named executive officers, upon completion of this offering. For more information about this bonus, see “Use of Proceeds” and “Executive Compensation”.
 
• The remaining proceeds will be used for working capital and other general corporate purposes, which may include the acquisition of other businesses, products or technologies. We do not, however, have agreements or commitments for any specific acquisitions at this time.
 
We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. See “Use of Proceeds”.
 
Risk factors See “Risk Factors” for a discussion of factors that you should consider carefully before deciding whether to purchase shares of our common stock.
 
Proposed NASDAQ symbol “RNET”
 
The number of shares of our common stock to be outstanding after this offering is based on the number of shares outstanding as of September 30, 2010. Such number of shares excludes:
 
  •  2,599,809 shares of our common stock issuable upon the exercise of options and warrants (other than warrants issued to Escalate Capital I, L.P.) outstanding as of September 30, 2010 with a weighted average exercise price of $5.08 per share; and
 
  •  3,000,000 shares of our common stock reserved for future issuance under our 2010 Omnibus Incentive Plan.
 
Unless otherwise indicated, the information in this prospectus reflects and assumes:
 
  •  the conversion, which will occur immediately prior to the closing of the offering, of all of our outstanding shares of preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into an aggregate of 3,973,738 shares of our


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common stock, plus approximately 625 additional shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock;
 
  •  the issuance of 1,326,252 shares of our common stock, plus an additional 200 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus, to pay our preferred stockholders the major event preference, which will occur immediately prior to the closing of the offering;
 
  •  the exercise by Escalate Capital I, L.P. on a cashless basis immediately prior to the closing of the offering of all of the outstanding warrants it holds, which we refer to as the Escalate Warrants, for an aggregate of 231,090 shares of our common stock, plus an additional 27 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of the anti-dilution adjustment;
 
  •  the four-to-one reverse stock split of our common stock on November 24, 2010;
 
  •  the filing of our post-offering certificate of incorporation and adoption of our post-offering bylaws immediately prior to the closing of the offering; and
 
  •  no exercise by the underwriters of their option to purchase up to an additional 500,000 shares of our common stock from us and 250,000 shares of our common stock from the selling shareholders to cover over-allotments.


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SUMMARY CONSOLIDATED FINANCIAL DATA
 
The following table sets forth a summary of our consolidated statements of income (loss) and comprehensive income (loss), balance sheets and other data for the periods indicated. The summary consolidated statements of income (loss) and comprehensive income (loss) data for the years ended December 31, 2007, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of loss and comprehensive loss data for the nine months ended September 30, 2009 and 2010 and the summary consolidated balance sheet data as of September 30, 2010 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements contained elsewhere in this prospectus.
 
Unaudited pro forma net income (loss) per share attributable to RigNet, Inc. common stockholders and unaudited pro forma weighted-average shares outstanding reflect:
 
  •  the conversion of all outstanding shares of our convertible preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into shares of our common stock, which will occur immediately prior to the closing of this offering; 
 
  •  the issuance of 1,326,252 shares of our common stock, plus an additional 200 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus, to pay our preferred stockholders the major event preference, which will occur immediately prior to the closing of the offering; and
 
  •  the exercise immediately prior to the closing of the offering of the Escalate Warrants on a cashless basis for an aggregate of 231,090 shares of our common stock, plus an additional 27 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of the anti-dilution adjustment.
 
We have presented the summary balance sheet data as of September 30, 2010:
 
  •  on an actual basis;
 
  •  on a pro forma basis to give effect to (i) the conversion of all outstanding shares of our convertible preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into an aggregate of 3,973,738 shares of our common stock, plus approximately 625 additional shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, (ii) the issuance of 1,326,252 shares of our common stock, plus an additional 200 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus, to pay our preferred stockholders the major event preference, and (iii) the exercise of the Escalate Warrants on a cashless basis for an aggregate of 231,090 shares of our common stock, plus an additional 27 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of the anti-dilution adjustment, each of which will occur immediately prior to the closing of this offering; and
 
  •  on a pro forma as adjusted basis to give further effect to our sale of 3,333,334 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus,


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  after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the number of shares of our common stock outstanding upon the closing of this offering by approximately 83,045 shares, the pro forma net income (loss) per share attributable to RigNet, Inc. common stockholders for the nine months ended September 30, 2010 of approximately: Basic $0.01 and Diluted remains unchanged, and the pro forma weighted average shares outstanding for the nine months ended September 30, 2010 of approximately: Basic 83 and Diluted 872, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
 
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, total assets and total RigNet, Inc. stockholders’ equity (deficit) on a pro forma as adjusted basis by approximately $3.1 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. The pro forma as adjusted information presented in the summary balance sheets data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.
 


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          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2007     2008     2009     2009     2010  
    (in thousands, except per share data)  
 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Data:
                                       
Revenue
  $ 67,164     $ 89,909     $ 80,936     $ 60,871     $ 68,604  
Expenses:
                                       
Cost of revenue
    29,747       39,294       35,165       26,200       31,242  
Depreciation and amortization
    9,451       10,519       12,554       9,596       11,349  
Impairment of goodwill
                2,898       2,898        
Selling and marketing
    2,405       2,605       2,187       1,559       1,576  
General and administrative
    20,338       21,277       16,444       11,213       15,858  
                                         
Total expenses
    61,941       73,695       69,248       51,466       60,025  
                                         
Operating income
    5,223       16,214       11,688       9,405       8,579  
Interest expense
    (5,497 )     (2,464 )     (5,146 )     (4,638 )     (1,174 )
Other income (expense), net
    (63 )     27       304       186       (645 )
Change in fair value of preferred stock derivatives
    (1,156 )     2,461       (21,009 )     (13,865 )     (12,384 )
                                         
Income (loss) before income taxes
    (1,493 )     16,238       (14,163 )     (8,912 )     (5,624 )
Income tax expense
    (628 )     (5,882 )     (5,457 )     (3,863 )     (4,953 )
                                         
Net income (loss)
    (2,121 )     10,356       (19,620 )     (12,775 )     (10,577 )
Less: Net income (loss) attributable to:
                                       
Non-redeemable, non-controlling interest
    167       235       292       230       211  
Redeemable, non-controlling interest
    971       1,715       10       15       25  
                                         
Net income (loss) attributable to RigNet, Inc. stockholders
  $ (3,259 )   $ 8,406     $ (19,922 )   $ (13,020 )   $ (10,813 )
                                         
Net income (loss) attributable to RigNet, Inc. common stockholders
  $ (3,931 )   $ (4,190 )   $ (22,118 )   $ (14,610 )   $ (13,293 )
                                         
Net income (loss) per share attributable to:
                                       
RigNet, Inc. common stockholders:
                                       
Basic
  $ (0.74 )   $ (0.79 )   $ (4.16 )   $ (2.75 )   $ (2.50 )
Diluted
  $ (0.74 )   $ (0.79 )   $ (4.16 )   $ (2.75 )   $ (2.50 )
Weighted average shares outstanding:
                                       
Basic
    5,279       5,301       5,312       5,310       5,318  
Diluted
    5,279       5,301       5,312       5,310       5,318  
Other Data:
                                       
Adjusted EBITDA (non-GAAP measure)
  $ 17,536     $ 30,409     $ 29,093     $ 22,751     $ 21,311  
Net cash provided by operating activities
    5,352       19,655       26,189       22,644       14,812  
Net cash used by investing activities
    (7,204 )     (9,363 )     (19,305 )     (16,279 )     (9,586 )
Net cash provided (used) by financing activities
    5,871       (1,669 )     (10,774 )     (9,106 )     (1,466 )
Pro forma as adjusted net income attributable to
                                       
RigNet, Inc. common stockholders (1)
                  $ 3,074             $ 1,630  
                                         

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          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2007     2008     2009     2009     2010  
    (in thousands, except per share data)  
 
Pro forma as adjusted net income per share attributable to RigNet, Inc. common stockholders:
                                       
Basic
                  $ 0.22             $ 0.11  
                                         
Diluted
                  $ 0.20             $ 0.10  
                                         
Pro forma as adjusted weighted average shares outstanding:
                                       
Basic
                    14,156               14,182  
                                         
Diluted
                    15,712               15,845  
                                         
 
(1) Pro forma net income includes the elimination of change in preferred stock derivative, assuming the conversion of preferred shares occurred as of the first day of the pro forma period, and an adjustment for interest expense and its related income tax effect, assuming that on a pro forma basis proceeds from the offering would have been used instead of the Company making additional borrowings on its term loan during the period.
 
                         
    September 30, 2010  
                Pro Forma
 
    Actual     Pro Forma     As Adjusted  
    (in thousands)  
 
Consolidated Balance Sheet Data:
                       
Cash and cash equivalents
  $ 14,514     $ 14,514     $ 59,514  
Restricted cash—current portion
    2,500       2,500       2,500  
Restricted cash—long-term portion
    7,500       7,500       7,500  
Total assets
    93,179       93,179       138,179  
Current maturities of long-term debt
    8,644       8,644       8,644  
Long-term debt
    24,529       24,529       24,529  
Preferred stock derivatives
    44,447              
Preferred stock
    18,146              
Total RigNet, Inc. stockholders’ equity (deficit)
    (29,711 )     32,882       77,882  
 
Adjusted EBITDA
 
We define Adjusted EBITDA as net income (loss) plus net interest expense, income tax expense (benefit), depreciation and amortization, impairment of goodwill, (gain) loss on sale of property and equipment, change in fair value of derivatives, stock-based compensation expense and initial public offering costs and related bonuses. Adjusted EBITDA is a financial measure that is not calculated in accordance with generally accepted accounting principles, or GAAP. The table below provides a reconciliation of this non-GAAP financial measure to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss), operating income (loss) or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate Adjusted EBITDA or similarly titled measures in the same manner as we do. We prepare Adjusted EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate.

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We believe Adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:
 
  •  securities analysts use Adjusted EBITDA as a supplemental measure to evaluate the overall operating performance of companies, and we anticipate that our investor and analyst presentations after we are public will include Adjusted EBITDA; and
 
  •  by comparing our Adjusted EBITDA in different periods, our investors can evaluate our operating results without the additional variations caused by items that we do not consider indicative of our core operating performance and which are not necessarily comparable from year to year.
 
Our management uses Adjusted EBITDA:
 
  •  to indicate profit contribution and cash flow availability for growth and/or debt retirement;
 
  •  for planning purposes, including the preparation of our annual operating budget and as a key element of annual incentive programs;
 
  •  to allocate resources to enhance the financial performance of our business; and
 
  •  in communications with our board of directors concerning our financial performance.
 
Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under GAAP. Some of these limitations are:
 
  •  Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or other contractual commitments;
 
  •  Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
  •  Adjusted EBITDA does not reflect interest expense;
 
  •  Adjusted EBITDA does not reflect cash requirements for income taxes;
 
  •  Adjusted EBITDA does not reflect a non-cash component of employee compensation;
 
  •  although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and
 
  •  other companies in our industry may calculate Adjusted EBITDA or similarly titled measures differently than we do, limiting its usefulness as a comparative measure.


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The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods presented. Net income (loss) is the most comparable GAAP measure to Adjusted EBITDA.
 
                                         
          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2007     2008     2009     2009     2010  
    (in thousands)  
 
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
                                       
Net income (loss)
  $ (2,121 )   $ 10,356     $ (19,620 )   $ (12,775 )   $ (10,577 )
Interest expense
    5,497       2,464       5,146       4,638       1,174  
Depreciation and amortization
    9,451       10,519       12,554       9,596       11,349  
Impairment of goodwill
                2,898       2,898        
(Gain) loss on sale of property and equipment
    (27 )     (92 )     111       91       320  
Change in fair value of preferred stock derivatives
    1,156       (2,461 )     21,009       13,865       12,384  
Stock-based compensation
    169       231       277       203       334  
Initial public offering costs
    2,783       3,510       1,261       372       1,374  
Income tax expense
    628       5,882       5,457       3,863       4,953  
                                         
Adjusted EBITDA (non-GAAP measure)
  $ 17,536     $ 30,409     $ 29,093     $ 22,751     $ 21,311  
                                         
 
On pages 2, 3 and 65 of this prospectus, we provide Adjusted EBITDA for the year ended December 31, 2009 for our reportable segments. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for our reportable segments for the year ended December 31, 2009. Net income (loss) is the most comparable GAAP measure to Adjusted EBITDA.
 
                                         
    Year Ended December 31, 2009  
    Eastern
    Western
          Corporate and
    Consolidated
 
    Hemisphere     Hemisphere     U.S. Land     Eliminations     Total  
    (In thousands)  
 
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
                                       
Net income (loss)
  $ 24,711     $ 2,205     $ (4,532 )   $ (42,004 )   $ (19,620 )
Interest expense
    345             455       4,346       5,146  
Depreciation and amortization
    6,894       2,428       3,204       28       12,554  
Impairment of goodwill
                2,898             2,898  
Loss on sale of property and equipment
                      111       111  
Change in fair value of preferred stock derivatives
                      21,009       21,009  
Stock-based compensation
                      277       277  
Initial public offering costs
                      1,261       1,261  
Income tax expense
                      5,457       5,457  
                                         
Adjusted EBITDA (non-GAAP measure)
  $ 31,950     $ 4,633     $ 2,025     $ (9,515 )   $ 29,093  
                                         


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Management EBITDA
 
For 2009, our variable pay compensation, in the form of an annual cash bonus, was based on the achievement of certain financial targets, including Management EBITDA (a non-GAAP measure), which our bonus plan defines as earnings before interest, taxes, depreciation and amortization. Although similar to Adjusted EBITDA, Management EBITDA differs in that it excludes other income (expense) and normalizes actual foreign currency exchange rates to what was included in the budgeted Management EBITDA so that the executives neither benefit nor are harmed by exchange rate changes or other income (expense) items out of their control. In addition, Management EBITDA may also be similarly adjusted for other items outside of their control to more closely compare to budgeted Management EBITDA, such as post acquisition re-organization costs, impairment of goodwill, gain on sale of assets, other (income) expense, changes in the fair value of derivatives, stock-based compensation expense and initial public offering costs. See “Executive Compensation — Compensation Discussion and Analysis — Determining the Amount of Each Element of Compensation — Variable Pay.”


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RISK FACTORS
 
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below before deciding to invest in our common stock. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing the risks described below, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes, before deciding to purchase any of our common stock.
 
Risks Related to Our Business
 
The recent oil spill from the Macondo well in the Gulf of Mexico has led to the U.S. government’s imposition of moratoria on deepwater drilling offshore the United States and delays in the approval of applications to drill in both deepwater and shallow water areas of the Gulf of Mexico which may reduce the need for our services in the Gulf of Mexico.
 
The recent oil spill from the Macondo well in the Gulf of Mexico caused what may be one of the worst environmental disasters in United States history. As a result of the oil spill and the inability to stop the oil spill quickly, the United States Department of the Interior implemented a six-month moratorium on certain drilling activities in water depths greater than 500 feet offshore the United States. On July 12, 2010, the United States Department of the Interior issued a revised moratorium on drilling in the Gulf of Mexico, which was lifted on October 12, 2010. Since the Macondo oil spill, the United States government has implemented additional safety and certification requirements applicable to drilling activities in the Gulf of Mexico, imposed additional requirements with respect to development and production activities in the Gulf of Mexico and has delayed the approval of applications to drill in both deepwater and shallow water areas. For the year ended December 31, 2009, 6.8% of our revenue was generated from drilling in the areas of the Gulf of Mexico affected by the slowdown in the issuance of drilling permits and moratoria and during the nine months ended September 30, 2010, 9.4% of our revenue was generated from drilling in these areas of the Gulf of Mexico. At this time we cannot predict what actions may be taken by our customers or the United States government in response to the Macondo well incident. We cannot assure you that the rigs that we are servicing in the Gulf of Mexico will continue servicing the Gulf of Mexico or be redeployed to other locations where we can provide our services or that we will continue to receive service revenue related to those rigs. Prolonged delays, moratoria or suspensions of drilling activity in the Gulf of Mexico and associated new regulatory, legislative or permitting requirements in the United States or elsewhere could materially harm our business, financial condition and results of operations.
 
The recent oil spill in the Gulf of Mexico and other similar spills that may occur may lead to other restrictions or additional regulations on drilling in the Gulf of Mexico, offshore the United States or in other areas around the world, which may reduce the need for our services in those areas.
 
We do not yet know the extent to which the oil spill in the Gulf of Mexico and other similar spills that may occur may cause the United States or other countries to restrict or further regulate offshore drilling. For example, new safety requirements were imposed for United States offshore drilling that include requirements for offshore drillers to provide third party safety certifications and certifications by their chief executive officers. In addition, there have been discussions concerning increasing the liability limits under existing regulations for companies working in the offshore drilling industry for damaging oil spills. The new safety requirements, possible increased liability and any other new governmental regulations relating


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to drilling, exploration and production activities offshore the United States may reduce drilling and the need for our services offshore the United States. If the United States or other countries where we operate enact stricter restrictions on offshore drilling or further regulate offshore drilling, our business, financial condition and results of operations could be materially harmed.
 
Any loss of a rig on which our equipment is located will likely lead to a complete loss of our equipment on that rig and a loss of the revenue related to that rig.
 
At the commencement of a new service contract for a rig, we generally install approximately $100,000 to $400,000 worth of equipment on each offshore drilling rig. If a rig were to sink or incur substantial damage for any reason, we would most likely lose all of our equipment. We do not insure for such losses as we believe the cost of such insurance outweighs the risk of potential loss. In addition to the loss of the equipment, we would likely lose the revenue related to that rig under the terms of most of our existing contracts. Also, we may be committed to paying the costs to secure satellite bandwidth for that rig under agreements with third party satellite communication providers even after the rig is no longer in service. For example, on May 13, 2010, Petro Marine’s Aban Pearl semi-submersible drilling rig sank offshore Venezuela causing a $0.3 million loss of our equipment and a $2.9 million loss of future revenue to us through 2013 assuming completion of our contract with Petro Marine. Losses of rigs can occur as a result of catastrophic events such as hurricanes, fire or sinking. Recent industry events include two reported drilling rig losses, including the Transocean Horizon, which was not being serviced by us, and the Aban Pearl. Such catastrophic events can occur without notice, but have historically been infrequent.
 
Many of our contracts with customers may be terminated by our customers on short notice without penalty, which could harm our business, financial condition and results of operations.
 
Customers can usually switch service providers without incurring significant expense relative to the annual cost of the service, and our agreements generally provide that in the event of prolonged loss of service or for other good reasons, our customers may terminate service without penalty. In addition, many of our customer agreements can be terminated by our customers for no reason and upon short notice. Terms of customer agreements typically vary with a range of one month to three years, with some customer agreement terms as long as five years, and work orders placed under such agreements may have shorter terms than the relevant customer agreement. As a result, we may not be able to retain our customers through the end of the terms specified in the customer agreements. If we are not able to retain our customers, we would not receive expected revenues and may continue to incur costs, such as costs to secure satellite bandwidth for such customers under agreements with third party satellite communication services providers which may not be as easily or as quickly terminated without penalty, resulting in harm to our business, financial condition and results of operations. The loss of a drilling contractor customer site can limit or eliminate our ability to provide services to other customers on the affected drilling rigs.
 
A significant portion of our revenue is derived from two customers and the loss of either of these customers would materially harm our business, financial condition and results of operations.
 
We receive a significant part of our revenue from a relatively small number of large customers. For the year ended December 31, 2009, our two largest customers, Noble Corporation and Ensco plc, represented approximately 10.9% and 7.3% of our consolidated revenue. For the nine months ended September 30, 2010, Noble Corporation and Ensco plc represented approximately 10.4% and 6.6% of our consolidated revenue. If either of these two customers


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terminates or significantly reduces its business with us, our business, financial condition and results of operations would be materially harmed.
 
Our future performance depends on renewing existing contracts and receiving new contract awards.
 
Our future performance depends on if and when we will receive new contract awards and whether customers will renew existing contracts. Events outside our control, such as general market conditions and competition, often affect contract awards. If an expected contract award is delayed or not received, we would not receive expected revenues and might possibly incur costs that could harm our business, financial condition and results of operations.
 
Our industry is highly competitive and if we do not compete successfully, our business, financial condition and results of operations will be harmed.
 
The telecommunications industry is generally highly competitive, and we expect both product and pricing competition to persist and intensify. Increased competition could cause reduced revenue, price reductions, reduced gross margins and loss of market share. Our industry is characterized by competitive pressures to provide enhanced functionality for the same or lower price with each new generation of technology. As the prices of our products decrease, we will need to sell more products and/or reduce the per-unit costs to improve or maintain our results of operations. Our competitors include CapRock Communications, Inc., which was recently acquired by Harris Corporation, Schlumberger Ltd’s Global Connectivity Services division, which Harris Corporation recently announced the entry into a definitive agreement to acquire, and the Stratos Broadband Division of Inmarsat plc. Some of our competitors have longer operating histories, substantially greater financial and other resources for developing new solutions as well as for recruiting and retaining qualified personnel. Their greater financial resources may also make them better able to withstand downturns in the market, expand into new areas more aggressively or operate in developing markets without immediate financial returns. In addition, in certain markets outside of the United States, we face competition from local competitors that provide their services at a lower price due to lower overhead costs, including lower costs of complying with applicable government regulations, and due to their willingness to provide services for a lower profit margin. Strong competition and significant investments by competitors to develop new and better solutions may make it difficult for us to maintain our customer base, force us to reduce our prices or increase our costs to develop new solutions.
 
Furthermore, competition may emerge from companies that we have previously not perceived as competitors or consolidation of our industry may cause existing competitors to become bigger and stronger with more resources, market awareness and market share. As we expand into new markets and geographic regions we may experience increased competition from some of our competitors that have prior experience or other business in these markets or geographic regions. In addition, some of our customers may decide to insource some of the communications services and managed services solutions that we provide, in particular our terrestrial communication services (e.g., terrestrial line-of-sight transport, microwave, WiMax), which do not require the same level of maintenance and support as our other services. Our success will depend on our ability to adapt to these competitive forces, to adapt to technological advances, to develop more advanced products more rapidly and less expensively than our competitors, to continue to develop an international sales network, and to educate potential customers about the benefits of using our solutions rather than our competitors’ products and services or insourced solutions. Our failure to successfully respond to these competitive challenges could harm our business, financial condition and results of operations.


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Service interruptions or other failures by third party satellite and other communications providers we utilize could harm our business and reputation and result in loss of customers and revenue.
 
A significant part of our operations depends on third party providers delivering reliable communications connections and networks, which is beyond our control. These communications connections include broadband satellite communications, subsea fiber, microwave and Worldwide Interoperability for Microwave Access, or WiMax, terrestrial landlines and long-distance telephony. We also co-locate our communications and networking equipment in teleport facilities and data centers that are operated by third parties. Failure or saturation of such connection points, networks and third-party facilities may lead to customers experiencing interruptions when using our communication services. Although we do not typically depend on only one provider, interruptions in such connections could impair our ability to provide communication services to our customers. To provide customers with guaranteed levels of service, we must protect our network infrastructure, equipment and customer files against damage from human error, natural disasters, unexpected equipment failure, power loss or telecommunications failures and sabotage or other intentional acts of vandalism. Even if we take precautions, the occurrence of a natural disaster, equipment failure or other unanticipated problems could result in interruption in the services we provide to customers. Any of these occurrences could harm our business, financial condition and results of operations.
 
For many of our customers, we lease satellite transponder capacity from fixed satellite service providers in order to send and receive data communications to and from our very small aperture terminal, or VSAT, based networks. Satellites are subject to in-orbit risks including malfunctions, commonly referred to as anomalies, and collisions with meteoroids, decommissioned spacecraft or other space debris. Anomalies occur as a result of various factors, such as satellite manufacturing errors, problems with the power systems or control systems of the satellites and general failures resulting from operating satellites in the harsh space environment.
 
Our contracts for satellite transponder capacity often do not obligate the service provider to provide an alternative should a problem arise with a satellite. We may not be able to obtain backup capacity at similar prices, or at all in some markets. In addition, an increased frequency of anomalies could impact market acceptance of our services. Any failure on our part to perform our VSAT service contracts or provide satellite broadband access as a result of satellite failures could result in: (i) loss of revenue despite continued obligations under our leasing arrangements; (ii) possible cancellation of customer contracts; (iii) incurrence of additional expenses to reposition customer antennas to alternative satellites or otherwise find alternate service; and (iv) damage to our reputation, which could negatively affect our ability to retain existing customers or to gain new business. Under most of our contracts with satellite service providers, our satellite service providers do not indemnify us for such loss or damage to our business resulting from satellite failures.
 
We rely on third parties to provide satellite capacity for our services and any capacity constraints could harm our business, financial condition and results of operations.
 
We compete for satellite capacity with a number of commercial entities, such as broadcasting companies, and governmental entities, such as the military. In certain markets, the availability and pricing of capacity could be subject to competitive pressure, such as during renewals, and there is no guarantee that we will be able to secure the capacity needed to conduct our operations at current rates or levels going forward. This could harm our business, financial condition and results of operations. In certain markets, the availability of bandwidth may be restricted by the local government when needed to support its military, and in the event of such an action, there is no guarantee that we will be able to secure the capacity


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needed to conduct our operations, which could have a material adverse effect on our business, financial condition and results of operations.
 
We could incur costs and suffer damage to our reputation and business if any of the third party products we provide fail or are defective.
 
Our business relies on third-party products to provide our end-to-end managed solutions for customers. These products fall into three basic areas: core communications equipment such as satellite modems and antennas; IP networking equipment such as routers, switches, servers and access points; and customer-facing end devices such as IP phones. We may be subject to claims concerning these products by virtue of our involvement in marketing or providing access to them, even if we do not manufacture or directly provide these products. Our agreements with third-party suppliers do not always indemnify us against such liabilities or the indemnification provided is not always adequate. It is also possible that if any products provided directly by us are negligently provided to customers, third parties could make claims against us. Investigating and defending any of these types of claims is expensive, even if the claims do not result in liability. If any potential claims do result in liability, we could be required to pay damages or other penalties, which could harm our business, financial condition and results of operations.
 
We are subject to the volatility of the global oil and gas industry and our business is likely to fluctuate with the level of global activity for oil and natural gas exploration, development and production.
 
Our business depends on the oil and natural gas industry and particularly on the level of activity for oil and natural gas exploration, development and production. Demand for our remote communication services and collaborative applications depends on our customers’ willingness to make operating and capital expenditures to explore, develop and produce oil and natural gas in the regions in which we operate or can operate. Our business will suffer if these expenditures decline. Our customers’ willingness to explore, develop and produce oil and natural gas depends largely upon prevailing market conditions that are influenced by numerous factors over which we have no control, including:
 
  •  the supply and demand for oil and natural gas;
 
  •  oil and natural gas prices and expectations about future prices;
 
  •  the expected rate of decline in production;
 
  •  the discovery rate of new oil and gas reserves;
 
  •  the ability of the Organization of Petroleum Exporting Countries, or OPEC, to influence and maintain production levels and pricing;
 
  •  the level of production in non-OPEC countries;
 
  •  the worldwide political and military environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East and other crude oil and natural gas producing regions or further acts of terrorism in the United States, or elsewhere;
 
  •  the impact of changing regulations and environmental and safety rules and policies following oil spills and other pollution by the oil and gas industry;
 
  •  advances in exploration, development and production technology;
 
  •  the global economic environment;


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  •  the political and legislative framework governing the activities of oil and natural gas companies; and
 
  •  the price and availability of alternative fuels.
 
The level of activity in the oil and natural gas exploration and production industry has historically been volatile and cyclical. Although we believe our customers will be dependent upon real-time voice and data communication services to optimize their oil and gas production and development in an environment with lower energy prices, a prolonged significant reduction in the price of oil and natural gas will likely affect oil and natural gas production levels and therefore affect demand for the communication services we provide. In addition, a prolonged significant reduction in the price of oil and natural gas could make it more difficult for us to collect outstanding account receivables from our customers. A material decline in oil and natural gas prices or oil and natural gas exploration, development or production activity levels could harm our business, financial condition and results of operations.
 
An increase in the size of our U.S. land segment relative to our other segments could decrease our margins and increase the volatility of our operating results.
 
Our U.S. land segment is characterized by higher rate competition and shorter term contracts than our western hemisphere or eastern hemisphere segments. In addition, the number of operating U.S. land drilling rigs is more cyclical and volatile than the number of operating offshore drilling rigs in our western hemisphere or eastern hemisphere segments. Drilling rig counts, and accordingly, demand for our service, and thus our revenue, can change in as little as three months for our U.S. land operations in response to oil and gas prices. Thus if the size of our U.S. land segment increases relative to the size of our western hemisphere and eastern hemisphere segments, our overall margins may decrease and the volatility of our operating results may increase.
 
Bad weather in the Gulf of Mexico or other areas where we operate could harm our business, financial condition and results of operations.
 
Certain areas in and near the Gulf of Mexico and other areas in which our clients operate experience unfavorable weather conditions, including hurricanes and other extreme weather conditions, on a relatively frequent basis. A major storm or threat of a major storm in these areas can harm our business. Our clients’ drilling rigs, production platforms and other vessels in these areas are susceptible to damage and/or total loss by these storms, which may cause them to no longer need our communication services. Our equipment on these rigs, platforms or vessels could be damaged causing us to have service interruptions and lose business. Even the threat of a very large storm will sometimes cause our clients to limit activities in an area and thus harm our business.
 
Our networks and those of our third-party service providers may be vulnerable to security risks and any unauthorized access to our clients’ data or systems could harm our business, financial condition and results of operations.
 
We expect the secure transmission of confidential information over public networks to continue to be a critical element of our operations. Our networks and those of our third-party service providers and our customers may be vulnerable to unauthorized access, computer viruses and other security problems. Persons who circumvent security measures could wrongfully obtain or use information on the network or cause interruptions, delays or malfunctions in our operations, any of which could harm our business, financial condition and results of operations. We may be required to expend significant resources to protect against the threat of security breaches or to alleviate problems, including reputational harm and litigation, caused by any breaches. In addition, our customer contracts, in general, do not contain provisions


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which would protect us against liability to third-parties with whom our customers conduct business. Although we have implemented and intend to continue to implement industry-standard security measures, these measures may prove to be inadequate and result in system failures and delays that could lower system availability and have a material adverse effect on our business, financial condition and results of operations.
 
We depend on a limited number of suppliers to provide key portions of our equipment and the loss of any of these key suppliers could materially harm our ability to service our clients and could result in loss of customers and harm our reputation, business, financial condition and results of operations revenue.
 
We currently rely upon and expect to continue to rely upon a limited number of third-party suppliers to supply the equipment required to provide our services, such as the equipment we install on offshore drilling rigs in order to provide remote communication services. Although this equipment is commercially available from more than one supplier, there are a limited number of suppliers of such equipment and price and quality vary among suppliers. If the suppliers enter into competition with us, or if our competitors enter into exclusive or restrictive arrangements with our suppliers, the availability and pricing of the equipment that we purchase could be materially adversely affected. In addition, we like to use a small group of suppliers and standardized equipment as much as possible so that we are installing generally the same equipment and we can maintain smaller quantities of replacement parts and equipment in our warehouses. If we have to change suppliers for any reason, we will incur additional costs due to the lack of uniformity and need to warehouse a broader array of replacement parts and equipment.
 
If we fail to upgrade our information technology systems effectively, we may not be able to accurately report our financial results or prevent fraud.
 
As part of our efforts to continue improving our internal control over financial reporting, we plan to continue to upgrade our existing financial information technology systems in order to automate several controls that are currently being performed manually. We may experience difficulties in transitioning to these upgraded systems, including loss of data and decreases in productivity, as personnel become familiar with these new systems. In addition, our management information systems will require modification and refinement as we grow and as our business needs change, which could prolong any difficulties we experience with systems transitions, and we may not always employ the most effective systems for our purposes. We must also integrate these systems with our international operations so that the data produced can be utilized around the world. If we experience difficulties in implementing new or upgraded information systems or experience significant system failures, or if we are unable to successfully modify our management information systems or respond to changes in our business needs, we may not be able to effectively manage our business and we may fail to meet our reporting obligations. In addition, as a result of the automation of these manual processes, the data produced may cause us to question the accuracy of previously reported financial results.
 
If we fail to manage our growth effectively, our business may suffer.
 
We have experienced rapid growth in our business in recent periods, which has strained our managerial, operational, financial and other resources. We plan to continue to grow our business and anticipate that continued growth of our operations will be required to satisfy increasing customer demand and avail ourselves of new market opportunities. The expanding scope and geographic breadth of our business and growth in the number of our employees, customers and locations will continue to place a significant strain on our management team, information technology systems and other resources and may distract key personnel from other key operations. To properly manage our growth, we may need to hire and retain personnel, upgrade our existing operational, management and financial reporting systems, and improve our


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business processes and controls and implement those processes and controls in all of our geographic locations. Failure to effectively manage our growth in a cost-effective manner could result in declines in service quality and customer satisfaction, increased costs or disruption of our operations. Our rapid growth also makes it difficult for us to adequately predict the investments we will need to make in the future to effectively manage our world-wide operations.
 
Geographic expansion may reduce our operating margins.
 
When we expand into a new geographic area, we incur set up costs for new personnel, office facilities, travel, inventory and related expenses in advance of securing new customer contracts. In addition, we may price our services more aggressively as we seek to obtain market share in the new region. As a result, our results of operations may decline while we are pursuing such geographic expansion.
 
The loss of key personnel or the failure to attract and retain highly qualified personnel could compromise our ability to effectively manage our business and pursue our growth strategy.
 
Our future performance depends on the continued service of our key technical, development, sales, services and management personnel. In particular, we are heavily dependent on the following three key employees: Mark B. Slaughter, our Chief Executive Officer and President, who has been critical to establishing our strategy and executing on our business model over the past four years; Morten Hansen, our Vice President of Global Engineering, who is the technical architect of our global network and who is responsible for our global network’s reliability, performance and security and the evaluation of technological developments and their impact on our business; and Lars Eliassen, our Vice President & General Manager of Europe, Middle East and Africa, who has knowledge across many aspects of our Company, including sales, marketing and operations and who is critical to maintaining some of our key customer relationships. The loss of key employees could result in significant disruptions to our business, and the integration of replacement personnel could be costly and time consuming, could cause additional disruptions to our business, and could be unsuccessful. We do not carry key person life insurance covering any of our employees.
 
Our future success also depends on our continued ability to attract and retain highly qualified technical, development, sales, services and management personnel, including personnel in all of the various regions of the world in which we operate. The current increase in the activity level in the oil and gas industry and the limited supply of skilled labor has made the competition to retain and recruit qualified personnel intense. A significant increase in the wages paid by competing employers could reduce our skilled labor force, increase the wages that we must pay to motivate, retain or recruit skilled employees or both.
 
In addition, wage inflation and the cost of retaining our key personnel in the face of competition for such personnel may increase our costs faster than we can offset these costs with increased prices or increased sales volume.
 
If we infringe or if third parties assert that we infringe third party intellectual property rights we could incur significant costs and incur significant harm to our business.
 
Third parties may assert infringement or other intellectual property claims against us, which could result in substantial damages if it is ultimately determined that our services infringe a third party’s proprietary rights. Even if claims are without merit, defending a lawsuit takes significant time, may be expensive and may divert management’s attention from our other business concerns.


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Most of our contracts are on a fixed price basis and if our costs increase, we may not be able to recover these cost increases.
 
Most of our contracts provide for a fixed price per month for our services. If our costs increase to provide those services, such as the cost to secure bandwidth or personnel costs, we may not be able to offset some or all of our increased costs by increasing the rates we charge our customers, which could have a material adverse effect on our business, financial condition and results of operations.
 
Many of our contracts are governed by non-U.S. law, which may make them more difficult or expensive to enforce than contracts governed by United States law.
 
Many of our customer contracts are governed by non-U.S. law, which may create both legal and practical difficulties in case of a dispute or conflict. We operate in regions where the ability to protect contractual and other legal rights may be limited compared to regions with better-established legal systems. In addition, having to pursue litigation in a non-U.S. country may be more difficult or expensive than pursuing litigation in the United States.
 
Our industry is characterized by rapid technological change, and if we fail to keep up with these changes or if access to telecommunications in remote locations becomes easier or less expensive, our business, financial condition and results of operations will be harmed.
 
The telecommunications industry is characterized by rapid changes in technology, new evolving standards, emerging competition and frequent new product and service introductions. As an example of technological change, in August 2010, Inmarsat plc announced a major commitment to a new constellation of satellites using the Ka frequency band, compared to our use of the Ku-band and C-band satellite space segment today. When this Ka-band service is available a few years from now, we will have to adapt to its use, which might impair our business if other providers are more successful in using the Ka-band to meet customer needs than we are. Our future business prospects largely depend on our ability to meet changing customer preferences, to anticipate and respond to technological changes and to develop competitive products. If telecommunications to remote locations becomes more readily accessible or less expensive than our services, our business will suffer. New disruptive technologies could make our VSAT-based networks or other services obsolete or less competitive than they are today, requiring us to reduce the prices that we are able to charge for our services. We may not be able to successfully respond to new technological developments and challenges or identify and respond to new market opportunities, services or products offered by competitors. In addition, our efforts to respond to technological innovations and competition may require significant capital investments and resources. Furthermore, we may not have the necessary resources to respond to new technological changes and innovations and emerging competition. Failure to keep up with future technological changes could harm our business, financial condition and results of operations.
 
Many of our potential clients are resistant to new solutions and technologies which may limit our growth.
 
Although there is a strong focus on technology development within the oil industry, some of the companies in the upstream oil and gas industry are relatively conservative and risk adverse with respect to adopting new solutions and technologies. Some drilling contractors, oil and gas companies and oilfield service companies may choose not to adopt new solutions and technology, such as our remote communications and collaboration applications solutions, which may limit our growth potential. The market for IP/MPLS based communication services is in a relatively early stage, and some oil and gas companies may choose not to adopt our IP/MPLS based communications technology. This may in turn limit our growth.


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Regulatory and Political Risks
 
We may face difficulties in obtaining regulatory approvals for our provision of telecommunication services, and we may face changes in regulation, each of which could adversely affect our operations.
 
In a number of countries where we operate, the provision of telecommunication services is highly regulated. In such countries, we are required to obtain approvals from national and local authorities in connection with most of the services that we provide. In many jurisdictions, we must maintain such approvals through compliance with license conditions or payment of annual regulatory fees.
 
Many of our customers utilize our services on mobile vessels or drilling platforms that can enter into new countries on short notice. If we do not already have a license to provide our service in that country, we may be required to obtain a license or other regulatory approval on short notice, which may not be feasible in some countries. Failure to comply with such regulatory requirements could subject us to various sanctions including fines, penalties, arrests or criminal charges, loss of authorizations and the denial of applications for new authorizations or for the renewal of existing authorizations or cause us to delay or terminate our service to such vessel or platform until such license or regulatory approval can be obtained.
 
In some areas of international waters, it is ambiguous as to which country’s regulations apply, if any, and thus difficult and costly for us to determine which licenses or other regulatory approvals we should obtain. In such areas, we could be subject to various penalties or sanctions if we fail to comply with the applicable country’s regulations.
 
Future changes to the regulations under which we operate could make it difficult for us to obtain or maintain authorizations, increase our costs or make it easier or less expensive for our competitors to compete with us.
 
Changes in the regulatory framework under which we operate could adversely affect our business prospects or results of operations.
 
Our domestic services are currently provided on a private carrier basis and are therefore subject to light regulation by the Federal Communications Commission, or FCC, and other federal, state and local agencies. As a private carrier, we may not market and provide telecommunications service to the general public or otherwise hold our services out “indifferently” to the public as a common carrier. As a private carrier, we are not entitled to certain rights afforded to or subject to certain obligations imposed on common carriers.
 
Our international operations are regulated by various non-U.S. governments and international bodies. These regulatory regimes frequently require that we maintain licenses for our operations and conduct our operations in accordance with prescribed standards. The adoption of new laws or regulations, changes to the existing regulatory framework, new interpretations of the laws that apply to our operations, or the loss of, or a material limitation on, any of our material licenses could materially harm our business, results of operations and financial condition.
 
Changes to the FCC’s USF Regime or state universal service fund regimes or findings that we have not complied with USF requirements or state universal service fund regimes may adversely affect our financial condition.
 
A proceeding pending before the FCC has the potential to significantly alter our Universal Service Fund, or USF, contribution obligations. The FCC is considering changing the basis upon which USF contributions are determined from a revenue percentage measurement, as well as increasing the breadth of the USF contribution base to include certain services now exempt from contribution. Adoption of these proposals could have a material adverse effect on


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our costs, our ability to separately list USF contributions on end-user bills, and our ability to collect these fees from our customers. We are unable to predict the timing or outcome of this proceeding.
 
We cannot predict the application and impact of changes to the federal or state universal service fund contribution requirements on the communications industry generally and on certain of our business activities in particular. We are currently reassessing the nature and extent of our federal and state universal service fund obligations. If the FCC or any state determines that we have incorrectly calculated or failed to remit any required universal service fund contribution, we could be subject to the assessment and collection of past due remittances as well as interest and penalties thereon. Changes in the federal or state universal service fund requirements or findings that we have not met our obligations could materially increase our universal service fund contributions and have a material adverse effect on our business, financial condition and results of operations.
 
We may be subject to a variety of federal and state regulatory actions that may affect our ability to operate.
 
Federal and state telecommunications regulators have the right to sanction a service provider or to revoke licenses if a service provider violates applicable laws or regulations. If any regulatory agency were to conclude that we were providing telecommunications services without the appropriate authority or are otherwise not in compliance with applicable regulations, the agency could initiate enforcement actions, which could result in, among other things, revocation of authority, the imposition of fines, a requirement to disgorge revenues, or refusal to grant regulatory authority necessary for the future provision of services.
 
Our operations in Qatar have historically benefited from restrictions on telecommunication services that have kept many of our competitors from providing their services in Qatar, but the recent easing of these restrictions may increase competition and our business, financial condition and results of operations may be harmed.
 
Qatar, like many countries in which we operate, has strict regulations on telecommunication services. Historically, we have complied with those regulations and are able to operate there, but many of our competitors were unable to obtain the necessary approvals and licenses to provide their services in Qatar. Qatar is currently in the process of easing the restrictions and has granted three new VSAT licenses to telecommunications providers, including us, and renewed the two existing VSAT licenses. We anticipate that, as a result of these new licenses, we may face increased competition in the future and our business may be harmed as a result of the increased competition.
 
Our business operations in countries outside the United States are subject to a number of United States federal laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act as well as trade sanctions administered by the Office of Foreign Assets Control of the United States Department of Treasury and the United States Department of Commerce, which could adversely affect our operations if violated.
 
We must comply with all applicable export control laws and regulations of the United States and other countries. We cannot provide services to certain countries subject to United States trade sanctions administered by the Office of Foreign Asset Control of the United States Department of the Treasury or the United States Department of Commerce unless we first obtain the necessary authorizations. In addition, we are subject to the Foreign Corrupt Practices Act, that, generally, prohibits bribes or unreasonable gifts to non-U.S. governments or officials. Violations of these laws or regulations could result in significant additional sanctions including fines, more onerous compliance requirements, more extensive debarments from export


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privileges or loss of authorizations needed to conduct aspects of our international business. In certain countries, we engage third party agents or intermediaries to act on our behalf in dealings with government officials, such as customs agents, and if these third party agents or intermediaries violate applicable laws, their actions may result in penalties or sanctions being assessed against us.
 
Our international operations are subject to additional or different risks than our United States operations, which may harm our business and financial results.
 
We operate in approximately 30 countries around the world, including countries in Asia, the Middle East, Africa, Latin America and Europe and intend to continue to expand the number of countries in which we operate. There are many risks inherent in conducting business internationally that are in addition to or different than those affecting our United States operations, including:
 
  •  sometimes vague and confusing regulatory requirements that can be subject to unexpected changes or interpretations;
 
  •  import and export restrictions;
 
  •  tariffs and other trade barriers;
 
  •  difficulty in staffing and managing geographically dispersed operations and culturally diverse work forces and increased travel, infrastructure and legal compliance costs associated with multiple international locations;
 
  •  differences in employment laws and practices among different countries, including restrictions on terminating employees;
 
  •  differing technology standards;
 
  •  fluctuations in currency exchange rates;
 
  •  imposition of currency exchange controls;
 
  •  potential political and economic instability in some regions;
 
  •  legal and cultural differences in the conduct of business;
 
  •  less due process and sometimes arbitrary application of laws and sanctions, including criminal charges and arrests;
 
  •  difficulties in raising awareness of applicable United States laws to our agents and third party intermediaries;
 
  •  potentially adverse tax consequences;
 
  •  difficulties in enforcing contracts and collecting receivables;
 
  •  difficulties and expense of maintaining international sales distribution channels; and
 
  •  difficulties in maintaining and protecting our intellectual property.
 
Operating internationally exposes our business to increased regulatory and political risks in some non-U.S. jurisdictions where we operate. In addition to changes in laws and regulations, changes in governments or changes in governmental policies in these jurisdictions may alter current interpretation of laws and regulations affecting our business. We also face increased risk of incidents such as war or other international conflict and nationalization, and possible expropriation of our assets. If a non-U.S. country were to nationalize our industry or expropriate our assets, we could lose not only our investment in the assets that we have in that country, but also all of our contracts and business in that country.


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Many of the countries in which we operate have legal systems that are less developed and less predictable than legal systems in Western Europe or the United States. It may be difficult for us to obtain effective legal redress in the courts of some jurisdictions, whether in respect of a breach of law or regulation, or in an ownership dispute because of: (i) a high degree of discretion on the part of governmental authorities, which results in less predictability; (ii) a lack of judicial or administrative guidance on interpreting applicable rules and regulations; (iii) inconsistencies or conflicts between or within various laws, regulations, decrees, orders and resolutions; (iv) the relative inexperience of the judiciary and courts in such matters or (v) a predisposition in favor of local claimants against United States companies. In certain jurisdictions, the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be unreliable. In particular, agreements may be susceptible to revision or cancellation and legal redress may be uncertain or time-consuming. Actions of governmental authorities or officers may adversely affect joint ventures, licenses, license applications or other legal arrangements, and such arrangements in these jurisdictions may not be effective or enforced.
 
The authorities in the countries where we operate may introduce additional regulations for the oil and gas and communications industries with respect to, but not limited to, various laws governing prospecting, development, production, taxes, price controls, export controls, currency remittance, expropriation of property, foreign investment, maintenance of claims, environmental legislation, land use, land claims of local people, water use, labor standards, occupational health network access and other matters. New rules and regulations may be enacted or existing rules and regulations may be applied or interpreted in a manner which could limit our ability to provide our services. Amendments to current laws and regulations governing operations and activities in the oil and gas industry and telecommunications industry could harm our operations and financial results.
 
Compliance with and changes in tax laws or adverse positions taken by taxing authorities could be costly and could affect our operating results. Compliance related tax issues could also limit our ability to do business in certain countries. Changes in tax laws or tax rates, the resolution of tax assessments or audits by various taxing authorities, disagreements with taxing authorities over our tax positions and the ability to fully utilize our tax loss carry-forwards and tax credits could have a significant financial impact on our future operations and the way we conduct, or if we conduct, business in the affected countries.
 
Financial Risks
 
Our term loan agreement places financial restrictions and operating restrictions on our business, which may limit our flexibility to respond to opportunities and may harm our business, financial condition and results of operations.
 
The operating and financial restrictions and covenants in our term loan agreement restricts and any future financing agreements could restrict our ability to finance future operations or capital needs or to engage, expand or pursue our business activities. For example, our term loan agreement restricts our ability to:
 
  •  dispose of property;
 
  •  enter into a merger, consolidate or acquire capital in other entities;
 
  •  incur additional indebtedness;
 
  •  incur liens on the property secured by the term loan agreement;
 
  •  make certain investments;
 
  •  enter into transactions with affiliates;


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  •  pay dividends;
 
  •  commit to make capital expenditures not in the ordinary course of business; and
 
  •  enter into sales and lease back transactions.
 
These limitations are subject to a number of important qualifications and exceptions. Our term loan agreement also requires us to maintain specified financial ratios. Our compliance with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures, finance acquisitions, equipment purchases and development expenditures, or withstand a future downturn in our business.
 
Our ability to comply with the covenants and restrictions contained in our term loan agreement may be affected by events beyond our control. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our term loan agreement, a significant portion of our indebtedness may become immediately due and payable, and our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. Even if we could obtain alternative financing, that financing may not be on terms that are favorable or acceptable to us. If we are unable to repay amounts borrowed, the holders of the debt could initiate a bankruptcy proceeding or liquidation proceeding against the collateral. In addition, our obligations under our term loan agreement are secured by substantially all of our assets and if we are unable to repay our indebtedness under our term loan agreement, the lenders could seek to foreclose on our assets.
 
We may need to raise additional funds to pursue our growth strategy or continue our operations, and if we are unable to do so, our growth may be impaired.
 
We plan to pursue a growth strategy. We have made significant investments to grow our business. Additional investments will be required to pursue further growth and to respond to technological innovations and competition. There is no guarantee that we will be able to obtain additional financing or financing on favorable terms. If financing is not available on satisfactory terms, or at all, we may be unable to expand our business or to develop new business at the rate desired and our business, financial condition and results of operations may be harmed.
 
Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.
 
Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
 
  •  earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated earnings in countries where we have higher statutory rates;
 
  •  changes in the valuation of our deferred tax assets;
 
  •  repatriation of cash; or
 
  •  expiration or non-utilization of net operating losses or credits.
 
We conduct our worldwide operations through various subsidiaries. Tax laws and regulations are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, treaties and regulations in and between countries in which we operate, including treaties between the United States and other nations. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the


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expense was incurred. A change in these tax laws, treaties or regulations, including those in and involving the United States, or in the interpretation thereof, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings.
 
In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Outcomes from these continuous examinations could have a material adverse effect on our financial condition, results of operations or cash flows. Our 2008 United States federal income tax return is currently under audit by the United States Internal Revenue Service.
 
We are subject to fluctuations in currency exchange rates and limitations on the expatriation or conversion of currencies, which may result in significant financial charges, increased costs of operations or decreased demand for our products and services.
 
During the year ended December 31, 2009, 22.8% of our revenues were earned in non-U.S. currencies, while a significant portion of our capital and operating expenditures and all of our outstanding debt, was priced in U.S. dollars. In addition, we report our results of operations in U.S. dollars. Accordingly, fluctuations in exchange rates relative to the U.S. dollar could have a material adverse effect on our earnings or the value of our assets.
 
Any depreciation of local currencies in the countries in which we conduct business may result in increased costs to us for imported equipment and may, at the same time, decrease demand for our products and services in the affected markets. If our operating companies distribute dividends in local currencies in the future, the amount of cash we receive will also be affected by fluctuations in exchange rates. In addition, some of the countries in which we have operations do or may restrict the expatriation or conversion of currency.
 
We have not implemented any hedging strategies to mitigate risks related to the impact of fluctuations in exchange rates. Even if we were to implement hedging strategies, not every exposure can be hedged, and, where hedges are put in place based on expected non-U.S. exchange exposure, they are based on forecasts which may vary or which may later prove to have been inaccurate. Failure to hedge successfully or anticipate currency risks accurately could harm our business, financial condition and results of operations.
 
Risks Related to This Offering
 
Some of our stockholders could together exert control over our Company after completion of this offering.
 
As of September 30, 2010, funds affiliated with Altira owned in the aggregate shares representing approximately 24.5% of our outstanding voting power. A managing member of the general partner of Altira, Dirk McDermott, currently serves on our board of directors. After the completion of this offering, funds affiliated with Altira will own in the aggregate shares representing approximately 15.3% of our outstanding voting power, or approximately 14.4% if the underwriters exercise their over-allotment option in full. As of September 30, 2010, funds associated with Sanders Morris owned in the aggregate shares representing approximately 22.5% of our outstanding voting power. One managing member of the general partner of Sanders Morris, Charles L. Davis, currently serves on our board of directors. After the completion of this offering, funds affiliated with Sanders Morris will own in the aggregate shares representing approximately 13.8% of our outstanding voting power, or approximately 12.9% if the underwriters exercise their over-allotment option in full. Additionally, as of September 30, 2010, funds associated with Cubera owned in the aggregate shares representing approximately 39.0% of our outstanding voting power. One managing member of the general partner of Cubera, Ørjan Svanevik, currently serves on our board of directors. After completion of this


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offering, affiliates of Cubera will own in the aggregate shares representing approximately 26.5% of our outstanding voting power, or approximately 24.9% if the underwriters exercise their over-allotment option in full. As a result, these stockholders could together control all matters presented to our stockholders for approval, including election and removal of our directors and change of control transactions. The interests of these stockholders may not always coincide with the interests of the other holders of our common stock.
 
As a public company, we will incur additional cost and face increased demands on our management and key employees.
 
We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses, as well as Board of Director related expenses, that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules implemented by the Securities and Exchange Commission, or the SEC, and The NASDAQ Global Market, or the NASDAQ, impose various requirements on public companies. Our management and other personnel will devote substantial amounts of time to these requirements, and we will hire additional people and increase the salaries of others to compensate them for the additional duties that they will have to perform. We expect these requirements to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. These rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. If our profitability is harmed by these additional costs, it could have a negative effect on the trading price of our common stock.
 
We have identified a material weakness, a significant deficiency and other deficiencies in our internal controls for the year ended December 31, 2009 and a significant deficiency and other deficiencies in our internal controls for the year ended December 31, 2008 that, if not properly remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.
 
In relation to our consolidated financial statements for the year ended December 31, 2009, we identified a material weakness, a significant deficiency and other deficiencies in our internal controls over financial reporting. We identified a material weakness in our internal controls over our financial close and reporting cycle, a significant deficiency in our internal controls over our property and equipment records and accounting, and deficiencies in our internal controls relating to our accounting for revenue, expenditure, payroll, income taxes, as well as general computer controls.
 
A “deficiency” in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when (a) a properly designed control does not operate as designed, or (b) the person performing the control does not possess the necessary authority or competence to perform the control effectively.
 
A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.


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A “significant deficiency” is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
 
In relation to our consolidated financial statements for the year ended December 31, 2008, we identified a significant deficiency in our internal controls over our year end financial reporting process and other deficiencies relating to our control environment, general corporate controls and business cycle controls.
 
Our independent registered public accounting firm’s audit for the years ended December 31, 2007, 2008 and 2009 included consideration of internal control over financial reporting as a basis for designing their audit procedures, but not for the purpose of expressing an opinion on the effectiveness of our internal controls over financial reporting. If such an evaluation had been performed or when we are required to perform such an evaluation, additional material weaknesses, significant deficiencies and other deficiencies may have been or may be identified. Ensuring that we have adequate internal financial and accounting controls and procedures in place to help produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently. We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies relating to internal controls, which could harm our business, financial condition and results of operations.
 
Because of the deficiencies identified, there is heightened risk that a material misstatement of our annual or quarterly financial statements relating to the periods that these deficiencies existed was not prevented or detected. We have taken steps to remediate these deficiencies, including hiring additional accounting and finance personnel, upgrading our accounting system and engaging consultants. Although we believe we have started the process to remediate these deficiencies, we cannot be certain that our efforts will be successful or that similar deficiencies will not recur. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control over Financial Reporting” for a discussion of our remediation efforts.
 
Our internal growth plans will also put additional strains on our internal controls if we do not augment our resources and adapt our procedures in response to this growth. As a public company, we will be required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal controls beginning with our fiscal year ending December 31, 2011. In the event that we have not adequately remedied these deficiencies, and if we fail to maintain proper and effective internal controls in future periods, we could become subject to potential review by the NASDAQ, the SEC or other regulatory authorities, which could require additional financial and management resources, could result in our delisting by the NASDAQ, could compromise our ability to run our business effectively and could cause investors to lose confidence in our financial reporting.
 
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock could decline.
 
The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of or recommendations regarding our stock, or if one or more of the analysts cease providing research coverage on our stock, the price of our stock could decline.


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We will retain broad discretion in using the net proceeds from this offering and may spend a substantial portion in ways with which you do not agree.
 
Our management will retain broad discretion to allocate the net proceeds of this offering. The net proceeds may be applied in ways with which you and other investors in the offering may not agree, or which do not increase the value of your investment. We intend to use $0.4 million to pay an IPO success bonus to some of our key employees, including some of our named executive officers. We anticipate that we will use the remainder of the net proceeds for working capital and other general corporate purposes, which may include the acquisition of other businesses, products or technologies. We have not allocated these remaining net proceeds for any specific purpose. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds.
 
We do not know whether a market will develop for our common stock or what the market price of our common stock will be and as a result, it may be difficult for you to sell your common stock.
 
Before this offering, there was no public trading market for our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of our common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. The initial public offering price for our common stock will be determined through negotiations with the underwriters and may not bear any relationship to the market price at which the common stock will trade after this offering or to any other established criteria regarding our value. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of our common stock may fall.
 
Sales of outstanding shares of our common stock into the market in the future could cause the market price of our common stock to drop significantly, even if our business is doing well.
 
If our existing stockholders sell or indicate an intention to sell substantial amounts of our common stock in the public market, the trading price of our common stock could decline substantially. After this offering, approximately 14.2 million shares of our common stock will be outstanding if the underwriters do not exercise their over-allotment option. Of these shares, 5.0 million shares of our common stock sold in this offering will be freely tradable, without restriction, in the public market and more than 98.0% of the remaining outstanding shares are subject to 180-day contractual lock-up agreements with our underwriters. Deutsche Bank Securities Inc. may, in its discretion, permit our directors, officers, employees and current stockholders who are subject to these contractual lock-ups to sell shares prior to the expiration of the lock-up agreements. These lock-ups are subject to extension for up to an additional 34 days under some circumstances. See “Shares Eligible for Future Sale—Lock-Up Agreements”.
 
After the lock-up agreements pertaining to this offering expire, up to an additional approximately 9.1 million shares will be eligible for sale in the public market, approximately 8.2 million of which are held by directors and executive officers and our other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, or the Securities Act. In addition, the approximately 4.3 million shares underlying options that are either subject to the terms of our equity compensation plans or reserved for future issuance under our equity compensation plans and warrants will become eligible for sale in the public market to the extent permitted by the provisions of various option agreements, warrants and Rules 144 and 701 under the Securities Act. For additional information, see “Shares Eligible for Future Sale”.


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You will experience immediate and substantial dilution in your investment.
 
The offering price of the common stock is substantially higher than the net tangible book value per share of our common stock, which on a pro forma basis was $10.49 per share of common stock as of September 30, 2010. As a result, you will experience immediate and substantial dilution in pro forma net tangible book value when you buy common stock in this offering. This means that you will pay a higher price per share than the amount of our total tangible assets, less our total liabilities, divided by the number of shares of common stock outstanding. Holders of our common stock will experience further dilution if: the underwriters’ over-allotment option to purchase additional common stock from us pursuant to this offering is exercised; options or other rights to purchase our common stock that are outstanding or that we may issue in the future are exercised or converted; or we issue additional shares of our common stock at prices lower than our net tangible book value at such time.
 
Provisions in our organizational documents and in the Delaware General Corporation Law may prevent takeover attempts that could be beneficial to our stockholders.
 
Provisions in our post-offering certificate of incorporation and post-offering bylaws and in the Delaware General Corporation Law, may make it difficult and expensive for a third-party to pursue a takeover attempt we oppose even if a change in control of our Company would be beneficial to the interests of our stockholders. Any provision of our post-offering certificate of incorporation or post-offering bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. In our post-offering certificate of incorporation, our board of directors will have the authority to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of our Company, or otherwise could adversely affect the market price of our common stock. Further, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This section generally prohibits us from engaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting shares, or with their affiliates, unless our directors or stockholders approve the business combination in the prescribed manner. However, because funds affiliated with Altira, Sanders Morris and Cubera acquired their shares prior to this offering, Section 203 is currently inapplicable to any business combination or transaction with them or their affiliates. Our post-offering bylaws require that any stockholder proposals or nominations for election to our board of directors must meet specific advance notice requirements and procedures, which make it more difficult for our stockholders to make proposals or director nominations.
 
We do not plan to pay dividends on our common stock and consequently, the only opportunity to achieve a return on an investment in our common stock is if the price of our common stock appreciates.
 
We do not plan to declare dividends on our common stock for the foreseeable future and do not plan to pay dividends on our common stock. In addition, our term loan agreement limits our ability to pay dividends on our common stock. The only opportunity to achieve a positive return on an investment in our common stock for the foreseeable future may be if the market price of our common stock appreciates.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus, including the sections entitled “Prospectus Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Our Company”, contains forward-looking statements. We may, in some cases, use words such as “project”, “believe”, “anticipate”, “plan”, “expect”, “estimate”, “intend”, “should”, “would”, “could”, “potentially”, “will”, or “may”, or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this prospectus include statements about:
 
  •  potential impact of the recent rig explosion in the Gulf of Mexico and resulting oil spill;
 
  •  competition and competitive factors in the markets in which we operate;
 
  •  demand for our products and services;
 
  •  the advantages of our services compared to others;
 
  •  changes in customer preferences and our ability to adapt our product and services offerings;
 
  •  our ability to develop and maintain positive relationships with our customers;
 
  •  our ability to retain and hire necessary employees and appropriately staff our marketing, sales and distribution efforts;
 
  •  our spending of the proceeds from this offering;
 
  •  our cash needs and expectations regarding cash flow from operations;
 
  •  our ability to manage and grow our business and execute our business strategy;
 
  •  our financial performance; and
 
  •  the costs associated with being a public company.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, which apply only as of the date of this prospectus. These important factors include those that we discuss in this prospectus under the caption “Risk Factors” and elsewhere. You should read these factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
MARKET, INDUSTRY AND OTHER DATA
 
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on that information and other similar sources and on our knowledge of the markets for our services. That information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third party information and cannot assure you of its accuracy or completeness. While we believe the market position, market


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opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
 
INVESTORS OUTSIDE THE UNITED STATES
 
For investors outside the United States: we have not, the selling stockholders have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.


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USE OF PROCEEDS
 
We estimate that the net proceeds we will receive from this offering will be approximately $45.0 million (or approximately $52.0 million if the underwriters exercise their option to purchase additional shares of common stock in full), based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share would increase or decrease the net proceeds we receive from this offering by approximately $3.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriter discounts and commissions and estimated offering expenses payable by us.
 
We expect to use $400,000 of the proceeds to pay an IPO success bonus to some of our key employees, including some of our named executive officers, upon completion of this offering. See “Executive Compensation—IPO Success Bonus” for more information concerning this bonus.
 
We expect to use the remainder of the net proceeds for working capital and other general corporate purposes, which may include the expansion of our current business through acquisitions or investments in other complementary businesses, products or technologies. We have no agreements or commitments with respect to any acquisitions at this time. We will have broad discretion in the way we use the net proceeds.
 
Pending use of the net proceeds from this offering described above, we intend to invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.
 
The primary purposes of this offering are to raise additional capital, create a public market for our common stock, allow us easier and quicker access to the public markets should we need more capital in the future, increase the profile and prestige of our Company with existing and possible future customers, vendors and strategic partners, and make our stock more valuable and attractive to our employees and potential employees for compensation purposes.
 
DIVIDEND POLICY
 
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support the operation of and to finance the growth and development of our business. Accordingly, we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to compliance with certain covenants under our credit facility, which restricts or limits our ability to pay dividends, and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.


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CAPITALIZATION
 
The following table sets forth our cash and cash equivalents, our current maturities of long-term debt and our capitalization as of September 30, 2010 on:
 
  •  an actual basis;
 
  •  a pro forma basis after giving effect to (i) the conversion of all outstanding shares of our preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into an aggregate of 3,973,738 shares of our common stock, plus approximately 625 additional shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, (ii) the issuance of 1,326,252 shares of our common stock, plus an additional 200 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus, to pay our preferred stockholders the major event preference, and (iii) the exercise of the Escalate Warrants on a cashless basis for an aggregate of 231,090 shares of our common stock, plus an additional 27 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of the anti-dilution adjustment, each of which will occur immediately prior to the closing of this offering; and
 
  •  a pro forma as adjusted basis to give further effect to (i) our filing of our post-offering certificate of incorporation, which authorizes 10,000,000 shares of non-designated preferred stock, does not authorize series A preferred stock, series B preferred stock and series C preferred stock and increases the number of shares of authorized common stock to 190,000,000, and (ii) the sale by us of 3,333,334 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and our receipt of the estimated net proceeds from that sale after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
You should read the following table in conjunction with the sections titled “Selected Consolidated Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.
 
                         
    As of September 30, 2010  
                Pro Forma As
 
    Actual     Pro Forma     Adjusted  
    (in thousands, except share and
 
    per share data)  
 
Cash and cash equivalents
  $ 14,514     $ 14,514     $ 59,514  
                         
Restricted cash (1)
    10,000       10,000       10,000  
                         
Current maturities of long-term debt
    8,644       8,644       8,644  
Long-term debt
    24,529       24,529       24,529  
Preferred stock derivatives
    44,447              
Series A Preferred Stock, $0.001 par value; 2,790,000, 2,790,000 and zero shares authorized actual, pro forma, and pro forma as adjusted, 2,750,000, zero and zero issued and outstanding actual, pro forma, and pro forma as adjusted
    2,750              


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    As of September 30, 2010  
                Pro Forma As
 
    Actual     Pro Forma     Adjusted  
    (in thousands, except share and
 
    per share data)  
 
Series B Preferred Stock, $0.001 par value; 3,127,608, 3,127,608 and zero shares authorized actual, pro forma, and pro forma as adjusted, 3,127,608, zero and zero issued and outstanding actual, pro forma, and pro forma as adjusted
    5,876              
Series C Preferred Stock, $0.001 par value; 10,000,000, 10,000,000 and zero shares authorized actual, pro forma, and pro forma as adjusted; 8,003,286, zero and zero shares, issued and outstanding actual, pro forma, and pro forma as adjusted
    9,520              
Preferred Stock, $0.001 par value; zero, zero and 10,000,000 shares authorized actual, pro forma, and pro forma as adjusted; zero, zero, and zero shares issued and outstanding actual, pro forma, and pro forma as adjusted
                 
Stockholders equity (deficit)
                       
Common stock, $0.001 par value; 52,000,000, 52,000,000 and 190,000,000 shares authorized actual, pro forma, and pro forma as adjusted; 5,318,628, 10,849,708 and 14,183,042 shares issued and outstanding actual, pro forma, and pro forma as adjusted
    5       11       14  
Additional paid-in capital
    7,380       69,967       114,964  
Accumulated deficit
    (37,660 )     (37,660 )     (37,660 )
                         
Accumulated other comprehensive income
    483       483       483  
                         
Total RigNet, Inc. stockholders’ equity (deficit)
    (29,792 )     32,801       77,801  
                         
Non-redeemable, non-controlling interest
    81       81       81  
                         
Total capitalization
  $ 66,055     $ 66,055     $ 111,055  
                         
 
(1) Represents restricted cash to satisfy credit facility requirements, of which $7.5 million was non-current.
 
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the amount of cash and cash equivalents, additional paid-in capital, total RigNet, Inc. stockholders’ equity (deficit) and total capitalization by approximately $3.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
 
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the number of shares of our common stock outstanding upon the closing of this offering by approximately 83,045 shares, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

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This table excludes the following shares:
 
  •  2,599,809 shares of our common stock issuable upon the exercise of options and warrants (other than the Escalate Warrants) outstanding as of September 30, 2010 with a weighted average exercise price of $5.08 per share;
 
  •  3,000,000 shares of our common stock reserved for future issuance under our 2010 Omnibus Incentive Plan;


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DILUTION
 
If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering.
 
Our net tangible book value as of September 30, 2010 was $19.0 million, or $3.57 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding. On a pro forma basis, after giving effect to (i) the conversion immediately prior to this offering of all outstanding shares of our preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into an aggregate of 3,973,738 shares of our common stock, plus approximately 625 additional shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, (ii) the issuance of 1,326,252 shares of our common stock, plus an additional 200 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of unpaid dividends on our series B and series C preferred stock, based on the assumed initial public offering price of $15.00 per share, which is the midpoint of the range included on the cover page of this prospectus, to pay our preferred stockholders the major event preference, and (iii) the exercise of the Escalate Warrants on a cashless basis for an aggregate of 231,090 shares of our common stock, plus an additional 27 shares of our common stock for each day after September 30, 2010, before this offering is completed, for the daily accrual of the anti-dilution adjustment, our net tangible book value as of September 30, 2010 was $19.0 million, or $1.75 per share of common stock.
 
After giving further effect to our issuance and sale of 3,333,334 shares of common stock in this offering, less the estimated underwriting discounts and commissions and estimated offering expenses payable by us, based upon an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of September 30, 2010 would have been $64.0 million, or $4.51 per share of common stock. This represents an immediate increase in net tangible book value per share of $2.76 to existing stockholders and an immediate dilution of $10.49 per share to new investors. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by a new investor. The following table illustrates the per share dilution:
 
                 
Initial public offering price per share of common stock
          $ 15.00  
Actual net tangible book value per share as of September 30, 2010
  $ 3.57          
Decrease per share attributable to conversion of preferred stock, payment of major event preference and exercise of Escalate Warrants
    (1.82 )        
                 
Pro forma net tangible book value per share as of September 30, 2010
    1.75          
Increase per share attributable to new investors
    2.76          
                 
Pro forma as adjusted net tangible book value per share after this offering
            4.51  
                 
Dilution per share to new investors
          $ 10.49  
                 
 
If the underwriters exercise their option to purchase additional shares of our common stock from us in full in this offering, the pro forma as adjusted net tangible book value per share after the offering would be $4.83 per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $0.32 per share and the dilution to new investors purchasing shares in this offering would be $10.17 per share.


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A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value as of September 30, 2010 by approximately $4.7 million, would increase or decrease the pro forma as adjusted net tangible book value per share after this offering by $0.35 per share and would increase or decrease the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering by $0.35 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
The following table summarizes, as of September 30, 2010, on the pro forma as adjusted basis described above, the number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share paid to us by existing stockholders and to be paid by new investors purchasing shares of our common stock in this offering.
 
                                         
                Total
       
    Shares Purchased     Consideration     Average Price
 
    Number     Percent     Amount     Percent    
per Share
 
 
Existing stockholders
    10,849,708       76.5 %   $ 38,648,308       43.6 %   $ 3.57  
New investors
    3,333,334       23.5       50,000,010       56.4       15.00  
                                         
Total
    14,183,042       100 %   $ 88,648,318       100 %        
                                         
 
A $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease total consideration paid to us by investors participating in this offering by approximately $3.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and would also increase or decrease the number of shares of our common stock outstanding upon completion of this offering by approximately 83,045 as a result of the resulting increase or decrease in the number of shares issued to pay the major event preference.
 
The sale of 1,666,666 shares of our common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to 9,183,042 shares, or 64.7% of the total shares outstanding, and will increase the number of shares held by investors participating in this offering to 5,000,000 shares, or 35.3% of the total shares outstanding. In addition, if the underwriters exercise their over-allotment option in full, the number of shares held by existing stockholders will be further reduced to 8,933,042 shares, or 60.8% of the total shares outstanding, and the number of shares held by investors participating in this offering will be further increased to 5,750,000 shares, or 39.2% of the total shares outstanding.
 
As of September 30, 2010, there were options and warrants (other than the Escalate Warrants) outstanding to purchase a total of 2,599,809 shares of common stock at a weighted average exercise price of $5.08 per share. The above discussion and table assumes no exercise of options and warrants (other than the Escalate Warrants) outstanding as of September 30, 2010 or of any later issued options and warrants. If all of these options and warrants (other than the Escalate Warrants) were exercised, our existing stockholders, including the holders of these options and warrants (other than the Escalate Warrants), would own 70.2% of the total number of shares of common stock outstanding upon the closing of this offering and our new investors would own 29.8% of the total number of shares of our common stock upon the closing of this offering if the underwriters do not exercise their over-allotment option. If the underwriters exercise their over-allotment option in full, the existing stockholders would own 66.7% of the total number of shares of our common stock outstanding upon the closing of this offering and our new investors would own 33.3% of the total number of shares of our common stock upon the closing of this offering.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following table sets forth our selected consolidated statements of income (loss) and comprehensive income (loss), balance sheet and other data for the periods indicated. The selected consolidated statements of income (loss) and comprehensive income (loss) data for the years ended December 31, 2007, 2008 and 2009, and the consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of December 31, 2007 have been derived from our audited financial statements that are not included in this prospectus. The selected consolidated financial data as of and for the years ended December 31, 2005 and 2006, have been derived from our unaudited consolidated financial statements that are not included in this prospectus. Our unaudited consolidated financial statements as of September 30, 2010 and for the nine months ended September 30, 2009 and 2010 have been prepared on the same basis as our annual consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary in the opinion of management for the fair presentation of this data in all material respects. Our selected consolidated financial data as of September 30, 2010 and for the nine months ended September 30, 2009 and 2010 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. This information should be read in conjunction with “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements contained elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.
 
Unaudited pro forma net income (loss) per share attributable to RigNet, Inc. common stockholders and unaudited pro forma weighted average shares outstanding reflect conversion of all outstanding convertible preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into shares of our common stock and the payment of the major event preference to our preferred stockholders in shares of our common stock, each of which will occur immediately prior to the closing of this offering.
 
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the number of shares of our common stock outstanding upon the closing of this offering by approximately 83,045 shares, the pro forma net income (loss) per share attributable to RigNet, Inc. common stockholders for the nine months ended September 30, 2010 of approximately: Basic $0.01 and Diluted remains unchanged, and the pro forma weighted average shares outstanding for the nine months ended September 30, 2010 of approximately: Basic 83 and Diluted 872 assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
 
During 2006, the Company acquired 100% of OilCamp AS, or OilCamp, as well as a 75.0% controlling interest in LandTel Communications LLC, or LandTel, which established a 25.0% redeemable, non-controlling interest. The Company subsequently acquired the remaining non-controlling interest in LandTel with purchases made in December 2008 (10.7%), February 2009 (7.3%) and August 2010 (7.0%). As a result, the comparability of the financial data disclosed in the following table may be affected.
 
We have never declared or paid any cash dividends.
 


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          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2005     2006     2007     2008     2009     2009     2010  
    (in thousands, except per share data)  
 
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) Data:
                                                       
Revenue
  $ 13,282     $ 29,214     $ 67,164     $ 89,909     $ 80,936     $ 60,871     $ 68,604  
Expenses:
                                                       
Cost of revenue
    5,200       16,290       29,747       39,294       35,165       26,200       31,242  
Depreciation and amortization
    2,237       5,863       9,451       10,519       12,554       9,596       11,349  
Impairment of goodwill
                            2,898       2,898        
Selling and marketing
    1,875       4,123       2,405       2,605       2,187       1,559       1,576  
General and administrative
    4,938       9,540       20,338       21,277       16,444       11,213       15,858  
                                                         
Total expenses
    14,250       35,816       61,941       73,695       69,248       51,466       60,025  
                                                         
Operating income (loss)
    (968 )     (6,602 )     5,223       16,214       11,688       9,405       8,579  
Interest expense
    (230 )     (1,401 )     (5,497 )     (2,464 )     (5,146 )     (4,638 )     (1,174 )
Other income (expense), net
    (78 )     26       (63 )     27       304       186       (645 )
Change in fair value of preferred stock derivatives
          (7,657 )     (1,156 )     2,461       (21,009 )     (13,865 )     (12,384 )
                                                         
Income (loss) before income taxes
    (1,276 )     (15,634 )     (1,493 )     16,238       (14,163 )     (8,912 )     (5,624 )
Income tax expense
          (115 )     (628 )     (5,882 )     (5,457 )     (3,863 )     (4,953 )
                                                         
Net income (loss)
    (1,276 )     (15,749 )     (2,121 )     10,356       (19,620 )     (12,775 )     (10,577 )
Less: Net income (loss) attributable to:
                                                       
Non-redeemable, non-controlling interest
                167       235       292       230       211  
Redeemable, non-controlling interest
          151       971       1,715       10       15       25  
                                                         
Net income (loss) attributable to RigNet, Inc. stockholders
  $ (1,276 )   $ (15,900 )   $ (3,259 )   $ 8,406     $ (19,922 )   $ (13,020 )   $ (10,813 )
                                                         
Net income (loss) attributable to RigNet, Inc. common stockholders
  $ (1,811 )   $ (23,451 )   $ (3,931 )   $ (4,190 )   $ (22,118 )   $ (14,610 )   $ (13,293 )
                                                         
Net income (loss) per share attributable to:
                                                       
RigNet, Inc. common stockholders:
                                                       
Basic
  $ (1.80 )   $ (8.48 )   $ (0.74 )   $ (0.79 )   $ (4.16 )   $ (2.75 )   $ (2.50 )
Diluted
  $ (1.80 )   $ (8.48 )   $ (0.74 )   $ (0.79 )   $ (4.16 )   $ (2.75 )   $ (2.50 )
Weighted average shares outstanding:
                                                       
Basic
    1,005       2,765       5,279       5,301       5,312       5,310       5,318  
Diluted
    1,005       2,765       5,279       5,301       5,312       5,310       5,318  
Consolidated Balance Sheet Data:
                                                       
Cash and cash equivalents
  $ 316     $ 3,096     $ 6,862     $ 15,376     $ 11,379     $ 13,917     $ 14,514  
Restricted cash—current portion
                      775       2,500       2,500       2,500  
Restricted cash—long-term portion
                            7,500       7,500       7,500  
Total assets
    16,862       65,485       72,925       89,517       88,810       88,175       93,179  
Current maturities of long-term debt
    2,891       11,550       11,807       5,753       8,664       8,697       8,644  
Long-term deferred revenue
    391       693       679       1,516       348       293       348  
Long-term debt
    331       12,007       20,427       18,322       21,022       23,183       24,529  
Preferred stock derivatives
          8,241       9,808       8,413       30,446       22,962       44,447  
Preferred stock
    11       13,457       14,097       16,257       17,333       17,060       18,146  
Other Data:
                                                       
Adjusted EBITDA (non-GAAP measure)
  $ 1,171     $ (471 )   $ 17,536     $ 30,409     $ 29,093     $ 22,751     $ 21,311  
Pro forma as adjusted net income (loss) attributable to
                                                       
RigNet, Inc. common stockholders
                                  $ 3,074             $ 1,630  
                                                         
Pro forma as adjusted net income per share attributable to
                                                       
RigNet, Inc. common stockholders:
                                                       
Basic
                                  $ 0.22             $ 0.11  
                                                         
Diluted
                                  $ 0.20             $ 0.10  
                                                         
Pro forma as adjusted weighted average shares outstanding:
                                                       
Basic
                                    14,156               14,182  
                                                         
Diluted
                                    15,712               15,845  
                                                         

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The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods identified. Net income (loss) is the most comparable GAAP measure to Adjusted EBITDA.
 
                                                         
          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2005     2006     2007     2008     2009     2009     2010  
    (in thousands)  
 
Reconciliation of Net Income (Loss) to Adjusted EBITDA:
                                                       
Net income (loss)
  $ (1,276 )   $ (15,749 )   $ (2,121 )   $ 10,356     $ (19,620 )   $ (12,775 )   $ (10,577 )
Interest expense
    230       1,401       5,497       2,464       5,146       4,638       1,174  
Depreciation and amortization
    2,237       5,863       9,451       10,519       12,554       9,596       11,349  
Impairment of goodwill
                            2,898       2,898        
(Gain) loss on sale of property and equipment
    (20 )           (27 )     (92 )     111       91       320  
Change in fair value of preferred stock derivatives
          7,657       1,156       (2,461 )     21,009       13,865       12,384  
Stock-based compensation
          242       169       231       277       203       334  
Initial public offering costs
                2,783       3,510       1,261       372       1,374  
Income tax expense
          115       628       5,882       5,457       3,863       4,953  
                                                         
Adjusted EBITDA (non-GAAP measure)
  $ 1,171     $ (471 )   $ 17,536     $ 30,409     $ 29,093     $ 22,751     $ 21,311  
                                                         


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of the factors we describe under “Risk Factors” and elsewhere in this prospectus.
 
Overview
 
We, along with our wholly and majority-owned subsidiaries, provide information and communication technology for the oil and gas industry through a controlled and managed IP/MPLS global network, enabling drilling contractors, oil companies and oilfield service companies to communicate more effectively.
 
We enable our customers to deliver voice, fax, video and data, in real-time, between remote sites and home offices throughout the world while we manage and operate the infrastructure from our land-based network operations center. We serve offshore drilling rigs and production platforms, land rigs and remote locations including offices and supply bases, in approximately 30 countries on six continents.
 
Our Operations
 
We focus on developing customer relationships with the owners and operators of drilling rig fleets resulting in a significant portion of our revenue being concentrated in a few customers. In addition, due to the concentration of our customers in the oil and gas industry, we face the challenge of service demands fluctuating with the exploration and development plans and capital expenditures of that industry.
 
Network service customers are primarily served under fixed-price, day-rate contracts, which are based on the concept of pay per day of use and are consistent with terms used in the oil and gas industry. Our contracts are generally in the form of Master Service Agreements, or MSAs, with specific services being provided under individual service orders that have a term of one to three years with renewal options, while land-based locations are generally shorter term or terminable on short notice without a penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generally can be terminated early on short notice without penalty in the event of force majeure, breach of the MSA or cold stacking of a drilling rig (when a rig is taken out of service and is expected to be idle for a protracted period of time). In the year ended December 31, 2009, our largest customer, who has been our customer for over five years, provided approximately 10.9% of our total revenue. Further, from 2007 to 2009, revenue generated from this customer grew at a compounded annual rate of 28.7%.
 
We operate three reportable business segments based on geographic location, which are managed as distinct business units.
 
  •  Eastern Hemisphere.  Our eastern hemisphere segment provides remote communications services for offshore drilling rigs, production facilities, energy support vessels and other remote sites. Our eastern hemisphere segment services are performed out of our Norway, Qatar, United Kingdom and Singapore based offices for customers and rig sites located on the eastern side of the Atlantic Ocean primarily off the coasts of the U.K., Norway and West Africa, around the Indian Ocean in Qatar, Saudi Arabia and India, around the Pacific Ocean near Australia, and within the South China Sea.
 
  •  Western Hemisphere.  Our western hemisphere segment provides remote communications services for offshore drilling rigs, production facilities, energy support vessels and other remote sites. Our western hemisphere segment services are performed out of


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  our United States and Brazil based offices for customers and rig sites located on the western side of the Atlantic Ocean primarily off the coasts of the United States, Mexico and Brazil, and within the Gulf of Mexico, but excluding land rigs and other land-based sites in North America.
 
  •  U.S. Land.  Our U.S. land segment provides remote communications services for drilling rigs and production facilities located onshore in North America. Our U.S. land segment services are performed out of our Louisiana based office for customers and rig sites located in the continental United States.
 
Cost of revenue consists primarily of satellite charges, voice and data termination costs, network operations expenses, Internet connectivity fees and direct service labor. Satellite charges consist of the costs associated with obtaining satellite bandwidth (the measure of capacity) used in the transmission of service to and from leased satellites. Network operations expenses consist primarily of costs associated with the operation of our network operations center, which is maintained 24 hours a day, seven days a week. Depreciation and amortization is recognized on all property and equipment either installed at a customer’s site or held at our corporate and regional offices, as well as intangibles arising from acquisitions. Selling and marketing expenses consist primarily of salaries and commissions, travel costs and marketing communications. General and administrative expenses consist of expenses associated with our management, finance, contract, support and administrative functions.
 
Profitability increases at a site as we add customers and value-added services. Assumptions used in developing the day rates for a site may not cover cost variances from inherent uncertainties or unforeseen obstacles, including both physical conditions and unexpected problems encountered with third party service providers. Profitability risks, including oil and gas market trends, service responsiveness to remote locations, communication network complexities, political and economic instability in certain regions, export restrictions, licenses and other trade barriers, may result in the delay of service initiation, which may negatively impact our results of operations.
 
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, 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
 
All revenue is recognized when persuasive evidence of an arrangement exists, the service is complete, the amount is fixed or determinable and collectability is reasonably assured. Network service fee revenue is based on fixed-price, day-rate contracts and recognized monthly as the service is provided. Generally, customer contracts also provide for installation and maintenance services. Installation services are paid upon initiation of the contract and recognized over the life of the respective contract. Maintenance charges are recognized as specific services are performed. Deferred revenue consists of installation billings, customer deposits and other prepayments for which services have not yet been rendered. Revenue is reported net of any tax assessed and collected on behalf of a governmental authority. Such tax is then remitted directly to the appropriate jurisdictional entity.


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Accounts Receivable
 
Trade accounts receivable are recognized as customers are billed in accordance with customer contracts. We report an allowance for doubtful accounts for probable credit losses existing in accounts receivable. Management determines the allowance based on a review of currently outstanding receivables and our historical collection experience. Significant individual receivables and balances which have been outstanding greater than 90 days are reviewed individually. Account balances, when determined to be uncollectible, are charged against the allowance.
 
Property and Equipment
 
Property and equipment, which consists of rig-based telecommunication equipment (including antennas), computer equipment and furniture and other, is stated at acquisition cost net of accumulated depreciation. Depreciation is calculated using the straight-line method over the expected useful lives of the respective assets, which range from two to seven years. We assess property and equipment for impairment when events indicate the carrying value exceeds fair value. Maintenance and repair costs are charged to expense when incurred. During the years ended December 31, 2008 and 2007, and the nine month period ended September 30, 2010, no events have occurred to indicate an impairment of our property and equipment. During the nine months ended September 30, 2009, in connection with the impairment of goodwill discussed below, we performed the first step of the impairment test of LandTel’s property and equipment and found that the carrying amount of the assets were recoverable indicating that the assets were not impaired.
 
Preferred Stock Derivatives
 
Preferred stock derivatives represent conversion and redemption rights associated with our series A, B and C preferred stock, which were bifurcated based on an analysis of the features in relation to the preferred stock. Our preferred stock derivatives are non-current and reported at fair value.
 
All contracts are evaluated for embedded derivatives which are bifurcated when (a) the economic characteristics and risks of such instruments are not clearly and closely related to the economic characteristics and risks of the preferred stock agreement, (b) the contract is not already reported at fair value and (c) such instruments meet the definition of a derivative instrument and are not scope exceptions under the Financial Accounting Standards Board’s (FASB) guidance on Derivatives and Hedging. As of September 30, 2010 and 2009 and December 31, 2009 and 2008, we have identified embedded features within our preferred stock agreements which qualify as derivatives and are reported separately from preferred stock. See our consolidated financial statements included elsewhere in this prospectus.
 
Fair values of derivatives are determined using a combination of the expected present value of future cash flows and a market approach. The present value of future cash flows is estimated using our most recent forecast and our weighted average cost of capital. The market approach uses a market multiple on the cash generated from operations. Significant estimates for determining fair value include cash flow forecasts, our weighted average cost of capital, projected income tax rates and market multiples. For the purpose of measuring the fair value of the preferred stock derivatives, all bifurcated derivatives were bundled together for each class of preferred stock and were reported at the aggregate fair value.
 
Goodwill
 
Goodwill relates to the acquisitions of LandTel and OilCamp as the consideration paid exceeded the fair value of acquired identifiable net tangible assets and intangibles. Goodwill is reviewed for impairment annually, as of July 31st, with additional evaluations being performed when events or circumstances indicate that the carrying value of these assets may not be recoverable.


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Goodwill impairment is determined using a two-step process. The first step of the impairment test is used to identify potential impairment by comparing the fair value of each reporting unit to the book value of the reporting unit, including goodwill. Fair value of the reporting unit is determined using a combination of the reporting unit’s expected present value of future cash flows and a market approach. The present value of future cash flows is estimated using our most recent forecast and our weighted average cost of capital. The market approach uses a market multiple on the reporting unit’s cash generated from operations. Significant estimates for each reporting unit included in our impairment analysis are cash flow forecasts, our weighted average cost of capital, projected income tax rates and market multiples. Changes in these estimates could affect the estimated fair value of our reporting units and result in an impairment of goodwill in a future period.
 
If the fair value of a reporting unit is less than its book value, goodwill of the reporting unit is considered to be impaired and the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill in the same manner as a purchase price allocation.
 
Any impairment in the value of goodwill is charged to earnings in the period such impairment is determined. In 2009, we recognized $2.9 million in impairment of goodwill. Such impairment was a result of a significant reduction in the U.S. land rig count as of June 30, 2009 as a result of reduced natural gas and oil prices. This circumstance resulted in a reduction in our cash flow projections utilizing Spears & Associates, Inc. forward land-based rig count projections in the revision of internal forecasts, which reduced the estimated fair value of our U.S. land reporting unit below its carrying value. Our projections in 2009 provided for a slow recovery of revenue and Adjusted EBITDA (non-GAAP measure) from 2010 through 2014, which is consistent with our year-to-date 2010 results.
 
We recorded no goodwill impairments in 2007, 2008, or for the nine months ended September 30, 2010. As of July 31, 2010, our latest completed goodwill impairment testing date, the fair values of our reporting units are substantially in excess of their carrying values. While we believe that there appears to be no indication of current or future impairment, historical operating results may not be indicative of future operating results and events and circumstances may occur causing a triggering event in a period as short as three months.
 
Long-Term Debt
 
Long-term debt is recognized in the consolidated balance sheets net of costs incurred in connection with obtaining the financing. Debt financing costs are deferred and reported as a reduction to the principal amount of the debt. Such costs are amortized over the life of the debt using the effective interest rate method and included in interest expense in the consolidated statements of income (loss) and comprehensive income (loss). We believe the carrying amount of our debt, which has a floating interest rate, approximates fair value, since the interest rates are based on short-term maturities and recent quoted rates from financial institutions.
 
Stock-Based Compensation
 
We have two stock-based compensation plans, the RigNet, Inc. 2006 Long-Term Incentive Plan, or the 2006 Plan, and the RigNet Inc. 2001 Performance Stock Option Plan, or the 2001 Plan. All equity instruments granted under the two stock-based compensation plans are settled in stock.
 
We recognize expense for stock-based compensation using the calculated fair value of options on the grant date of the awards. Fair value of options on the grant date is determined using the Black-Scholes model, which requires judgment in estimating the expected term of


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the option, risk-free interest rate, expected volatility of our stock and dividend yield of the option. We did not issue fractional shares nor pay cash in lieu of fractional shares and currently do not have any awards accounted for as a liability.
 
Our policy is to recognize compensation expense for service-based awards on a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense is based on awards ultimately expected to vest.
 
The fair value of each option award is estimated on the grant date using a Black-Scholes option valuation model, which uses certain assumptions as of the date of grant:
 
  •  Expected Volatility—based on peer group price volatility for periods equivalent to the expected term of the options
 
  •  Expected Term—expected life adjusted based on management’s best estimate for the effects of non-transferability, exercise restriction and behavioral considerations
 
  •  Risk-free Interest Rate—risk-free rate, for periods within the contractual terms of the options, is based on the U.S. Treasury yield curve in effect at the time of grant
 
  •  Dividend Yield—expected dividends based on the Company’s historical dividend rate at the date of grant
 
Taxes
 
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently payable, refunds receivable and tax expense) are recorded based on amounts refundable or payable in the current year and include the results of any difference between book and tax reporting. Deferred income taxes reflect the tax effect of net operating losses, foreign tax credits and the tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines that it is more likely than not that some portion or the entire deferred tax asset will not be realized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment.
 
Effective January 1, 2007, we adopted new accounting provisions requiring the evaluation of our tax positions and recognizing only tax benefits that, more likely than not, will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on technical merits of the position. Tax positions are measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon settlement. The cumulative effect of applying these provisions on January 1, 2007 resulted in a $0.4 million adjustment to beginning accumulated deficit.
 
From time to time, we engage in transactions in which the tax consequences may be subject to uncertainty. Examples of such transactions include business acquisitions, certain financing transactions, international investments, stock-based compensation and foreign tax credits. Significant judgment is required in assessing and estimating the tax consequences of these transactions. In the normal course of business, we prepare and file tax returns based on interpretation of tax laws and regulations, which are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing authorities. In determining our tax provision for financial reporting purposes, we establish a reserve for uncertain income tax positions unless such positions are determined to be more likely than not sustained upon examination, based on their technical merits. There is considerable judgment involved in determining whether positions taken on our tax return will, more likely than not, be sustained.


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New Accounting Pronouncements
 
See our audited and unaudited consolidated financial statements included elsewhere in this prospectus for details regarding our implementation and assessment of new accounting standards.
 
Results of Operations
 
The following table sets forth selected financial and operating data for the periods indicated.
 
                                                                 
                      Nine Months Ended
    Percentage Change  
    Year Ended December 31,     September 30,     2007 to
    2008 to
    September 30,
 
    2007     2008     2009     2009     2010     2008     2009     2009 to 2010  
    (in thousands, except percentages)  
 
Revenue
  $ 67,164     $ 89,909     $ 80,936     $ 60,871     $ 68,604       33.9 %     (10.0 )%     12.7 %
Expenses:
                                                               
Cost of revenue
    29,747       39,294       35,165       26,200       31,242       32.1 %     (10.5 )%     19.2 %
Depreciation and amortization
    9,451       10,519       12,554       9,596       11,349       11.3 %     19.3 %     18.3 %
Impairment of goodwill
                2,898       2,898             %     %     (100.0 )%
Selling and marketing
    2,405       2,605       2,187       1,559       1,576       8.3 %     (16.0 )%     1.1 %
General and administrative
    20,338       21,277       16,444       11,213       15,858       4.6 %     (22.7 )%     41.4 %
                                                                 
Total expenses
    61,941       73,695       69,248       51,466       60,025       19.0 %     (6.0 )%     16.6 %
                                                                 
Operating income
    5,223       16,214       11,688       9,405       8,579       210.4 %     (27.9 )%     (8.8 )%
Other income (expense), net
    (6,716 )     24       (25,851 )     (18,317 )     (14,203 )     100.4 %     *     22.5 %
                                                                 
Income (loss) before income taxes
    (1,493 )     16,238       (14,163 )     (8,912 )     (5,624 )     *       (187.2 )%     36.9 %
Income tax expense
    (628 )     (5,882 )     (5,457 )     (3,863 )     (4,953 )     (836.6 )%     7.2 %     (28.2 )%
                                                                 
Net income (loss)
    (2,121 )     10,356       (19,620 )     (12,775 )     (10,577 )     588.3 %     (289.5 )%     17.2 %
Less: net income attributable to non-controlling interests
    1,138       1,950       302       245       236       71.4 %     (84.5 )%     (3.7 )%
                                                                 
Net income (loss) attributable to RigNet, Inc. stockholders
  $ (3,259 )   $ 8,406     $ (19,922 )   $ (13,020 )   $ (10,813 )     357.9 %     (337.0 )%     17.0 %
                                                                 
 
* Amount is greater than 1000%, therefore it is not meaningful.
 
Our business operations are managed through three reportable operating segments: eastern hemisphere, western hemisphere and U.S. land. The following represents selected financial operating results for our segments:
 
                                                                 
                      Nine Months Ended
    Percentage Change  
    Year Ended December 31,     September 30,     2007 to
    2008 to
    September 30,
 
    2007     2008     2009     2009     2010     2008     2009     2009 to 2010  
    (in thousands, except percentages)  
 
Eastern hemisphere:
                                                               
Revenue
  $ 38,229     $ 54,586     $ 60,917     $ 45,835     $ 45,979       42.8 %     11.6 %     0.3 %
Cost of revenue
    20,674       23,721       23,247       17,523       17,986       14.7 %     (2.0 )%     2.6 %
                                                                 
Gross margin(1)
    17,555       30,865       37,670       28,312       27,993       75.8 %     22.0 %     (1.1 )%
Depreciation and amortization
    3,049       5,186       6,894       5,088       6,022       70.1 %     32.9 %     18.4 %
Selling, general and administrative
    3,824       6,974       5,818       4,155       5,520       82.4 %     (16.6 )%     32.9 %
                                                                 
Eastern hemisphere operating income
  $ 10,682     $ 18,705     $ 24,958     $ 19,069     $ 16,451       75.1 %     33.4 %     (13.7 )%
                                                                 


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                      Nine Months Ended
    Percentage Change  
    Year Ended December 31,     September 30,     2007 to
    2008 to
    September 30,
 
    2007     2008     2009     2009     2010     2008     2009     2009 to 2010  
    (in thousands, except percentages)  
 
Western hemisphere:
                                                               
Revenue
  $ 12,228     $ 12,225     $ 11,222     $ 8,030     $ 13,980       (0.0 )%     (8.2 )%     74.1 %
Cost of revenue
    3,822       5,599       4,841       3,410       6,556       46.5 %     (13.5 )%     92.3 %
                                                                 
Gross margin(1)
    8,406       6,626       6,381       4,620       7,424       (21.2 )%     (3.7 )%     60.7 %
Depreciation and amortization
    2,924       1,994       2,428       1,731       2,861       (31.8 )%     21.8 %     65.3 %
Selling, general and administrative
    3,705       2,016       1,834       1,228       1,792       (45.6 )%     (9.0 )%     45.9 %
                                                                 
Western hemisphere operating income
  $ 1,777     $ 2,616     $ 2,119     $ 1,661     $ 2,771       47.2 %     (19.0 )%     66.8 %
                                                                 
U.S. land:
                                                               
Revenue
  $ 17,480     $ 23,047     $ 9,850     $ 7,617     $ 8,971       31.8 %     (57.3 )%     17.8 %
Cost of revenue
    4,972       9,011       5,195       4,006       4,829       81.2 %     (42.3 )%     20.5 %
                                                                 
Gross margin(1)
    12,508       14,036       4,655       3,611       4,142       12.2 %     (66.8 )%     14.7 %
Depreciation and amortization
    3,450       3,325       3,204       2,767       2,484       (3.6 )%     (3.6 )%     (10.2 )%
Impairment of goodwill
                2,898       2,898             %     %     (100.0 )%
Selling, general and administrative
    5,672       4,166       2,749       2,137       1,910       (26.6 )%     (34.0 )%     (10.6 )%
                                                                 
U.S. land operating income (loss)
  $ 3,386     $ 6,545     $ (4,196 )   $ (4,191 )   $ (252 )     93.3 %     (164.1 )%     94.0 %
                                                                 
 
(1) Gross margin, a non-GAAP measure, is defined as revenue less cost of revenue. This measure is used to evaluate operating margins and the effectiveness of cost management within our operating segments.
 
Nine Months Ended September 30, 2010 and 2009
 
Revenue.  Revenue increased by $7.7 million, or 12.7%, to $68.6 million for the nine months ended September 30, 2010 from $60.9 million for the nine months ended September 30, 2009. The increase in revenue was primarily attributable to a 74.1% increase in western hemisphere revenue resulting primarily from our expansion in Brazil and from an increase in contract orders and unit counts. Furthermore, U.S. land revenue increased 17.8% resulting primarily from increased U.S. land rig counts driven by increased natural gas and oil prices.
 
Cost of Revenue.  Costs increased by $5.0 million, or 19.2%, to $31.2 million for the nine months ended September 30, 2010 from $26.2 million for the nine months ended September 30, 2009, primarily due to the incremental network services and capacity required to serve the increased unit counts. Gross margin decreased to 54.5% for the nine months ended September 30, 2010 compared to 57.0% for the nine months ended September 30, 2009. The decline in the operating profitability resulted from decreases in gross margin across all operating segments. This decrease in gross margin is consistent with the increase in cost of revenue and results from increased contracted satellite bandwidth costs to position our business for future organic growth. The future relationship between the revenue and profitability growth of our operating segments will depend on a variety of factors, including the timing of major contracts, which are difficult to predict.
 
Depreciation and Amortization.  Depreciation and amortization expenses increased by $1.7 million, or 18.3%, to $11.3 million for the nine months ended September 30, 2010 from $9.6 million for the nine months ended September 30, 2009.
 
The increase resulted from an increase in the acquisition of rig-based equipment, which was acquired in conjunction with growth initiatives during 2009 and 2010.
 
General and Administrative.  General and administrative expenses increased by $4.7 million, or 41.4%, to $15.9 million for the nine months ended September 30, 2010 from $11.2 million for the nine months ended September 30, 2009. The increase was primarily due

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to non-recurring costs of $1.4 million incurred during 2010 in preparation of an initial public offering of our common stock combined with increases in (i) eastern hemisphere technical personnel, (ii) development of our Brazil regional office and (iii) senior level staff.
 
Other Income (Expense).  The change in other income (expense) is comprised primarily of changes in interest expense and changes in fair value of preferred stock derivatives. Interest expense decreased by $3.4 million, or 74.7%, to $1.2 million for the nine months ended September 30, 2010 from $4.6 million for the nine months ended September 30, 2009. The decrease in interest expense also reflects the fact that the value of warrants issued in connection with stockholder notes were fully recognized as interest expense during 2009. We had no interest expense related to warrants for the nine months ended September 30, 2010.
 
Change in fair value of preferred stock derivatives decreased by $1.5 million, or 10.7%, to $12.4 million for the nine months ended September 30, 2010 from $13.9 million for the nine months ended September 30, 2009, as a result of fair value changes related to conversion and redemption features of our preferred stock. Accounting standards require the separate valuation and recording of certain features of our preferred stock until such shares are converted or redeemed. Those features are revalued and reported each period at the then fair value, with changes in fair value recorded in the consolidated statements of income (loss) and comprehensive income (loss).
 
Income Tax Expense.  Our effective income tax rate was (88.1)% and (43.3)% for the nine months ended September 30, 2010 and 2009, respectively. Our effective tax rates are affected by factors including fluctuations in income across international jurisdictions with varying tax rates, non-deductibility of changes in fair value of preferred stock derivatives, changes in the valuation allowance related to operating in a loss jurisdiction for which a benefit cannot be claimed, and changes in income tax reserves.
 
Years Ended December 31, 2009 and 2008
 
Revenue.  Revenue decreased by $9.0 million, or 10.0%, to $80.9 million for the year ended December 31, 2009 from $89.9 million for the year ended December 31, 2008. The decrease in revenue was primarily attributable to our U.S. land segment which declined by 57.3% in 2009 due to a decline in U.S. land rig count as a result of reduced natural gas and oil prices. According to the November 5, 2010 Baker Hughes North America Rotary Rig Count report, the U.S. land rig count dropped from the peak of 1,961 in August 2008 to the bottom of 829 in June 2009. Demand for our service and revenue can change in as little as three months for our U.S. land operations as drilling rig counts change in response to oil and gas prices.
 
Furthermore, western hemisphere revenue decreased 8.2% in 2009 due to the decline in shallow offshore drilling, while eastern hemisphere revenue increased by 11.6% due to increased unit counts and subscriptions in connection with long-term deepwater drilling programs. Such programs have lag times of one to three years before significantly impacting our related service revenues.
 
Cost of Revenue.  Costs decreased by $4.1 million, or 10.5%, to $35.2 million for the year ended December 31, 2009 from $39.3 million for the year ended December 31, 2008, primarily due to reduced materials, supplies, salaries and travel costs as a result of the decrease in revenue. As the U.S. land rig count declined in 2009, we implemented cost measures in all of our reportable segments with priority on our U.S. land and our western hemisphere segments. Gross margin increased slightly to 56.6% for the year ended December 31, 2009 compared to 56.3% for the year ended December 31, 2008. The increase in gross margin was primarily driven by decreases in materials, supplies, and travel costs, along with a shift to contract labor. The cost decreases were partially offset by an increase in contracted costs for satellite bandwidth associated with increased unit counts in our eastern hemisphere segment. Eastern hemisphere gross margin increased to 61.8% in 2009 from 56.5% in 2008,


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and western hemisphere gross margin increased to 56.9% in 2009 from 54.2% in 2008. These increases were offset by a decrease in U.S. land gross margin to 47.3% in 2009 from 60.9% in 2008. The future relationship between the revenue and margin growth of our operating segments will depend on a variety of factors, including the timing of major contracts, our ability to leverage existing infrastructure and our exploitation of market opportunities, which are difficult to predict.
 
Depreciation and Amortization.  Depreciation and amortization expenses increased by $2.0 million, or 19.3%, to $12.5 million for the year ended December 31, 2009 from $10.5 million for the year ended December 31, 2008. The increase resulted from increased depreciation of rig-based telecommunication equipment, which was acquired in conjunction with growth in offshore operations in the western hemisphere during 2008 and 2009.
 
Impairment of Goodwill.  Goodwill relates primarily to our U.S. land segment wherein goodwill has been recorded from prior acquisitions of a majority-owned subsidiary, LandTel. U.S. land revenue declined 57.3% during 2009 due to a significant decline in land-based drilling activity and rig counts, which hit a low point in June 2009, resulting in a triggering event and an impairment test. The test as of June 30, 2009 resulted in the recognition of a $2.9 million impairment of goodwill.
 
Selling and Marketing.  Selling and marketing expenses decreased by $0.4 million, or 16.0%, to $2.2 million for the year ended December 31, 2009 from $2.6 million for the year ended December 31, 2008. The decrease was primarily the result of cost management of compensation due to the general downturn in the economy and, secondarily, the decrease in revenue.
 
General and Administrative.  General and administrative expenses decreased by $4.9 million, or 22.7%, to $16.4 million for the year ended December 31, 2009 from $21.3 million for the year ended December 31, 2008. The decrease was primarily due to non-recurring costs of $3.5 million incurred during 2008 related to a prior effort to prepare for an initial public offering of our common stock. In addition, we reduced our general and administrative compensation costs and travel, but increased certain costs associated with implementing U.S. GAAP accounting standards.
 
Other Income (Expense).  The change in other income expense is comprised primarily of changes in interest expense and changes in fair value of preferred stock derivatives. Interest expense increased $2.6 million, or 108.8%, to $5.1 million for the year ended December 31, 2009 from $2.5 million for the year ended December 31, 2008. The increase was primarily due to expense recognized for warrants issued in connection with a restructuring of short-term stockholder notes in December 2008. This increased cost was partially offset by lower interest rates resulting from the restructuring of our term loans with financial institutions and full retirement of stockholder notes.
 
Change in fair value of preferred stock derivatives increased other expense by $23.5 million, or 953.7%, to $(21.0) million for the year ended December 31, 2009 from $2.5 million in income for the year ended December 31, 2008, as a result of the increased fair value of certain bifurcated derivatives related to the conversion and redemption features of our preferred stock. The increase in value of the conversion option was in part due to increased probability of an initial public offering in 2010. Accounting standards require the separate valuation and recording of certain features of our preferred stock until such shares are converted or redeemed. As a result the original proceeds were allocated between the stock and separate derivative features. Those features are revalued and reported each period at the then fair value, with changes in fair value recorded in the consolidated statements of income (loss) and comprehensive income (loss).


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Income Tax Expense.  Our effective income tax rate was (38.5)% for the year ended December 31, 2009. For the year ended December 31, 2008, our effective income tax rate was 36.2%. See Note 16—Income Taxes, to our consolidated financial statements included elsewhere in this prospectus for more information regarding the items comprising our effective tax rates.
 
Years Ended December 31, 2008 and 2007
 
Revenue.  Revenue increased by $22.7 million, or 33.9%, to $89.9 million for the year ended December 31, 2008 from $67.2 million for the year ended December 31, 2007. The increase in revenue was primarily driven by a 42.8% increase in eastern hemisphere revenue, as well as a 31.8% increase in U.S. land revenue, due to increases in both offshore and onshore drilling activity in these regions, driven by rising oil and gas prices.
 
Cost of Revenue.  Costs increased by $9.6 million, or 32.1%, to $39.3 million for the year ended December 31, 2008 from $29.8 million for the year ended December 31, 2007 due to increased contracted satellite bandwidth, labor and materials related to the growth in revenue and positioning for future growth. Gross margin increased to 56.3% for the year ended December 31, 2008 compared to 55.7% for the year ended December 31, 2007. The increase in the gross margin was driven primarily by increased leverage of contracted satellite bandwidth capacities resulting in eastern hemisphere gross margin increasing to 56.5% in 2008 from 45.9% in 2007. The gross margin of western hemisphere decreased to 54.2% in 2008 compared to 68.7% in 2007 as did the gross margin of U.S. land which decreased to 60.9% in 2008 compared to 71.6% in 2007, both due to increased satellite bandwidth, materials and labor costs.
 
Depreciation and Amortization.  Depreciation and amortization expenses increased by $1.0 million, or 11.3%, to $10.5 million for the year ended December 31, 2008 from $9.5 million for the year ended December 31, 2007. The increase resulted from increased depreciation from acquisitions of property and equipment primarily related to our eastern hemisphere operations.
 
Selling and Marketing.  Selling and marketing expenses increased by $0.2 million, or 8.3%, to $2.6 million for the year ended December 31, 2008 from $2.4 million for the year ended December 31, 2007. The increase was primarily a result of increased compensation costs driven by the increase in revenue.
 
General and Administrative.  General and administrative expenses increased by $1.0 million, or 4.6%, to $21.3 million for the year ended December 31, 2008 from $20.3 million for the year ended December 31, 2007. The increase was primarily due to costs incurred during 2008 for a prior effort to prepare for an initial public offering of our common stock. The increase was partially offset by cost management decreasing employee compensation costs.
 
Other Income (Expense).  The change in other income expense is comprised primarily of changes in interest expense and changes in fair value of preferred stock derivatives. Interest expense decreased $3.0 million, or 55.2%, to $2.5 million for the year ended December 31, 2008 from $5.5 million for the year ended December 31, 2007. The decrease resulted primarily from less interest expense associated with warrants issued during 2006 and 2007 in connection with stockholder notes, because they were fully expensed as of December 31, 2007.
 
Changes in fair value of derivatives increased other income by $3.7 million, or 312.9%, to $2.5 million in income for the year ended December 31, 2008 from $(1.2) million for the year ended December 31, 2007, as a result of the decreased fair value of certain bifurcated derivatives related to the conversion and redemption features of our preferred stock.
 
Income Tax Expense.  Our effective income tax rate was 36.2% for the year ended December 31, 2008. For the year ended December 31, 2007, our effective income tax rate was


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(42.1)%. See Note 16—Income Taxes, to our consolidated financial statements included elsewhere in this prospectus for more information regarding the items comprising our effective tax rates.
 
Liquidity and Capital Resources
 
Our primary sources of liquidity and capital since our formation have been proceeds from private equity issuances, stockholder loans, cash flow from operations and bank borrowings. To date, our primary use of capital has been to fund our growing operations and to finance acquisitions. Through September 30, 2010, we raised approximately $38.3 million of net proceeds through private offerings of our common and preferred stock. In addition, our stockholders loaned $13.3 million in stockholder notes, which were repaid in full during 2009. See “Related Party Transactions”.
 
At September 30, 2010, we had working capital of $9.5 million, including cash and cash equivalents of $14.5 million, restricted cash of $2.5 million, accounts receivable of $16.2 million and other current assets of $4.5 million, offset by $4.8 million in accounts payable, $6.6 million in accrued expenses, $8.6 million in current maturities of long-term debt, $7.1 million in tax related liabilities and $1.1 million in deferred revenue.
 
Our term loan agreement imposes certain restrictions, including on our ability to obtain additional debt financing and on our payment of cash dividends; and requires us to maintain certain financial covenants such as a funded debt to adjusted earnings ratio, as defined in the agreement, of less than or equal to 2.0 to 1.0, and a fixed charge coverage ratio of not less than 1.5 to 1.0. At September 30, 2010, our adjusted earnings, as defined in the agreement, exceeded the minimum levels required by the fixed charge coverage ratio by 39.6% and the funded debt to adjusted earnings ratio by 66.7%.
 
At December 31, 2009, we had working capital of $5.3 million, including cash and cash equivalents of $11.4 million, restricted cash of $2.5 million, accounts receivable of $12.7 million and other current assets of $4.4 million, offset by $3.8 million in accounts payable, $5.9 million in accrued expenses, $8.7 million in current maturities of long-term debt, $6.0 million in tax related liabilities and $1.3 million in deferred revenue.
 
On May 8, 2010, the LandTel non-controlling interest owner formally exercised its right to sell its remaining interest to the Company for $4.6 million, based on a previously agreed-upon formula. On July 21, 2010, the Company made a cash payment of $4.6 million to satisfy its obligation for the remaining redeemable, non-controlling interest consistent with the previously agreed upon formula. On September 23, 2010, the LandTel non-controlling interest owner exercised a right to a recalculation of the purchase price by a third party arbiter. Prior to the arbitration, the parties agreed to a purchase price of $4.7 million on October 6, 2010. The $0.1 million incremental purchase price is expected to be paid by December 31, 2010. The owner has assigned to us all remaining shares in LandTel which is now our wholly-owned subsidiary. In addition, capital resources of $4.8 million for the year ended December 31, 2009 and $6.7 million for the year ended December 31, 2008 were used to redeem redeemable non-controlling interests in LandTel.
 
We amended our term loan agreement on June 10, 2010 and, again, on August 19, 2010 to increase outstanding borrowings by $10.0 million to approximately $35.5 million. The amendments also temporarily reduced restricted cash from $10.0 million to $5.25 million from July 3, 2010 to August 19, 2010 at which time we agreed to maintain $10.0 million in restricted cash through July 3, 2011, after which we may reduce total restricted cash to $7.5 million. Uses of the additional borrowings include providing $5.25 million for working capital and general corporate purposes and the remaining $4.75 million was used to increase restricted cash from $5.25 million to $10.0 million. The increase in borrowings will be due upon maturity of the loan


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on May 31, 2012. With respect to our term loan covenants, the increase in long-term debt does not affect our fixed charge coverage ratio.
 
Subsequently, on November 9, 2010, we amended our term loan agreement providing for a draw feature under which we can borrow up to an additional $5.5 million to be used solely for purchases of equipment. The advance period commenced on November 9, 2010 and ends on May 9, 2011. Under the terms of the amendment, we can draw 75% of the cost of the equipment from the bank with 25% being funded from available cash and cash equivalents. Borrowings under this feature of our term loan agreement totaled $1.1 million at November 24, 2010.
 
Since 2007, we have spent $7.2 million to $10.2 million annually on capital expenditures. Based on our current expectations, we believe our liquidity and capital resources will be sufficient for the conduct of our business and operations. Furthermore, we expect that the net proceeds to us from this offering will be sufficient for our projected capital expenditures.
 
During the next twelve months, we expect our principal sources of liquidity to be cash flows from operating activities, available cash and cash equivalents and the expansion of our existing term loan agreement as evidenced by our November 9, 2010 amendment to our term loan discussed further below. In forecasting our cash flows we have considered factors including contracted services related to long-term deepwater drilling programs, U.S. land rig count trends, projected oil and natural gas prices and contracted and available satellite bandwidth. During the nine months ended September 30, 2010, we expended $6.6 million to satisfy debt repayment obligations and $9.6 million on capital expenditures funded from available working capital and cash flows from operations. We expect that cash flows from operations, expansion of our existing term loan agreement, and the proceeds of this offering will fully fund our capital expenditure requirements, debt obligations and working capital needs for the next twelve months.
 
Beyond the next twelve months, we expect our principal sources of liquidity to be cash flows provided by operating activities, cash and cash equivalents and additional financing activities we may pursue, which may include equity offerings. We intend to use cash from operations and the net proceeds generated by this offering for capital expenditures, working capital and other general corporate purposes. In addition, we may also use a portion of the net proceeds of this offering to finance growth through the acquisition of, or investment into, businesses, products, services or technologies complementary to our current business, through mergers, acquisitions, joint ventures or otherwise. However, we have no agreements or commitments for any specific acquisitions at this time.
 
While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and expansion plans, we may want to pursue additional expansion opportunities within the next year which could require additional financing, either debt or equity. If we are unable to secure additional financing at favorable terms in order to pursue such additional expansions opportunities, our ability to maintain our desired level of revenue growth could be materially adversely affected.
 
                                         
          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2007     2008     2009     2009     2010  
    (In thousands)  
 
Consolidated Statements of Cash Flows Data:
                                       
Cash and cash equivalents, beginning
  $ 3,096     $ 6,864     $ 15,376     $ 15,376     $ 11,379  
Net cash provided by operating activities
    5,352       19,655       26,189       22,644       14,812  
Net cash used by investing activities
    (7,204 )     (9,363 )     (19,305 )     (16,279 )     (9,586 )
Net cash provided (used) by financing activities
    5,871       (1,669 )     (10,774 )     (9,106 )     (1,466 )
Changes is foreign currency translation
    (251 )     (111 )     (107 )     1,282       (625 )
                                         
Cash and cash equivalents, ending
  $ 6,864     $ 15,376     $ 11,379     $ 13,917     $ 14,514  
                                         


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Operating Activities
 
Net cash provided by operating activities was $14.8 million for the nine months ended September 30, 2010 compared to $22.6 million for the nine months ended September 30, 2009. The decrease in cash provided by operating activities of $7.8 million was primarily due to the timing of collections of our accounts receivable. Net cash provided by operating activities was $26.2 million for the year ended December 31, 2009 compared to $19.7 million for the year ended December 31, 2008. The increase in cash provided by operating activities of $6.5 million was primarily due to increased cash flow from the eastern hemisphere operations and cost management, partially offset by decreased cash flow from U.S. land operations.
 
Our cash provided by operations is subject to many variables, the most significant of which is the volatility of the oil and gas industry and, therefore, the demand for our services. Other factors impacting operating cash flows include the availability and cost of satellite bandwidth, as well as the timing of collecting our receivables. Our future cash flow from operations will depend on our ability to increase our contracted services through our sales and marketing efforts while leveraging the contracted satellite and other communication service costs.
 
Currently, the Norwegian kroner and the British pound sterling are the currencies that could materially impact our liquidity. Our historical experience with exchange rates for these currencies has been relatively stable and, consequently, we do not currently hedge these risks, but evaluate these risks on a continual basis and may put financial instruments in place in the future if deemed necessary. During the nine months ended September 30, 2010 and 2009, 77.8% and 77.2% of our revenue was denominated in U.S. dollars, respectively.
 
Investing Activities
 
Net cash used by investing activities was $9.6 million for the nine months ended September 30, 2010 compared to $16.3 million for the nine months ended September 30, 2009, which included a $9.2 million increase in restricted cash and a $2.5 million increase in capital expenditures. Net cash used by investing activities was $19.3 million, $9.4 million and $7.2 million in the years ended December 31, 2009, 2008 and 2007, respectively. Of these amounts $10.2 million, $8.7 million and $7.2 million during the years ended December 31, 2009, 2008 and 2007, respectively, were for capital expenditures. The remaining cash used by investing activities resulted from increases in our restricted cash. The continued growth in capital expenditures of $2.5 million for the nine months ended September 30, 2010 and $1.5 million for each of the years ended December 31, 2009 and 2008, compared to each of the respective prior periods, is primarily attributable to growth opportunities arising from increasing demand for deepwater drilling in our eastern and western hemispheres operations. As we expand our global operations, we expect our capital expenditure trend to continue using available cash, proceeds from this offering and borrowings from our term loan, discussed above, to fund such expenditures.
 
Financing Activities
 
Net cash used by financing activities was $1.5 million in the nine month period ended September 30, 2010 as compared to $9.1 million in the same period ended September 30, 2009. Net cash used by financing activities was $10.8 million and $1.7 million in the years ended December 31, 2009 and 2008, respectively, and net cash provided by financing activities was $5.9 million in the year ended December 31, 2007. Cash used in financing activities during the nine month periods ended September 30, 2010 and 2009, were attributable to principal payments of long-term debt and the redemption of non-controlling interest. Cash proceeds in financing activities during the nine month periods ended September 30, 2010 was attributable to the amendment of our term loan in August 2010, increasing our principal balance by


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$10.0 million. During the year ended December 31, 2009, we also refinanced our outstanding credit facilities and notes to stockholders with a new term loan facility providing cash proceeds of $35.0 million, as discussed in more detail below, made principal payments of long-term debt of $40.4 million and redeemed a portion of the outstanding non-controlling interest for $4.8 million. During the year ended December 31, 2008, we issued notes to stockholders for $6.0 million, made principal payments of long-term debt of $3.9 million and redeemed a portion of outstanding non-controlling interest in LandTel for $6.7 million. During the year ended December 31, 2007, our cash provided by financing activities of $5.9 million was primarily due to the issuance of notes to stockholders in the amount of $5.4 million.
 
Term Loan
 
In May 2009, we entered into a $35.0 million term loan agreement with two participating financial institutions, the proceeds of which were used to repay existing outstanding parent and subsidiary term loans and credit facilities and all outstanding notes to stockholders. The term loan is secured by substantially all of our assets and bears interest at a rate ranging from 4.3% to 5.3% based on a funded debt to adjusted earnings ratio, as defined in the agreement. Interest is payable monthly along with quarterly installments of approximately $2.2 million in principal. At December 31, 2009, $29.9 million was outstanding, with an interest rate of 5.0%. The weighted average interest rate for the year ended December 31, 2009 was 5.2%. At September 30, 2010, $33.3 million was outstanding, with an interest rate of 5.0%. The weighted average interest rate for the nine months ended September 30, 2010 was 5.0%.
 
On August 19, 2010, we amended our term loan agreement to increase outstanding borrowings by $10.0 million to approximately $35.5 million. Uses of the additional borrowings include providing $5.25 million for working capital and general corporate purposes and the remaining $4.75 million will be used to increase restricted cash from $5.25 million to $10.0 million. The increase in borrowings will be due upon maturity of the loan on May 31, 2012.
 
On November 9, 2010, we amended our term loan agreement providing for a draw feature under which we can borrow up to an additional $5.5 million to be used solely for purchases of equipment. The advance period commenced on November 9, 2010 and ends on May 8, 2011. Under the terms of the amendment, we can draw 75% of the cost of the equipment from the bank with 25% being funded from available cash and cash equivalents.
 
Our term loan agreement imposes certain restrictions, including on our ability to obtain additional debt financing and on our payment of cash dividends; and requires us to maintain certain financial covenants such as a funded debt to adjusted earnings ratio, as defined in the agreement, of less than or equal to 2.0 to 1.0, and a fixed charge coverage ratio of not less than 1.5 to 1.0.
 
Off-Balance Sheet Arrangements
 
We do not engage in any off-balance sheet arrangements.


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Contractual Obligations and Commercial Commitments
 
At December 31, 2009, we had contractual obligations and commercial commitments as follows:
 
                                         
    Total     2010     2011 - 2012     2013 - 2014     2015 and Beyond  
    (In thousands)  
 
Contractual Obligations:
                                       
Debt obligations
                                       
Term loan
  $ 29,681     $ 8,659     $ 21,022     $     $  
Equipment loans
    5       5                    
Interest (1)
    2,625       1,439       1,186              
Operating leases
    2,295       751       775       625       144  
Redeemable non-controlling interest (3)
    4,576       4,576                    
Preferred stock dividends (2)
    1,095       (2)                  
Preferred stock derivatives (2)
    30,446       (2)                  
Preferred stock (2)
    17,333       (2)                  
Other non-current liabilities
    5,994             348             5,646  
Commercial Commitments:
                                       
Satellite and network services
    17,589       10,300       6,475       814        
                                         
    $ 111,639     $ 25,730     $ 29,806     $ 1,439     $ 5,790  
                                         
 
(1) Computed on the balance outstanding at December 31, 2009 through the term of the loan, at the interest rate in effect at that time.
 
(2) Preferred stock, inclusive of the separately reported derivatives, are convertible under certain circumstances. The initial public offering is such a circumstance. As described earlier in this prospectus, we plan to convert all outstanding preferred stock and accrued and unpaid dividends on our series B and series C preferred stock into common stock and pay the major event preference in common stock immediately prior to this public offering.
 
(3) The LandTel redeemable, non-controlling interest was redeemed for $4.7 million during 2010 by making a $4.6 million payment to the LandTel non-controlling interest owner, with the balance expected to be paid prior to December 31, 2010.
 
Adjusted EBITDA (Non-GAAP Measure)
 
The non-GAAP financial measure, Adjusted EBITDA, as defined earlier in this prospectus and used by us, may not be comparable to similarly titled measures used by other companies. Therefore, this non-GAAP measure should be considered in conjunction with net income and other performance measures prepared in accordance with GAAP, such as operating income or net cash provided by operating activities. Further, Adjusted EBITDA should not be considered in isolation or as a substitute for GAAP measures such as net income, operating income or any other GAAP measure of liquidity or financial performance.


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The following presents a reconciliation of our net income to Adjusted EBITDA:
 
                                         
          Nine Months Ended
 
    Year Ended December 31,     September 30,  
    2007     2008     2009     2009     2010  
    (In thousands)  
 
Net income (loss)
  $ (2,121 )   $ 10,356     $ (19,620 )   $ (12,775 )   $ (10,577 )
Interest expense
    5,497       2,464       5,146       4,638       1,174  
Depreciation and amortization
    9,451       10,519       12,554       9,596       11,349  
Impairment of goodwill
                2,898       2,898        
(Gain) loss on sale of property and equipment
    (27 )     (92 )     111       91       320  
Change in fair value of preferred stock derivatives
    1,156       (2,461 )     21,009       13,865       12,384  
Stock-based compensation
    169       231       277       203       334  
Initial public offering costs
    2,783       3,510       1,261       372       1,374  
Income tax expense
    628       5,882       5,457       3,863       4,953  
                                         
Adjusted EBITDA
  $ 17,536     $ 30,409     $ 29,093     $ 22,751     $ 21,311  
                                         
 
We evaluate Adjusted EBITDA generated from our operations and operating segments to assess the potential recovery of historical capital expenditures, determine timing and investment levels for growth opportunities, extend commitments of satellite bandwidth cost to expand our offshore production platform and vessel market share, invest in new products and services, expand or open new offices, service centers and Secure Oil Information Link, or SOIL, nodes and assist purchasing synergies.
 
During the nine months ended September 30, 2010, Adjusted EBITDA declined $1.5 million, or 6.6%, from $22.8 million in 2009 to $21.3 million in 2010 which resulted primarily from additional regional and senior staff members as well as increased contracted satellite bandwidth costs to position for future organic growth. Similarly, Adjusted EBITDA declined $1.3 million, or 4.3%, to $29.1 million for the year ended December 31, 2009 from $30.4 million for the year ended December 31, 2008. The decrease in Adjusted EBITDA was primarily attributable to our U.S. land segment driven by a decline in onshore drilling activity as a result of reduced natural gas and oil prices. Adjusted EBITDA increased $12.9 million, or 73.4%, to $30.4 million for the year ended December 31, 2008 from $17.5 million for the year ended December 31, 2007. The increase resulted from revenue growth across all operating segments along with improved leverage of contracted satellite bandwidth capacities and expansion of the quality and capability of our SOIL network.
 
Quantitative and Qualitative Disclosures about Market Risk
 
We are subject to a variety of risks, including foreign currency exchange rate fluctuations relating to foreign operations and 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 in 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. Accordingly, we may utilize from time to time foreign currency forward contracts to hedge our exposure on firm commitments denominated in foreign currency. During the year ended December 31, 2009, 22.8% of our revenues were earned in non-U.S. currencies. At September 30, 2010 and December 31, 2009, we had no significant outstanding foreign exchange contracts.


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Our results of operations and cash flows are subject to fluctuations due to changes in interest rates primarily from our variable interest rate long-term debt. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes. The following analysis reflects the annual impacts of potential changes in our interest rate to net income (loss) attributable to us and our total stockholders’ equity based on our outstanding long-term debt on September 30, 2010 and December 31, 2009 assuming those liabilities were outstanding for the entire year.
 
                 
    Effect on Net Income (Loss)
 
    and Equity Increase/Decrease  
    December 31, 2009     September 30, 2010  
    (In thousands)  
 
1% Decrease/increase in rate
  $ 297     $ 332  
2% Decrease/increase in rate
  $ 594     $ 663  
3% Decrease/increase in rate
  $ 891     $ 995  
 
Internal Control over Financial Reporting
 
Effective internal control over financial reporting is necessary for us to provide reliable annual and interim financial reports and to prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results and financial condition could be materially misstated and our reputation could be significantly harmed. As a private company, we were not subject to the same standards applicable to a public company. As a public company, we will be subject to requirements and standards set by the SEC.
 
In relation to our consolidated financial statements for the year ended December 31, 2009, we identified a material weakness in our internal controls over our financial close and reporting cycle. In addition, we identified a significant deficiency in our property and equipment records and accounting and other control deficiencies.
 
In relation to our consolidated financial statements for the year ended December 31, 2008, we identified a significant deficiency in our year end reporting process and other control deficiencies.
 
A “deficiency” in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when (a) a properly designed control does not operate as designed, or (b) the person performing the control does not possess the necessary authority or competence to perform the control effectively.
 
A “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.
 
A “significant deficiency” is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.


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Material Weakness
 
The material weakness over our financial close and reporting cycle identified uncontrolled risks related to:
 
  •  documentation and the independent review and approval of journal entries;
 
  •  significant account reconciliations;
 
  •  documentation of management estimates;
 
  •  manual consolidation process and the use of top-side entries; and
 
  •  evaluation of tax and accounting impacts on unusual transactions.
 
Remediation Activities
 
In order to strengthen our internal control over our financial reporting, we have:
 
  •  expanded our financial and accounting staff increasing the level of experience in public company accounting matters and disclosures;
 
  •  engaged outside consultants with extensive financial reporting experience to augment our current accounting resources to assist with this initial public offering and future filings;
 
  •  implemented a company-wide financial accounting and reporting system to account for all financial operations and support a common closing process throughout the organization and have utilized independent third-party consultants to assist with the implementation of the system, which we expect to complete during 2010;
 
  •  developed and implemented a process for documenting account reconciliations, journal entries and changes in estimates during our monthly, quarterly and annual close processes;
 
  •  implemented independent review and approval procedures for journal entries and application of accounting standards related to unusual transactions; and
 
  •  developed procedures to identify and track fixed asset changes, including additions, movements, sales and dispositions.
 
While we have taken certain actions to address the material weakness and deficiencies identified, additional measures will be necessary and these measures, along with other measures we expect to take to improve our internal control over financial reporting, may not be sufficient to address the material weakness or deficiencies identified to provide reasonable assurance that our internal control over financial reporting is effective. Material weaknesses or other deficiencies in our internal controls may impede our ability to produce timely and accurate financial statements, which could cause us to fail to file our periodic reports timely, result in inaccurate financial reporting or restatements of our financial statements, subject our stock to delisting and materially harm our business reputation and our stock price.
 
Limitations of the Effectiveness of Internal Control
 
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
 
The process of improving our internal controls has required and will continue to require us to expend significant resources to design, implement and maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. As a private company, we were not subject to the same internal control standards applicable to a public company. As a result of our initial public offering, we will, after a phase-in period applicable to


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all companies after filing an initial public offering, become subject to the requirements of the Sarbanes-Oxley Act of 2002, Section 404, which requires our management to assess the effectiveness of our internal controls over financial reporting. The remediation efforts we have taken may not be successful in meeting this standard. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal controls over financial reporting on an ongoing basis.


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OUR COMPANY
 
Overview
 
We are a leading data network infrastructure provider serving the remote communications needs of the oil and gas industry. Through a controlled and managed IP/MPLS (Internet Protocol/Multiprotocol Label Switching) global network, we deliver voice, data, video and other value-added services, under a multi-tenant revenue model. These turnkey solutions simplify the management of communications services and allow our users to focus attention on their core drilling and production operations. Our customers use our secure communications and private extranet to manage information flows and execute mission-critical operations primarily in remote areas where conventional telecommunications infrastructure is either unavailable or unreliable. We provide our clients in the oil and gas industry with a broad suite of services available through our IP/MPLS global network infrastructure, ranging from voice and data to advanced video and application hosting. We offer our clients what is often the sole means of communications with their remote operations, including offshore and land-based drilling rigs, offshore production facilities, energy support vessels and support offices. To ensure the maximum reliability demanded by our customers, we deliver our services through an IP/MPLS global network, tuned and optimized for remote communications with satellite endpoints, that serves oil and gas customers in North America and internationally. As of September 30, 2010, we were operating as the primary provider of remote communications and collaborative applications to over 375 customers in over 800 locations in approximately 30 countries on six continents.
 
The emergence of highly sophisticated processing and visualization systems has allowed oil and gas companies to make decisions based on reliable and secure real-time information carried by our network from anywhere in the world to their home offices. While traditional remote communications providers in the oil and gas industry have historically focused on delivering voice services or providing data connectivity, we provide a fully-managed IP/MPLS global communications network designed for greater reliability, security, flexibility and scalability as compared to other network transport technologies. We deliver turnkey solutions and value-added services that simplify the management of multiple communications services, allowing our customers to focus their attention on their core oil and gas drilling and production operations. We enable reliable information flows between remote sites and to centralized customer offices that are critical to their efficient operations. We supply our customers with solutions to enable broadband data, voice and video communications with quality, reliability, security and scalability that is superior to conventional switched transport networks. Key aspects of our services include:
 
  •  managed solutions offered at a per rig, per day subscription rate primarily through customer agreements with terms that typically range from one month to three years, with some customer agreement terms as long as five years;
 
  •  enhanced end-to-end IP/MPLS global network to ensure significantly greater network reliability, faster trouble shooting and service restoration time and quality of service for various forms of data traffic;
 
  •  enhanced end-to-end IP/MPLS network allows new components to be plugged into our network and be immediately available for use (plug-and-play);
 
  •  a network designed to accommodate multiple customer groups resident at a site, including rig owners, drillers, operators, service companies and pay-per-use individuals;
 
  •  value-added services, such as WiFi hotspots, Internet kiosks and video conferencing, benefiting the multiple customer groups resident at a site;


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  •  proactive network monitoring and management through a network operations center that actively manages network reliability at all times and serves as an in-bound call center for trouble shooting, 24 hours per day, 365 days per year;
 
  •  engineering and design services to determine the appropriate product and service solution for each customer;
 
  •  installation of on-site equipment designed to perform in extreme and harsh environments with minimal maintenance; and
 
  •  maintenance and support through locally-deployed engineering and service support teams and warehoused spare equipment inventories.
 
We provide critically important communications services to our customers that enable them to operate efficiently at a cost which is a relatively small component of our customers’ operating expenses for a drilling or production related project. We believe our solutions help our customers to increase their revenue and to better manage their costs and resource allocations through the delivery, use and management of real-time information. We believe our commitment to our customers and the embedded nature of our solutions strengthen and extend our customer relationships. Our top two customers since 2005 have consistently been Noble Corporation and Ensco plc. These two customers represented approximately 20.0% and 18.2% of our total revenue in 2005 and 2009, respectively. The total revenue earned from both of these two customers has grown at a CAGR of approximately 53.4% from 2005 to 2009. In 2009, we earned approximately 56.2% of our revenue from our top 25 customers. We earned approximately 43.7% of our revenue from 23 of these 25 customers in 2007 and revenue from these 23 customers grew at a compound annual growth rate, or CAGR, of approximately 19.6% from 2007 through 2009.
 
We have lower capital expenditures than other remote communications providers because we do not own or operate any satellites, develop or manufacture communications or networking equipment, own terrestrial wireless facilities and landlines, or, as a general rule, own or operate teleport facilities. In order to provide our services, we procure bandwidth from independent fixed satellite services operators and terrestrial wireless and landline providers to meet the needs of our customers for end-to-end IP-based communications. We own the network infrastructure and communications equipment we install on customer sites as well as co-located equipment in third party teleport facilities and data centers, all of which we procure through various equipment providers. By owning the onsite network infrastructure and communications equipment, we are better able to ensure the high quality of our products and services and agnostically select the optimal equipment suite for each customer. Our network and communications services are designed to accommodate all customers on offshore rigs including rig owners, drillers, operators, service companies and pay-per-use individuals, such as off-duty rig workers and visiting contractors, vendors and other visitors. Our communications services are initially offered to rig owners and drillers, and the initial investment is leveraged through up-selling communications services to other parties present on the rigs, such as operators, service companies and pay-per-use individuals, as well as through cross-selling value-added services.
 
Our business operations are divided into three reportable segments: eastern hemisphere, western hemisphere and U.S. land.
 
Eastern Hemisphere
 
Our eastern hemisphere segment services are performed out of our Norway, Qatar, United Kingdom and Singapore based offices for customers and rig sites located on the eastern side of the Atlantic Ocean primarily off the coasts of the U.K., Norway and West Africa, around the Indian Ocean in Qatar, Saudi Arabia and India, around the Pacific Ocean near Australia, and


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within the South China Sea. As of September 30, 2010, this segment was serving approximately 138 jackup, semi-submersible and drillship rigs which we approximate to be a 28.4% market share of such rigs based on an ODS-Petrodata RigBase Current Activity data download dated September 2, 2010. As of September 30, 2010, this segment also was serving approximately 110 other sites, which include production facilities, energy support vessels, land rigs, and related remote support offices and supply bases.
 
For the year ended December 31, 2009, our eastern hemisphere segment produced revenues of $60.9 million, representing 75.3% of our total revenue, Adjusted EBITDA of $32.0 million, compared to our total Adjusted EBITDA of $29.1 million and net income of $24.7 million, compared to our total net loss of $19.6 million. This segment’s revenue, Adjusted EBITDA and net income had a CAGR of 26.2%, 62.4% and 65.1%, respectively, for the two-year period ended December 31, 2009. See the notes to our consolidated financial statements included elsewhere in this prospectus for more segment financial information.
 
Western Hemisphere
 
Our western hemisphere segment services are performed out of our United States and Brazil based offices for customers and rig sites located on the western side of the Atlantic Ocean primarily off the coasts of the United States, Mexico and Brazil, and within the Gulf of Mexico, but excluding land rigs and other land-based sites in North America. As of September 30, 2010, this segment was serving approximately 87 jackup, semi-submersible and drillship rigs which we approximate to be a 37.7% market share of such rigs based on an ODS-Petrodata RigBase Current Activity data download dated June 1, 2010. As of September 30, 2010, this segment also was serving approximately 143 other sites, which include production facilities, energy support vessels and related remote support offices and supply bases.
 
For the year ended December 31, 2009, our western hemisphere segment produced revenues of $11.2 million, representing 13.9% of our total revenue, Adjusted EBITDA of $4.6 million, compared to our total Adjusted EBITDA of $29.1 million, and net income of $2.2 million, compared to our total net loss of $19.6 million. This segment’s revenue, Adjusted EBITDA and net income had a negative CAGR of 4.2%, 29.9% and 41.8%, respectively, for the two-year period ended December 31, 2009.
 
U.S. Land
 
Our U.S. land segment provides remote communications services for drilling rigs and production facilities located onshore in North America. Our U.S. land segment services are performed out of our Louisiana based office for customers and rig sites located in the continental United States. As of September 30, 2010, this segment was serving approximately 384 onshore drilling rigs and other remote sites. Our product suite consists of broadband voice, data and Internet access services along with rig location communications such as wired and wireless intercoms and two-way radios. This segment leverages the same network infrastructure and network operations center used in our western hemisphere segment. We provide installation and service support from nine service centers and equipment depots located in key oil and gas producing areas around the continental United States.
 
For the year ended December 31, 2009, our U.S. land segment produced revenues of $9.9 million, representing 12.2% of our total revenue, Adjusted EBITDA of $2.0 million, compared to our total Adjusted EBITDA of $29.1 million, and net loss of $4.5 million, compared to our total net loss of $19.6 million. This segment’s revenue and Adjusted EBITDA had a negative CAGR of 24.9% and 45.6%, respectively, for the two-year period ended December 31, 2009. The U.S. land segment generated net income of $1.9 million in 2007 as compared to a net loss of $4.5 million in 2009, which included an impairment of goodwill of $2.9 million.


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Our Market Opportunity
 
Oil and gas companies operate their remote locations through global “always-on” networks driving demand for communications services and managed services solutions that can operate reliably in increasingly remote areas under harsh environmental conditions.
 
Oil and gas companies with geographically dispersed operations are particularly motivated to use secure and highly reliable broadband networks due to several factors:
 
  •  oil and gas companies rely on secure real-time data collection and transfer methods for the safe and efficient coordination of remote operations;
 
  •  long-term growth of global demand for crude oil and natural gas and increases in commodity prices are expected to improve the outlook for new rig construction and dormant rig reactivation;
 
  •  technological advances in drilling techniques, driven by declining production from existing oil and gas fields and strong hydrocarbon demand, have enabled increased exploitation of offshore deepwater reserves and development of unconventional reserves (e.g. shales and tight sands) and require real time data access to optimize performance; and
 
  •  transmission of increased data volumes and real-time data management and access to key decision makers enable customers to maximize operational results, safety and financial performance.
 
Oil and gas companies rely on secure real-time data collection and transfer methods for the safe and efficient coordination of remote operations
 
Due to the high costs of operating an offshore rig, which can exceed $1 million a day to the operator, maximizing efficiency of remote rig operations is important to the oil and gas company and to the drilling contractor that is operating the unit. Each well that is drilled requires a broad set of products (including many of the following: drill bits, downhole drilling tools, drill pipe, drilling fluids, casing, tubing and completion products), services (including many of the following: measurement-while-drilling, or MWD, and logging-while-drilling, or LWD, systems, wireline logging, casing services, cementing, stimulation, inspection and testing, mud logging and helicopter and offshore vessel support services) and the rig crews and service personnel to perform the work necessary to drill and complete the well. The logistical challenge to organize all these products, services and personnel, to deliver them to the rig and execute the well construction process efficiently is significant. The logistical challenge is exacerbated by the fact that many rigs are operating in remote locations and far from support bases, by the limited amount of space on each rig, which requires most of these products and services to be delivered when they are needed and not before, and also by the high standby charges service companies invoice when they are offshore but the rig is not ready for the services they are providing.
 
Oil and gas companies rely on secure global networks to coordinate across these multiple providers of products and services to rigs. Drilling contractors and operators are increasingly tying their rig operations into their global enterprise resource management, or ERM, systems which requires a secure global communications network. The ability to coordinate seamlessly across geographically dispersed entities in remote locations is essential to the smooth and efficient operation of a rig fleet.
 
While our customers’ reliance on secure global networks requires our customers to increase their communications bandwidth and expense, communication costs remain only a small portion of total rig operating expenses. We believe improved availability of broadband connectivity contributes to the trend towards greater use of information technology in


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management processes, planning and strategy execution. Multiple points of global operations can be connected seamlessly at a low cost. This trend has led to an increase in the need for communication solutions that can be leveraged to drive greater efficiency across oil and gas organizations and the drillers and oilfield services firms that serve them.
 
VSAT-based networks have proven to be cost effective for geographically dispersed enterprises that require reliable, highly redundant and secure broadband interconnection among remote sites that can be deployed quickly and without a significant terrestrial component. Where available, we also offer remote connectivity over fiber and terrestrial line-of-sight transport (e.g. microwave, WiMax), which generally offers high bandwidth speeds and lower latency as compared to VSAT. Regardless of our choice of backhaul transport, our network is further enhanced by running the IP layer end-to-end providing greater reliability, scalability, flexibility and security than conventional switched transport networks.
 
Long-term growth of global demand for crude oil and natural gas and increases in commodity prices are expected to improve the outlook for new rig construction and dormant rig reactivation
 
Our business is influenced by the number of active drilling rigs, production facilities and energy support vessels. Drilling activity and rig counts bottomed in the second quarter of 2009 and have steadily risen since, corresponding with rising commodity prices, increasing consumption expectations and growing confidence in overall economic growth. According to data derived from Spears & Associates, Inc.’s June 2010 Drilling and Production Outlook and September 2010 Drilling and Production Outlook, or collectively referred to in this prospectus as the Spears & Associates Outlook, the second quarter of 2009 marked the low point in the current cycle and rig activity in the United States climbed 18.0% in the second half of 2009 with the total number of Global rigs increasing by 19.6% over the same period. “Global” means worldwide, but excludes China, Russia and Central Asia because these areas were excluded from the data in Spears & Associates Outlook. The Spears & Associates Outlook projects oil and gas prices to rise at a 1.7% and 5.3% CAGR, respectively, from 2010 to 2016. We believe the recovery in rig counts has driven a steady increase in the demand for oil field services, including remote communications services.
 
Offshore rigs are less likely to be de-activated even during downturns given the fact that many of them operate under long-term contracts and usually have high costs of re-activation. The average Global offshore rig count declined by only 17% according to data derived from the Spears & Associates Outlook from a peak count of 347 in 2005 to 288 in the fourth quarter of 2009. From the fourth quarter of 2009 to the end of the second quarter of 2010, the average Global offshore rig count has increased by 11.8% according to data derived from the Spears & Associates Outlook. Offshore rigs can be divided into two basic classes: fixed, meaning stationary rigs in shallower offshore waters, such as jackups, submersibles and some types of semi-submersibles; and floaters, which are either dynamically positioned or moored in deeper waters, such as drillships and semi-submersibles. The number of fixed rigs is generally more responsive to energy price movements than the number of floater rigs, but less so than the number of land rigs. Offshore rigs represent 12% of total Global average rig count, which includes land rigs, as of the second quarter of 2010 according to data derived from the Spears & Associates Outlook.
 
Drilling for and producing oil and gas reserves in offshore deepwater requires the use of technically sophisticated assets that are in scarce supply or require long lead times and significant capital to manufacture, including deepwater drilling rigs and floating production facilities. According to the ODS-Petrodata RigBase Current Activity data download dated November 5, 2010, there are approximately 108 fixed and floating rigs scheduled for delivery from November 5, 2010 to year-end 2014. This represents approximately 14.2% of the existing fleet of fixed and floating rigs (including stacked and non-marked rigs) as of November 5, 2010, as drillers and producers seek to capitalize on the profitability associated with developing


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offshore reservoirs. We expect to benefit from these rig additions by winning additional contracts to provide reliable communication services. In addition, there is construction ongoing in other offshore asset classes such as energy support vessels and offshore construction assets that require reliable communication services. Moreover, according to data derived from the Spears & Associates Outlook, Global offshore drilling capital expenditures are expected to grow at a 7.6% CAGR between 2010 and 2016.
 
The number of land drilling rigs is relatively more responsive to spot changes in oil and gas prices. As an example, according to data derived from the Spears & Associates Outlook, the average number of land drilling rigs in the continental United States reached bottom in this cycle during the second quarter of 2009 with an average of 885 rigs, consistent with the dramatic drop in oil and gas prices from their cycle peaks in 2008. With oil and natural gas prices improving, the average U.S. land rig count in the second quarter of 2010 increased 65.4% to 1,464 rigs, according to data derived from the Spears & Associates Outlook. Outside of the United States and Canada, the average international land rig count over the same period proved less volatile, only increasing 10.0% to 782 total average land rigs, according to data derived from the Spears & Associates Outlook. Total average land rig count, including international, United States and Canada, represents 88.2% of total land and offshore rig count as of the second quarter of 2010, according to data derived from the Spears & Associates Outlook.
 
Supporting the operations of offshore drilling rigs and production facilities, upstream energy support vessels include seismic survey vessels, offshore supply vessels, anchor-handling vessels, offshore construction vessels, oilfield service vessels, crew transport boats and lift boats. The newbuild orderbook and activity level for these offshore vessels generally correlate to the active number of offshore rigs. The number of offshore production facilities is the least responsive to changes in oil and gas price levels as offshore production facilities generally remain active if their revenues cover their marginal lifting and storage costs. Oil and gas companies, rarely eliminate production facilities in response to an economic downturn.
 
The following tables sets forth data relating to Global offshore active drilling rigs and Global onshore active drilling rigs for the periods indicated below:
 
(PERFORMANCE GRAPH)
 
The U.S. Energy Information Administration, or EIA, in its 2010 International Energy Outlook, or 2010 Energy Outlook, estimates that world oil and gas consumption will increase by 28% and 45%, respectively, between 2007 and 2035. The EIA in its 2010 Energy Outlook estimates that global oil consumption will increase by approximately 24.5 million barrels per day from 2007 to 2035. Countries that are not members of the Organization for Economic Co-operation and Development, or OECD, including Brazil, Russia, India and China, are expected to represent approximately 89% of oil and gas consumption increase. While the current economic downturn has moderated these forecasts, the long-term industrialization of the non-OECD countries is expected to continue. Their growth is expected to drive global energy


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demand and is expected to result in increased spending by oil and gas companies on exploration and development, including offshore drilling services.
 
Technological advances in drilling techniques driven by declining production from existing oil and gas fields and strong hydrocarbon demand have enabled increased exploitation of offshore deepwater reserves and development of unconventional reserves (e.g. shales and tight sands) and require real time data access to optimize performance
 
Many of the historically important oil and gas deposits, including certain fields in the Middle East, Mexico, Russia, the North Sea and conventional fields in the United States, are in structural decline. According to estimates by the National Petroleum Council in its September 17, 2008 slide presentation entitled Facing the Hard Truths about Energy, One Year Later, existing production capacity declines of between 4% and 7% coupled with a modest increase in demand will result in the need to locate and develop crude oil sources equivalent to 70 to 100 million barrels of production per day by 2030.
 
In the wake of steeper decline rates and increasing demand, the offshore oil and gas industry has focused its attention on large scale resources that have historically been underexploited for economic or geopolitical reasons, including the deepwater and ultradeepwater offshore formations in West Africa, Brazil, Asia and North America. Onshore U.S. exploration and production companies, leveraging technological advances, have expanded into new areas with significant geological challenges, including unconventional oil and natural gas production from shale and tight sand formations. Production from these unconventional onshore basins accounted for approximately 50% of United States natural gas production in 2008, up from 30% in 2000 according to the International Energy Agency’s World Energy Outlook 2009, ©OECD/IEA, 2009, Figure 11.5, page 398.
 
The table below sets forth estimated Global onshore and offshore drilling capital expenditures for the years indicated below:
 
(PERFORMANCE GRAPH)
 
Technological advances, which include improvements in seismic exploration techniques, drilling and completion systems and techniques, and the development of new generation drilling rigs have resulted in deepwater and unconventional reserves becoming economic to develop and enabled exploitation of such reserves.
 
Our business benefits from our exposure to deepwater projects due to their long-term nature and stability in relation to commodity spot price movements. Short-term commodity price movements have less of an impact on deepwater development activity than most other


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oil and gas projects because they tend to have the longest development timetables and have decline rates lower than other formations. Due to the high cost of drilling a deepwater offshore well and the possibility that a mistake or failure to optimize the drilling process can be very expensive, access to real-time data is invaluable. In addition, access to capital is often less of a constraint for deepwater projects as the operators involved are often among the largest and best capitalized in the industry.
 
We also benefit from our exposure to onshore unconventional activity due to the high level of drilling activity required to exploit these plays. These plays typically have much higher decline rates than conventional reserves requiring continued drilling activity in order to maintain production. Also, unconventional reservoirs are being exploited by drilling multiple similar wells, which is enabling operators to reduce total costs as they learn from experience and develop repeatable processes.
 
Transmission of increased data volumes and real-time data management and access to key decision makers enable customers to maximize operational results and financial performance
 
The amount of data collected on a rig which can be analyzed in real time to facilitate decision making is increasing significantly as a result of technological developments and new systems and tools. Additional data enhances decision making for oil and gas companies not only by having more data available on the rig, but by delivering the data to experts at onshore facilities for evaluation. Data collected on a rig includes information about rig operations (e.g. status, condition and performance of the rigs drilling systems, pumps, generators, HVAC and other rig equipment) and information being transmitted from downhole (e.g. data from MWD and LWD systems which is recorded during the drilling process, and wireline formation evaluation logs which are recorded when drilling is periodically halted to make such measurements). We believe that the demand for such new systems, tools and technologies is increasing. As examples, LWD experienced a 21% revenue CAGR from 2003 to 2008, before the global economic downturn in 2009, and wireline logging experienced a 15% CAGR from 2003 to 2008 according to Spears & Associates, Inc.’s Oilfield Market Report 1999-2011. Additional data volume transmission is also being driven by drilling contractors and operators placing rigs on their global ERM systems.
 
The ability for real-time data from rigs dispersed around the world to be available to experts onshore at customer central offices (often called “smart rooms” or “decision centers”) is a key enabler for project success. Remote communications services provide a critical link between rigs and customer central offices, allowing experts to evaluate rig and well data from a central location, and make and communicate decisions back to rigs in real-time. Access to specialist technicians onshore can not only improve productivity, but also can improve safety, by having access to these experts in the event of a failure of one of the rigs systems. Increases in drilling activity in the energy sector have created significant shortages of experienced personnel, including scientific and engineering personnel key to evaluating on-going drilling projects. This shortage is exacerbated by the increasing geographic distribution of projects around the globe to remote areas and the need to rotate rig personnel on shifts composed of 30 days on the rig and 30 days on shore leave. Transporting data to central offices allows rig companies to leverage experts and specialists by providing them real-time access to data in a centralized location.
 
Companies that operate on a global basis find that their ability to coordinate their operations seamlessly and receive and deliver information instantaneously is often critical to their profitability. That dependence is even stronger in the oil and gas industry where companies often operate in remote and inhospitable regions and require the ability to adjust rapidly to shifts in the world markets, changes in local conditions and real-time on-site developments. Successful rig operations are impacted by a significant number of factors that must be taken


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into account, including drilling conditions, operational developments and rig conditions and other factors that change continuously. The operations of an oil and gas company, and thus its profitability, depend on its ability to coordinate exploration, accelerate or delay production, arrange transportation and perform other ancillary functions on a global, uninterrupted basis in response to changes in these factors. It is critical for oil and gas companies to ensure that decisions are based on the most complete and current data from all of its operating systems. Access to this data requires a strong communications network.
 
The economic crisis has brought into sharp focus the ability of oil and gas companies to control costs through the effective use of networks and increase the efficiency and profitability of rigs. Real-time data transmission can drive meaningful cost savings through lower utilization of helicopters and other vessels for trips to offshore facilities and more efficient remote production platform monitoring. Real-time data transmission also assists with employee retention by providing access to entertainment and the ability to call and e-mail friends and relatives and to connect with events outside the rig.
 
Competitive Strengths
 
Our mission is to continue to establish ourselves as a leading data network infrastructure provider within the oil and gas industry. We seek to maximize our growth and profitability through focused capital investments that enhance our competitive strengths. We believe that our competitive strengths include:
 
  •  mission-critical services delivered by a trusted provider with deep industry expertise and multi-national operations;
 
  •  operational leverage and multiple paths to growth supported by a plug-and-play IP/MPLS global platform;
 
  •  scalable systems using standardized equipment that leverages our global infrastructure;
 
  •  flexible, provider-neutral technology platform;
 
  •  high-quality customer support with full-time monitoring and regional service centers; and
 
  •  long-term relationships with leading companies in the oil and gas industry.
 
Mission-critical services delivered by a trusted provider with deep industry expertise and multi-national operations
 
Our specific focus on the oil and gas industry provides us with an in-depth understanding of our customers that enables us to tailor our services to their needs. Our quality of service, and the downtime associated with switching to another service provider once our infrastructure is installed on a rig, production platform or energy support vessel due to network service interruptions that may occur during the switching process, provide us with a high rate of customer retention. 96% of our top 25 customers in 2007 were customers in 2009 and the total revenue from these customers has grown by approximately 6.1% CAGR from 2007 through 2009.
 
Our global presence allows us to serve our clients around the world. As of September 30, 2010, we were operating in approximately 30 countries on six continents. Our global terrestrial network also allows us to provide quality of service controls for various forms of data traffic. Our ability to offer our customers such global coverage sets us apart from regional competitors at a time when our customers are expanding the geographic reach of their own businesses, exploring for oil and gas reserves in more remote locations and seeking partners that can match the breadth of their global operations.


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Operational leverage and multiple paths to growth supported by a plug-and-play IP/MPLS platform
 
Our scalable, standardized communications platform provides us with plug-and-play capabilities to easily expand or improve service offerings. Our IP/MPLS global platform allows us the ability to add additional services to our standard offerings or change our service offerings on a rig, production platform or energy support vessel with little incremental cost once installed onsite. We can offer these services to all users of the rig, production platform or energy support vessel, including drillers, operators, service companies and pay-per-use individuals, such as off-duty rig workers and visiting contractors, vendors and others. We expect this operating leverage to help drive an expansion in our Adjusted EBITDA margins.
 
We expect the demand for our products and services to continue to increase as oil and gas producers continue to invest in the infrastructure needed to commercially produce deepwater reserves. Our IP/MPLS global platform gives us an important advantage by offering greater reliability, scalability, flexibility and security than conventional switched transports and accounts for what we believe to be a disproportionate market share of installations on newly manufactured offshore drilling rigs.
 
Scalable systems using standardized equipment that leverages our global infrastructure
 
We have built our global satellite and terrestrial network with a significant amount of excess capacity to support our growth without substantial incremental capital investment. Our knowledge and capabilities can be applied to rigs located anywhere in the world. We install standardized equipment on each rig, which allows us to provide support and maintenance services for our equipment in a cost-efficient manner. Not all of the components of equipment that we install on each rig are the same, but the components that vary are limited in number and tend to be the same for rigs located in the same geography. As of September 30, 2010, we leased capacity from 21 satellites, 18 teleports and co-located in 19 datacenters worldwide. By leasing rather than owning our network enablers and owning the on-site equipment on each rig, we are able to both minimize the capital investment required by the base network infrastructure and maintain the flexibility to install high quality equipment on each rig tailored to its locale and environmental conditions. The standardized nature of our equipment minimizes execution risk, lowers maintenance costs and inventory carrying costs and enables ease of service support. In addition, we are able to remain current with technology upgrades due to our back end flexibility.
 
Flexible, provider-neutral technology platform
 
Because we procure communications connections and networks and equipment from third parties we are able to customize the best solution for our customers’ needs and reduce our required fixed capital investments. We aim to preserve the flexibility to select particular service providers and equipment so that we may access multiple providers and avoid downtime if our initial provider were to experience any problems. By procuring bandwidth from a variety of communications providers instead of owning our own satellites, we are able to minimize capital investment requirements and can expand our geographic coverage in response to customers’ needs with much greater flexibility. Our product and service portfolio offers best-in-breed technology platforms using the optimal suite communications and networking capabilities for customers.


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High-quality customer support with full-time monitoring and regional service centers
 
Our IP/MPLS global network allows us to provide high quality customer care by enabling us to monitor the network from end-to-end so that we can easily and rapidly identify and solve any network problems that our customers may experience.
 
As of September 30, 2010, we had 23 service operations centers and warehouses to support global deployment and service. A Global Network Operations Center located in Houston, Texas is staffed 24 hours per day, 365 days per year. We provide non-stop, end-to-end monitoring and technical support for every customer. This proactive network monitoring allows us to detect problems instantly and keep our services running at optimum efficiency. Fully managed technology is a key reason why we can support solutions that deliver high performance and new technologies that improve productivity.
 
As of September 30, 2010, our U.S. land segment was supported through a network of nine field service centers and equipment depots, located in major oil and gas regions in the continental United States. Our onshore footprint allows us to respond with high quality same-day service for the shorter drilling cycles inherent in onshore drilling where rapid installation, decommissioning and repair services are required. We maintain field technicians as well as adequate spare parts and equipment inventory levels in these service centers.
 
Long-term relationships with leading companies in the oil and gas industry
 
We have established relationships with some of the largest companies in the oil and gas industry in the world. Some of our key customers are the leading contract drillers around the globe, with combined offshore fleets of hundreds of rigs. In many cases, these customers are investment grade rated companies with high standards of service that favor providers such as RigNet.
 
Growth Strategy
 
We increased revenues from $29.2 million in 2006 to $89.9 million in 2008. Our revenues in 2009 were $80.9 million, despite challenging industry conditions in 2009 driven by the global economic downturn. These results reflect strong organic revenue growth and the development of new products and services. To build on our base revenue, we plan to leverage our in-depth understanding of our customers and the strength of our network infrastructure to generate insight into revenue opportunities. We then plan to focus our industry expertise to increase our revenues in a profitable manner. We have made, and continue to make, investments in our people, network, systems and technology. We increased our sales force from 16 at the end of 2009 to approximately 26 as of September 30, 2010 to pursue this market share opportunity. By the end of 2010, we plan to introduce improved real-time portals for customers to constantly monitor capacity utilization and other metrics.
 
To serve our customers and grow our business, we intend to pursue aggressively the following strategies:
 
  •  expand our share of growing onshore and offshore drilling rig markets;
 
  •  increase secondary customer penetration;
 
  •  commercialize additional value-added products and services;
 
  •  extend our presence into adjacent upstream energy segments and other remote communications segments; and
 
  •  selectively pursue strategic acquisitions.


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Expand our share of growing onshore and offshore drilling rig markets:  We intend to expand our drilling rig market share by increasing our penetration of the market for newly built rigs and reactivated stacked rigs, capturing fleet opportunities made available as a result of drilling rig industry consolidation and improving penetration in underserved and new geographic markets. We believe that we are well positioned to participate in the reactivation of idled rigs because of our established relationships with customers, reliable and robust service offering and best in class customer service. We believe that our established relationships with industry participants with meaningful idled rig capacity position us well to gain market share.
 
Fixed and Floating Rigs Scheduled for Delivery
 
(BAR CHART)
 
Source: ODS-Petrodata RigBase Current Activity data download dated November 5, 2010.
 
We intend to continue to expand our penetration of the North American and international onshore drilling rig market. Global onshore drilling rig count is expected to increase by a CAGR of 3.5% between 2010 and 2016 according to data derived from the Spears & Associates Outlook. We believe we are well-positioned to increase our penetration in this segment because of our experience in the U.S. onshore drilling rig market, our in-depth understanding of the needs of customers, high quality of service and global data network infrastructure.
 
Global Average Active Onshore Rigs
 
(BAR CHART)
 
Source: Spears & Associates Outlook.
 
Increase secondary customer penetration:  We intend to continue to leverage our initial investment with rig owners and leverage our incumbent position with other users on the


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rigs. We will seek to increase revenue with low incremental costs through up-selling our services to other parties on the rigs, production platforms and energy support vessels, including drillers, operators, services companies and pay-per-use individuals, and through cross-selling low incremental cost value-added services.
 
Commercialize additional value-added products and services:  We intend to continue to serve our individual customers’ needs by commercializing additional products and services to complement our wide array of available remote communications services. We expect that over the next several years our customer base will require a variety of new services such as real-time functionality, videoconferencing, software acceleration technology, WiFi hotspots and media, and we will seek to position ourselves to capture these new business opportunities. Through our engineering expertise, sales force and operational capabilities, we will continue to position ourselves to offer our customers a full range of remote communications services at different levels in the customers’ organizations.
 
Extend our presence into adjacent upstream energy segments and other remote communications segments:  In addition to secondary customer penetration and additional value-added services on oil and gas rigs, we intend to enhance and expand our presence in targeted adjacent upstream energy segments where we believe there are significant opportunities for growth and where we believe we are well positioned to deliver remote communications solutions. We intend to target segments such as upstream energy vessels (including seismic and offshore support and supply vessels), offshore fixed and floating production facilities and international onshore drilling rigs and production facilities. We began specifically targeting these stepout areas in late 2009 after only opportunistically serving those segments prior to that time. We estimate the current potential market size of these adjacent upstream energy segments for our remote communications solutions to be in excess of $600 million by 2012. In addition, we will continue to look for and review opportunities in other remote communications segments where we believe there are significant opportunities for growth and we are well positioned to take advantage of these opportunities.
 
Selectively pursue strategic acquisitions:  We have historically enhanced our competitive position through strategic acquisitions. As we continue to focus on expanding the target markets for our products, services and solutions, we may find opportunities to acquire companies or technologies that would be complementary to our existing business. We will continue to consider strategic acquisition opportunities to enhance our operations and further our strategic objectives. We have no agreements or commitments with respect to any acquisitions at this time.
 
Company Overview
 
We are a leading data network infrastructure provider serving the remote communications needs of the oil and gas industry. Through a controlled and managed IP/MPLS global network, we deliver voice, data, video and other value-added services, under a multi-tenant revenue model. We were incorporated in Delaware on July 6, 2004. Our predecessor began operations in 2000 as RigNet Inc., a Texas corporation. In July 2004, our predecessor merged into us.
 
The communications services we provide to the offshore drilling and production industry were established in 2001 by our predecessor, who established initial operations in the Asia Pacific region. Since we acquired our predecessor in 2004, we have evolved into one of the leading global providers of remote communications services in the offshore drilling and production industry. As of September 30, 2010, we were servicing approximately 225 global active jackup, semi-submersible and drillship rigs which we approximate to be a 31.4% market share of such rigs based on an ODS-Petrodata RigBase Current Activity data download dated September 2, 2010. As of September 30, 2010, we were also servicing approximately 223 other


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offshore sites, which include production facilities, energy support vessels and related remote support offices and supply bases worldwide.
 
In 2006, we expanded our services to land-based, coastal and some shallow water drilling rigs through the acquisition of a controlling interest in LandTel, a leading provider of remote communications to the United States onshore drilling industry. We acquired 75% of LandTel in September 2006. We acquired an additional 18% between December 2008 and February 2009. In 2010, the remaining 7% was redeemed for $4.7 million by making a $4.6 million payment in July 2010 to the LandTel non-controlling interest owner with the $0.1 million balance expected to be paid prior to December 31, 2010. We now own 100% of LandTel.
 
We provide essentially the same services onshore as we do offshore, although sometimes we are able to utilize landlines instead of satellites onshore. As of September 30, 2010, we were providing communications services to approximately 300 remote land drilling rigs in the United States for operators, drilling contractors, oilfield service companies and pay-per-use individuals. We believe that we hold a leading position in the South Central United States, primarily in Texas and Louisiana and their inland waters, and we have expanded geographically into Oklahoma, Colorado, Wyoming and Pennsylvania to take advantage of increased oil and gas exploration and production activity in those areas. We believe that as of September 30, 2010, we have a presence on approximately 18.3% of the United States land drilling rigs, based on 1,640 United States land drilling rigs according to the November 5, 2010 Baker Hughes North America Rotary Rig Count report. Our onshore services are growing through the expansion of our coverage area and targeted sales efforts toward the most active operators and drillers against a backdrop of cyclical market recovery in active drilling rigs.
 
The onshore communications services we provide are represented by our U.S. land segment. The majority of our eastern hemisphere segment and western hemisphere segment operations relates to offshore communication services. For the three years ended December 31, 2009, the Company earned revenue from both our domestic and international operations as follows:
 
                         
    Year Ended December 31  
    2007     2008     2009  
 
Domestic
    41.5 %     37.8 %     22.3 %
International
    58.5 %     62.2 %     77.7 %
                         
Total
    100.0 %     100.0 %     100.0 %
                         
 
We own the network infrastructure we install on rigs, production facilities and marine vessels. Our network and communications services are designed to accommodate all parties on offshore rigs: rig owners, drillers, operators, service companies and pay-per-use individuals. Our communications services are initially offered to rig owners and drillers, but the initial investment is leveraged through upselling communications services to other parties present on the rigs, such as operators, service companies and pay-per-use individuals as well as through cross-selling value-added services.


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The figure below summarizes by area the number of drilling rigs that we service. As illustrated by the figure, we believe we have a substantial presence in most of the major areas that we service.
 
(MAP)
 
Service Offering
 
We offer a comprehensive communications package of voice, video, networking and real-time data management to offshore and land-based remote locations. We are a single source solutions provider that links multiple offshore or remote site rigs and production facilities with real-time onshore decision centers and applications. We market an advanced plug-and-play infrastructure that facilitates productivity, providing all parties onboard secure access to high-quality phone, high-speed Internet, e-mail and corporate networks as soon as the rig arrives on location. This plug-and-play infrastructure allows us to leverage our initial investment through offering services to operators, service companies and pay-per-use individuals present on the rig, in addition to the rig owner and driller.
 
The main services we offer are high quality voice-over-Internet-protocol, or VoIP, data and high-speed Internet access. In addition, we increasingly provide other value-added services, such as real-time data management solutions, WiFi hotspots and Internet kiosks, video conferencing solutions, wireless intercoms and handheld radios. The price of value added services is included in the day rate and becomes incorporated into the recurring revenue from our customers.


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Remote Video Services
 
The oil and gas industry increasingly uses video conferencing to save significant amounts of time and reduce costs. As an alternative to excessive travel and traditional meetings, video conferencing improves collaboration and expedites decision making. We provide a complete, high-performance video conferencing solution scalable for a wide range of uses. Videoconferencing service is delivered over our SOIL network and is branded as SOIL Meeting.
 
In addition, in 2009, we began offering high-resolution hand held wireless cameras through our RemoteView service that allows experts in offices to troubleshoot equipment offshore, which can save customers time and money, with recent successful deployments in the Gulf of Mexico and North Sea. This service is also delivered over our SOIL network.
 
TurboNet Solutions
 
Our customers are increasingly pushing software application use to the edge of their networks (remote sites such as drilling rigs, production facilities and vessels). While VSAT networks are reliable, many software applications are not designed to perform optimally over highly latent satellite links. Working with Riverbed Technology, Inc., or Riverbed, we deploy infrastructure appliances to improve the performance of client-server interactions over wide-area networks, or WANs, without breaking the semantics of the protocols, file systems or applications. Whether our customers are copying a file from a distant file server, getting mail from a remote Exchange server, backing up remote file servers to a main datacenter or sending very large files to colleagues at headquarters, slow WANs cost time and money. The costs are borne in redundant infrastructure, over-provisioned bandwidth, and lost productivity.
 
Working with Riverbed’s appliances, RigNet’s TurboNet solution can improve the performance, or throughput, of client-server interactions over WANs by up to 100 times, giving the illusion that the server is local rather than remote. That degree of improvement enables our customers to centralize currently distributed resources like storage, mail servers and file servers and deliver new WAN-based IT services that have not been possible before. Not only do the software applications perform more as they would in offices, but our customers can optimize the use of expensive satellite bandwidth.
 
Real-Time Data Management Solutions
 
We offer real-time data management solutions in concert with two partners: Petrolink International, or Petrolink, and Kongsberg Intellifield AS, or Kongsberg. Petrolink is an independent data distribution company that enables secure transmission and distribution of geotechnical and associated petrophysical data generated in remote locations and transmits this data to customer offices for visualization, interpretation and accelerated decision making.
 
We also provide real-time services based on the SiteCom® system developed by Kongsberg. SiteCom® enables users to gather, distribute and manage rig data from all service providers and global sources in real-time, enabling users to make faster and better decisions that translate into major cost savings for drilling operations. The system manages drilling instrumentation, mud logging, measurement while drilling, or MWD, logging while drilling, or LWD, wireline logging, cementing, weather, positioning and many other applications. SiteCom® works for both small land rigs with a small number of sensors, or large land and offshore operations with hundreds of sensor readings per second. Multiple systems can therefore be monitored, configured and administered from any location by authorized personnel through a standard web browser interface.
 
We are a remote communications partner for Petrolink and Kongsberg, providing access to our network infrastructure at remote sites and otherwise ensuring a quality connection between the remote site and the visualization application in the office. We bill the end


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customer for the real-time service and share the revenue for this service with Kongsberg and Petrolink. These strategic partnerships offer quality services for our customers, and we have other partnership opportunities available.
 
WiFi Hotspot and Internet Kiosk
 
We offer WiFi hotspot and Internet kiosk solutions that facilitate access to the Internet by rig-based personnel. This is advantageous for rig owners who seek to improve the quality of life for employees by providing Internet access in the living quarters, and for service companies that seek office-like connectivity for their technicians and engineers. The WiFi hotspot and Internet kiosk solutions provide ready access with a familiar user interface without requiring specialized equipment to connect to the service.
 
SOIL (Secure Oil Information Link)
 
In addition to the services we provide to offshore and onshore remote sites, we also operate a proprietary network enabling oil companies and their counterparties, such as rig owners, service companies and other suppliers, to connect and collaborate on a secure basis. We call this network SOIL, which stands for Secure Oil Information Link. We acquired SOIL in 2006 through the acquisition of 100% of OilCamp, a Norwegian-based operator that began operating the network in 1998.
 
As of September 30, 2010, SOIL’s value-added services were being provided to more than 180 oil and gas companies and oil and gas industry suppliers throughout the North Sea region. These customers were using our SOIL services to collaborate with partners and suppliers or for internal company communications. We intend to extend the SOIL network to our other geographic areas of focus and have begun to add new SOIL customers in the United States Gulf Coast region.
 
Our SOIL network is a fully managed, high-performance, members-only communications network hub that enables collaborative partners, suppliers and customers to transfer and share data quickly, reliably and securely. We believe that this one-to-many private extranet is a cost effective and easy-to-deploy alternative to building out point-to-point VPN (virtual private network) connections. The network members do not have to extend the extranet to other partners or suppliers individually. With one link to SOIL, clients are connected to all other members.
 
With a service level uptime commitment of 99.7%, our SOIL network supports a wide range of bandwidths from 64 Kbps to 1 Gbps, offering speed and reliability ideal for a variety of applications used in the oil and gas industry as well as value-added services we provide such as SOIL Meeting (video conferencing), SOIL Hosting (application hosting), and SOIL Drop Zone (large file storage). SOIL offers clients quality of service and a guaranteed bandwidth that can be increased or decreased according to requirements.
 
We charge a monthly fee for access to our SOIL network depending on the desired access speed. In addition, we charge for installation of the required equipment and value-added services.
 
Customer Contracts
 
In order to streamline the addition of new projects and solidify our position in the market, we have signed global Master Services Agreements, or MSAs, that define the contractual relationship with oil and gas producers, service companies and drilling companies for our offshore and land-based telecommunications services. The specific services being provided are defined under individual service orders that have a term of one to three years with renewal options, while land-based locations are generally shorter term or terminable on short notice


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without penalty. Service orders are executed under the MSA for individual remote sites or groups of sites, and generally can be terminated early on short notice without penalty in the event of force majeure, breach of the MSA or cold stacking of a drilling rig (when a rig is taken out of service and is expected to be idle for a protracted period of time).
 
Customers
 
We have an international customer base comprising many of the largest drilling contractors, exploration and production companies and oilfield services companies. For the year ended December 31, 2009, our ten largest customers were the following companies or their affiliates:
 
  •  Noble Corporation;
 
  •  Ensco plc;
 
  •  Transocean Ltd.;
 
  •  Brunei Shell Petroleum Sdn Bhd;
 
  •  Gulf Drilling International Ltd.;
 
  •  ConocoPhillips;
 
  •  Total SA;
 
  •  Seadrill Limited;
 
  •  Rowan Companies, Inc.; and
 
  •  Statoil ASA.
 
These top ten customers represented approximately 38.3% of our total revenue for the year ended December 31, 2009, while one of these customers, Noble Corporation, accounted for approximately 10.9% of our total revenue. In late 2009 and early 2010, we installed our infrastructure on the remaining eight rigs for Ensco plc that we had not previously served in the North Sea and Tunisia. With these installations in place, we now serve as the remote communications partner to Ensco plc for all of its offshore drilling rigs around the world, plus any of their remote offices and supply bases existing beyond traditional terrestrial communications networks or where they desire those office sites to be directly connected through our global network.
 
Suppliers
 
Although we have preferred suppliers of telecommunications and networking equipment, the technology utilized in our solutions is available from more than one supplier. The standardized equipment can be deployed across any site or rig in any geographic area.
 
In addition, we do not rely on one satellite provider for our entire satellite bandwidth needs except for certain instances in which only one satellite bandwidth provider is available in an operating location, which is typically due to licensing restrictions. This approach generally allows us flexibility to use the satellite provider that offers the best service for specific areas and to change providers if one provider experiences any problems.
 
Technology
 
Our solutions are built on technology independence and network excellence. We are principally a satellite communications provider, however, we also utilize other remote data transport technologies, such as line-of-sight (e.g., microwave, WiMax) or fiber. Optimal mode and design of transport are tailored for each customer to ensure the best possible


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performance. Our standardized communications platforms are designed for plug-and-play capability allowing us the ability to add additional services to our platform with little additional cost.
 
Sales and Marketing
 
We use a direct sales channel to market our communications solutions and services. The sales and marketing group comprised approximately 26 people as of September 30, 2010 and its marketing activities are organized by geographic areas. Our growth has driven a need for a scaled sales force. Our sales teams are comprised of global account managers and regional account managers, who establish customer account relationships and determine business requirements. Additionally, our business development managers are responsible for penetrating new geographic markets and specialized product areas.
 
Competition
 
The telecommunications industry is highly competitive. We expect competition in the markets that we serve to persist and intensify. We face varying degrees of competition from a wide variety of companies, including new entrants from adjacent vertical markets.
 
Our primary global competitors include CapRock Communications, Inc., which was recently acquired by Harris Corporation, Schlumberger Ltd’s Global Connectivity Services division, which Harris Corporation recently announced the entry into a definitive agreement to acquire, and the Broadband Division of Inmarsat plc’s subsidiary Stratos Global Corporation. In addition, there are a number of regional competitors in each local market. Onshore, we also face competition from: drilling instrumentation providers; living quarters companies; and other pure-play providers like us.
 
Our customers generally choose their provider(s) based on the quality and reliability of the service and the ability to restore service quickly when there is an outage. Pricing and breadth of service offerings is also a factor. The oil and gas industry depends on maximum reliability, quality and continuity of products and service. Established relationships with customers and proven performance serve as significant barriers to entry.
 
Government Regulation
 
The provision of telecommunications is highly regulated. We are required to comply with the laws and regulations of, and often obtain approvals from, national and local authorities in connection with most of the services we provide. In the United States, we are subject to the regulatory authority of the United States, primarily the Federal Communications Commission, or FCC. We are subject to export control laws and regulations, trade and economic sanction laws and regulations of the United States with respect to the export of telecommunications equipment and services. Certain aspects of our business are subject to state and local regulation. We typically have to register to provide our telecommunications services in each country in which we do business. The laws and regulations governing these services are often complex and subject to change. At times, the rigs or vessels on which our equipment is located and to which our services are provided will need to operate in a new location on short notice and we must quickly qualify to provide our services in such country. Failure to comply with any of the laws and regulations to which we are subject may result in various sanctions, including fines, loss of authorizations and denial of applications for new authorizations or for renewal of existing authorizations.


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Regulation by the FCC
 
Overview
 
In general, the FCC has jurisdiction over telecommunications facilities and services to the extent they are used in the provision of interstate or international services, including the use of local telephone networks to originate or terminate such services. State regulatory commissions, commonly referred to as Public Utility Commissions, generally have jurisdiction over telecommunications facilities and services to the extent they are used in the provision of intrastate services, unless Congress or the FCC has preempted such regulation. Local governments in some states may regulate aspects of our business through zoning requirements, permit or right-of-way procedures, and franchise fees. Our operations also are subject to various environmental, building, safety, health and other governmental laws and regulations. Generally, the FCC and Public Utility Commissions do not regulate the Internet, video conferencing, or certain data services, although the underlying communications components of such offerings may be regulated.
 
Federal Regulation
 
The Communications Act grants the FCC authority to regulate interstate and foreign telecommunications by wire or radio. The degree of regulation applicable to a particular carrier depends on the regulatory status of that carrier and the nature of the service and facilities used. Internet or information services are not considered telecommunications services and are not regulated. Further, the FCC also recognizes a distinction between common carrier and private carrier providers of telecommunications services. Common carriers are generally subject to greater regulation. The distinction is based on the specific facts and circumstances of each case and, in particular, the manner in which a company holds itself out to the public. Carriers that offer highly specialized services only to a limited number of stable, repeat customers pursuant to individually tailored arrangements are considered private carriers exempt from the obligations imposed on common carriers.
 
We operate as a private carrier because we offer and provide highly specialized services to only a select number of stable, repeat customers seeking remote telecommunications services, not the general public, through medium to long-term, individually negotiated and tailored to the exacting demands of oil and gas industry customers. Therefore, we are exempt from many federal obligations borne by common carriers.
 
As a private carrier, we may not market and provide telecommunications services to the general public or otherwise hold our services out “indifferently” to the public as a common carrier. As a private carrier, we are not entitled to certain interconnection and wholesale pricing from incumbent local exchange carriers and do not operate pursuant to tariffs filed at regulatory agencies that provide some legal protection against contract challenges by a customer. Further, FCC rules require that even private carriers comply with some regulations, including licensing for wireless facilities and making contributions to support the USF.
 
Section 254 of the Communications Act and the FCC’s implementing rules require all communications carriers providing interstate or international communications services to periodically contribute to the USF. In June 2006, the FCC adopted rules requiring interconnected VoIP service providers to contribute to the USF on the same basis as telecommunications carriers. The USF supports four programs administered by the Universal Service Administrative Company with oversight from the FCC: (i) communications and information services for schools and libraries, (ii) communications and information services for rural health care providers, (iii) basic telephone service in regions characterized by high communications costs, and (iv) communications services purchased by low income users. All telecommunications carriers, including us, are generally required to contribute to the USF, subject to certain exemptions, based on a rate determined by the total subsidy funding needs and the total of


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certain interstate and international end-user communications revenues reported to the FCC by all communications carriers. Each contributor pays based on its total collected revenue subject to contribution to the USF. We and most of our competitors can pass through USF contributions as part of the price of our services, either as part of the base rate or, to the extent allowed, as a separate surcharge on customer bills. Due to the manner in which these contributions are calculated, and the nature of our current business, we believe certain of our services are exempt from USF contributions.
 
We are currently reassessing the nature and extent of our USF obligations. Some of our services are exempt from USF contributions. Changes in regulation may also have an impact on the availability of some or all of these exemptions. If the FCC finds that we have not fulfilled our USF obligations because we have incorrectly calculated our contribution, failed to remit any required USF contribution, or for any other reason, we could be subject to the assessment and collection of past due remittances as well as interest and fines, and penalties thereon. Changes in the USF requirements or findings that we have not met our obligations could materially increase our USF contributions and have a material adverse effect on the cost of our operations, and therefore development and growth of our business.
 
The FCC has granted us several very small aperture terminal, or VSAT, satellite earth station licenses which authorize operation of networks of many small fixed Ku-band earth station terminals communicating with larger hub earth stations in the United States and its territorial waters. We also hold several private land mobile radio licenses which authorize the use of many mobile business/industrial radios. As a wireless licensee, we are subject to Title III of the Communications Act of 1934 and related FCC regulations. Pursuant to Title III, foreign governments or their representatives may not hold wireless licenses. Other foreign ownership limits apply to common carrier wireless providers, but because we operate as a private carrier and hold private wireless licenses we are not subject to these foreign ownership limitations. However, if the FCC were to determine that we were subject to common carrier regulation, we may need to seek FCC approval to exceed the foreign ownership limits.
 
We are required to comply with the technical operating and licensing requirements that pertain to our wireless licenses and operations. Such requirements include the obligation to operate only within the technical parameters set forth in our FCC earth station and land mobile radio licenses, seek appropriate renewals and authority to modify the licenses to reflect material changes in operations, and obtain FCC consent prior to an assignment or transfer of control of the licenses. Any failure to comply with the FCC’s regulatory requirements could subject us to FCC enforcement actions, which could result in, among other actions, revocation of licenses and/or fines.
 
State Regulation
 
The Communications Act preserves the authority of individual states to impose their own regulation of rates, terms and conditions of intrastate telecommunications services, as long as such regulation is not inconsistent with the requirements of federal law or has not been preempted. Internet services are not subject to state telecommunications regulation. Because we provide telecommunications services that originate and terminate within individual states, including both local service and in-state long distance calls, we may be subject to the jurisdiction of the Public Utility Commissions, or PUCs, and other regulators in each state in which we provide such services. We believe that the nature of our operations as a private carrier, however, exempts us from needing to hold such authorizations. If a PUC were to determine that we should be regulated as a common carrier, we would need to obtain a Certificate of Public Convenience and Necessity, or CPCN, or similar authorization to continue operating in that state. Once certified, we may be subject to certain tariff and filing requirements and obligations to contribute to state universal service and other funds.


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Non-U.S. Regulation
 
We must comply with the applicable laws and regulations and, where required, obtain the approval of the regulatory authority of each country in which we provide services or operate earth stations. The laws and regulatory requirements regulating access to satellite systems vary by country. In certain countries, a license is required to provide our services and to operate satellite earth stations. The application procedure can be time-consuming and costly in some countries, and the terms of licenses vary for different countries. In some countries, there may be restrictions on our ability to interconnect with the local switched telephone network. In addition, in certain countries, there are limitations on the fees that can be charged for the services we provide.
 
Many countries permit competition in the provision of voice, data or video services, the ownership of the equipment needed to provide telecommunications services and the provision of transponder capacity to that country. We believe that this trend should continue due to commitments by many countries to open their satellite markets to competition. In other countries, however, supply of services by foreign service providers continues to be restricted, whether because a single provider holds a monopoly or, more commonly, a number of national service providers of different descriptions are protected from outside competition by restrictive trade practices. In those cases, we may be required to negotiate for access to service or equipment provided by a local service provider, and we may not be able to obtain favorable rates or other terms.
 
Export Control Requirements and Sanctions Regulations
 
In the operation of our business, we must comply with all applicable export control and economic sanctions laws and regulations of the United States and other countries. Applicable United States laws and regulations include the Arms Export Control Act, the International Traffic in Arms Regulations, or ITAR, the Export Administration Regulations and the trade sanctions laws and regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control, or OFAC.
 
The export of certain hardware, technical data and services relating to satellites to non-United States persons is regulated by the United States Department of State’s Directorate of Defense Trade Controls, under the ITAR. Other items are controlled for export by the United States Department of Commerce’s Bureau of Industry and Security, or BIS, under the Export Administration Regulations. For example, BIS regulates our export of equipment for earth stations in ground networks located outside of the United States. In addition, we cannot provide certain equipment or services to certain countries subject to United States trade sanctions unless we first obtain the necessary authorizations from OFAC. We are also subject to the Foreign Corrupt Practices Act, which prohibits payment of bribes or giving anything of value to foreign government officials for the purpose of obtaining or retaining business or gaining a competitive advantage.
 
Employees
 
As of September 30, 2010, we had approximately 197 full time employees consisting of 26 employees in sales and marketing, 23 employees in finance and administration, 128 employees in operations and technical support and 20 employees in management, general and administrative. We believe our employee relations are good.
 
Facilities
 
Our headquarters are located in Houston, Texas. We lease our headquarters facility, which comprises approximately 13,055 square feet of office space. The term of this lease runs through June 30, 2015. We have regional offices in Lafayette, Louisiana, Stavanger, Norway,


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Doha, Qatar and Singapore, and additional offices and service centers in the United States, Brazil, the United Kingdom, Nigeria and Saudi Arabia. We believe our current facilities are adequate for our current needs and for the foreseeable future.
 
Legal Proceedings
 
From time to time, we have been subject to various claims and legal actions in the ordinary course of our business. We are not currently involved in any legal proceeding the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse impact on our business, financial condition or results of operations.


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MANAGEMENT
 
Executive Officers and Directors
 
The following table provides information regarding our executive officers, directors and director nominees as of November 11, 2010. Messrs. Slaughter, Browning, O’Hara, Olsen and Whittington have been appointed to our board of directors effective upon the completion of this offering.
 
             
Name
 
Age
 
Position(s)
 
Executive Officers
           
Mark Slaughter (1)
    52     Chief Executive Officer, President and Director Nominee
Martin Jimmerson
    47     Chief Financial Officer
William Sutton
    56     Vice President and General Counsel
Lars Eliassen
    38     Vice President & General Manager, Europe Middle East Africa
Hector Maytorena
    50     Vice President & General Manager, Americas
Directors
           
Thomas M. Matthews (2)(3)(4)
    67     Chairman of the Board
James H. Browning (1)(5)
    61     Director Nominee
Charles L. Davis (2)
    45     Director
Omar Kulbrandstad (6)
    48     Director
Dirk McDermott (3)(6)
    54     Director
Kevin Neveu (3)
    50     Director
Kevin J. O’Hara (1)(7)
    49     Director Nominee
Keith Olsen (1)(5)
    54     Director Nominee
Ørjan Svanevik (6)
    44     Director
Brent K. Whittington (1)(5)
    39     Director Nominee
 
(1) Director nominee who will become a director effective upon completion of this offering.
 
(2) Member of our audit committee
 
(3) Member of our compensation committee
 
(4) Member of our corporate governance and nominating committee
 
(5) Member of our audit committee effective upon completion of this offering.
 
(6) Will resign upon completion of this offering
 
(7) Member of our compensation committee effective upon completion of this offering.
 
Mark Slaughter has served as our Chief Executive Officer and President since August 2007. Prior to that, Mr. Slaughter served as our President and Chief Operating Officer from January 2007 to July 2007. Prior to joining us, Mr. Slaughter served as Vice President and General Manager for Security Services Americas, a division of United Technologies Corporation from July 2005 to December 2006 and as President, Broadband Division for Stratos Global Corporation from January 2003 to December 2004. Mr. Slaughter is a graduate of United Technologies’ Executive Program at the University of Virginia’s Darden Graduate School of Business. He received an A.B. in General Studies, C.L.G.S., concentration in Economics, from Harvard College and an MBA from Stanford’s Graduate School of Business.
 
Martin Jimmerson has served as our Chief Financial Officer since November 2006. Prior to that, Mr. Jimmerson served as Chief Financial Officer for River Oaks Imaging & Diagnostic, LP from November 2002 to December 2005. Mr. Jimmerson received a B.A. degree in accounting from Baylor University.


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William Sutton has served as our Vice President and General Counsel since March 2008. Prior to that, Mr. Sutton served as Chairman for Sweeten & Sutton Brokerage, Inc. from March 2007 to February 2008 and President and Chief Executive Officer for Abbey SA, LP from April 2004 to October 2006. Mr. Sutton received a Bachelor of Business Administration degree from the University of Texas at Austin and a Juris Doctorate from the University of Houston.
 
Lars Eliassen has been with us and our predecessor since May 2003 serving as our Vice President & General Manager, Europe Middle East Africa since November 2007, Vice President—Global Sales from March 2007 to November 2007, Vice President—Americas from March 2005 to March 2007, and as Vice President - Global Operations from May 2003 to March 2005. Mr. Eliassen has completed an executive education course in Emerging Growth Companies at Stanford University’s Graduate School of Business. He received a B.S. degree in Electrical Engineering from Rice University.
 
Hector Maytorena has been with us since November 2007 serving as our Vice President & General Manager, Americas since November 2009 and as Vice President, Global Sales & Marketing from November 2007 to October 2009. Prior to joining RigNet, he served as General Manager of Southeast Texas for United Technologies’ UTC Fire & Security (operating under the Chubb Security and Redhawk brands) from November 2006 to November 2007. Prior to that role, he was Director of Sales at Chubb Security USA from August 2005 to November 2006. Prior to UTC, Mr. Maytorena served in various leadership roles at Stratos Global Corporation’s Broadband Division with his last assignment as Director of Global Sales and Marketing from November 2002 to August 2005. Mr. Maytorena is a graduate of United Technologies’ Emerging Leaders Program at the University of Virginia’s Darden Graduate School of Business.
 
Thomas M. Matthews has served as Chairman of our Board of Directors since May 2008. Mr. Matthews served as Chairman and Chief Executive officer of Avista Corporation from July 1998 to December 2001, Chairman of Link Energy and its predecessor EOTT Energy from April 2002 to February 2003 and as Chief Executive Officer of Link Energy from March 2003 to January 2005 and has served as Managing Trustee to Link Trust since January 2005. Mr. Matthews received a BSCE from Texas A&M University and attended advanced management programs in International Business at Columbia University and in Finance at Stanford University. Mr. Matthews brings a wealth of public company board experience and knowledge of the energy industry to our board.
 
James H. Browning is a director nominee. Mr. Browning served as a partner at KPMG LLP, an international accounting firm, from July 1980 to his retirement in September 2009. Mr. Browning began his career at KPMG LLP in 1971, becoming a partner in 1980. Mr. Browning most recently served as KPMG’s Southwest Area Professional Practice Partner in Houston. Mr. Browning has also served as an SEC Reviewing Partner and as Partner in Charge of KPMG LLP’s New Orleans audit practice. Mr. Browning received a B.S. degree in Business Administration from Louisiana State University and is a certified public accountant. He currently serves on the Board and Audit Committee of Texas Capital Bancshares, Inc., a publicly traded financial holding company. Mr. Browning will bring a wealth of knowledge dealing with financial and accounting matters to our board as well as extensive knowledge of the role of public company boards of directors.
 
Charles L. Davis has served as a member of our Board of Directors since June 2005. Mr. Davis has been a partner in SMH Private Equity Group, a United States based investment firm that funds companies that apply technology solutions in the energy sector, since December 2004. Mr. Davis received a Bachelor’s degree in Business from Washington and Lee University and is a Certified Public Accountant in the Commonwealth of Virginia. Mr. Davis brings experience in finance, accounting and investment banking to our board as well as a wealth of experience in the energy industry.


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Omar Kulbrandstad has served as a member of our Board of Directors and our predecessor’s Board of Directors since 2001. Mr. Kulbrandstad co-founded our predecessor and served as Chief Operating Officer of our predecessor from 2001 to 2004, our Chief Executive Officer from 2004 to 2007 and as a non-employee advisor to us from 2007 to 2008. Mr. Kulbrandstad received a BSc in Electrical Engineering, Electronics from Trondheim School of Technology in Norway. Mr. Kulbrandstad brings a deep understanding of our business and operations to our board as well as a technical understanding of our business from an engineering perspective and knowledge of the energy industry in Norway.
 
Dirk McDermott has served as a member of our Board of Directors since March, 2010. Since 1997, Mr. McDermott has served as managing director of Altira Group LLC, a United States based venture capital firm that invests in companies that develop and commercialize energy technologies in the areas of natural resources, clean energy and electric power, which Mr. McDermott founded. Mr. McDermott holds a Master of Science in geophysics and a Master of Business Administration from Stanford University. Mr. McDermott brings over 25 years of experience as an investor, manager and scientist in the energy industry to our board.
 
Kevin Neveu has served as a member of our Board of Directors since September 2004. Mr. Neveu has served as the Chief Executive Officer of Precision Drilling Corporation since August 2007 adding the title of President in January 2009. Prior to that, Mr. Neveu was with National Oilwell Varco, serving as President of its Rig Solutions Group from May 2002 to August 2007 and president of its Downhole Tools Business from January 1999 to May 2002. Mr. Neveu has served as a director of Precision Drilling Corporation since August 2007, as a director of Heart and Stroke Foundation of Alberta since December 2009 and was appointed a Member of the Board of Directors and a Member of the Executive Committee of the International Association of Drilling Contractors, Houston, Texas in January 2010. Mr. Neveu received a BSc degree in Mechanical Engineering from the University of Alberta. Mr. Neveu brings a wealth of knowledge of the energy industry and international operations to our board as well as experience running a public company and being on a public company board.
 
Kevin J. O’Hara is a director nominee. Mr. O’Hara is a co-founder and has served as the Chairman of the Board of Troppus Software Corporation, an early stage software company providing technical solutions to service providers that support home technology and networks, since March 2009, and he has served as a director of Integra Telecom Inc., a facility based communications company, since December 2009. Prior to that, Mr. O’Hara was a co-founder Of Level 3 Communications, Inc. and served as its President from July 2000 to March 2008 and as the Chief Operating Officer of Level 3 Communications, Inc. from March 1998 to March 2008. From August 1997 to July 2000, Mr. O’Hara served as Executive Vice President of Level 3 Communications, Inc. Prior to that, Mr. O’Hara served as President and Chief Executive Officer of MFS Global Network Services, Inc. from 1995 to 1997, and as Senior Vice President of MFS and President of MFS Development, Inc. from October 1992 to August 1995. From 1990 to 1992, he was a Vice President of MFS Telecom, Inc. Mr. O’Hara has a Master of Business Administration from the University of Chicago and a Bachelor of Science in Electrical Engineering from Drexel University. Mr. O’Hara will bring a wealth of experience in the communications industry to our board as well as experience running a public company.
 
Keith Olsen is a director nominee. Mr. Olsen served as Chief Executive Officer, President and Director of Switch and Data Facilities Company, Inc., a provider of network-neutral data centers that house, power and interconnect the Internet, from February 2004 to May 2010, when Switch and Data Facilities Company, Inc. was acquired by Equinix, Inc. Prior to that, Mr. Olsen served as a Vice President of AT&T, where he was responsible for indirect sales and global sales channel management from May 1993 to February 2004. From 1986 to 1993, Mr. Olsen served as Vice President of Graphnet, Inc., a provider of integrated data messaging technology and services. Mr. Olsen has a bachelor’s degree from the State University of New


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York, Geneseo. Mr. Olsen will bring experience in running a public company to our board as well as a wealth of experience in the communications industry.
 
Ørjan Svanevik has served as a member of our Board of Directors since October 2009. Mr. Svanevik has served as an independent advisor to Cubera Private Equity AS, since October 2009. Prior to that, Mr. Svanevik served as Head of M&A for Aker ASA from 2005 to 2008. During the fall of 2008, he was a Partner at True North Capital AS. Since 2009, he has been the Managing Director of Oavik Capital AS. Mr. Svanevik received a master’s degree in General Economics from The Norwegian School of Management (BI) and an MBA from Thunderbird. Mr. Svanevik brings experience in finance, corporate development and international business to our board.
 
Brent K. Whittington is a director nominee. Mr. Whittington has served as the Chief Operating Officer of Windstream Corporation, a publicly traded communications company providing phone, high-speed Internet and high-definition digital TV services, since August 2009. Prior to that, Mr. Whittington served as the Executive Vice President and Chief Financial Officer of Windstream Corporation from July 2006 to August 2009. From December 2005 to July 2006, Mr. Whittington served as Executive Vice President and Chief Financial Officer of Windstream Corporation’s predecessor, Alltel Holding Corp. From 2002 to August 2005, Mr. Whittington served as Vice President of Finance and Accounting of Alltel Corporation, parent company of Alltel Holding Corp and, from August 2005 to December 2005, Mr. Whittington also served as the Senior Vice President-Operations Support of Alltel Corporation. Prior to joining Alltel, Mr. Whittington was with Arthur Andersen LLP for over eight years. Mr. Whittington has a degree in accounting from the University of Arkansas at Little Rock. Mr. Whittington will bring experience in finance and accounting to our board as well as a wealth of experience in the communications industry.
 
Our executive officers are appointed by our board of directors and serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors, director nominees or executive officers.
 
Code of Ethics
 
We have adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that code will be available on our corporate website at www.rignet.com upon completion of this offering.
 
Composition of the Board of Directors
 
Our board of directors currently consists of six members, all of whom are non-employee members. Each director holds office until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our post-offering bylaws permit our board of directors to establish by resolution the authorized number of directors.
 
Pursuant to the terms of our existing stockholders agreement, our existing current directors were elected as follows:
 
  •  The holders of our common stock elected one independent member of our board of directors: Omar Kulbrandstad;
 
  •  The holders of our series A preferred stock elected one independent member of our board of directors, subject to the approval of the holders of a majority of our outstanding shares of series B preferred stock and series C preferred stock: Charles Davis;


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  •  The holders of our series B preferred stock elected one independent member of our board of directors, subject to the approval of the holders of a majority of our outstanding shares of series A preferred stock and series C preferred stock: Kevin Neveu;
 
  •  Altira elected one member of our board of directors: Dirk McDermott;
 
  •  Cubera elected one member of our board of directors: Ørjan Svanevik; and
 
  •  The holders of a majority of our series A preferred stock, the holders of a majority of our series B preferred stock and the holders of a majority of our series C preferred stock elected one independent member of our board of directors: Thomas M. Matthews.
 
Upon the closing of this offering, all of our preferred stock will be converted into our common stock and all of the contractual rights to appoint directors will be automatically terminated. Messrs. Kulbrandstad, McDermott and Svanevik will resign from our board of directors effective upon completion of this offering. Commencing with our first annual meeting of stockholders after the completion of this offering, all of our director positions will be up for re-election.
 
Our post-offering certificate of incorporation provides that the number of authorized directors will be determined from time to time by resolution of the board of directors and that a director may only be removed outside of the normal election process for cause by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of our directors.
 
Director Independence
 
In the fourth quarter of 2010, our board of directors undertook a review of the independence of each post-offering director and considered whether any post-offering director had a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that all of our post-offering directors, other than our chief executive officer, Mark Slaughter, were “independent directors” and met the independence requirements under the listing standards of the NASDAQ.
 
Committees of the Board of Directors
 
Our board of directors has established an audit committee, a compensation committee and a corporate governance and nominating committee.
 
Audit Committee
 
Our audit committee consists of Charles Davis and Thomas Matthews, each of whom is a non-employee member of our board of directors. In addition, James H. Browning, Keith Olsen and Brent K. Whittington have been appointed to our audit committee effective upon the completion of this offering. Mr. Davis is the chairperson of our audit committee. Our board of directors has determined that each current member of our audit committee and each of Messrs. Browning, Olsen and Whittington meet the requirements of financial literacy under the requirements of the NASDAQ and SEC rules and regulations. Mr. Davis serves as our audit committee financial expert, as defined under SEC rules, and possesses financial sophistication as required by the NASDAQ. Mr. Matthews is independent as such term is defined in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Mr. Davis is not independent within the meaning of Rule 10A-3(b)(1) because of his affiliation with Sanders Morris Harris Private Equity Group and the present level of stock ownership of our Company by funds and investors affiliated with Sanders Morris Harris Private Equity Group. The test for independence under Rule 10A-3(b)(1) for the audit committee is different than the general test for independence of board and committee members. In accordance with


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Rule 10A-3(b)(1) and the listing standards of the NASDAQ, we plan to modify the composition of the audit committee within 12 months after the effectiveness of our registration statement relating to this offering so that all of our audit committee members will be independent as such term is defined in Rule 10A-3(b)(1) and under the listing standards of the NASDAQ. Our board of directors has determined that Mr. Browning is also an audit committee financial expert as defined under SEC rules.
 
Our audit committee is responsible for, among other things:
 
  •  selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors;
 
  •  evaluating the qualifications, performance and independence of our independent auditors;
 
  •  monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;
 
  •  reviewing the adequacy and effectiveness of our internal control policies and procedures;
 
  •  discussing the scope and results of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end operating results; and
 
  •  preparing the audit committee report that the SEC requires in our annual proxy statement.
 
Our board of directors has adopted a written charter for the audit committee, which will be available on our website upon the completion of this offering.
 
Compensation Committee
 
Our compensation committee consists of Kevin Neveu, Thomas Matthews and Dirk McDermott, each of whom is a non-employee member of our board of directors. In addition, Kevin J. O’Hara has been appointed to our compensation committee effective upon the completion of this offering. Mr. Neveu is the chairman of our compensation committee. Our board of directors has determined that each current member of our compensation committee and Mr. O’Hara meet the requirements for independence under the requirements of the NASDAQ. Mr. McDermott will resign upon completion of this offering. Our compensation committee is responsible for, among other things:
 
  •  reviewing and approving compensation of our executive officers including annual base salary, annual incentive bonuses, specific goals, equity compensation, employment agreements, severance and change in control arrangements, and any other benefits, compensations or arrangements;
 
  •  reviewing and recommending compensation goals, bonus and option compensation criteria for our employees;
 
  •  reviewing and discussing annually with management our “Compensation Discussion and Analysis” disclosure required by SEC rules;
 
  •  preparing the compensation committee report required by the SEC to be included in our annual proxy statement; and
 
  •  administering, reviewing and making recommendations with respect to our equity compensation plans.


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Corporate Governance and Nominating Committee
 
Our corporate governance and nominating committee will initially consist only of Thomas Matthews, who is a non-employee member of our board of directors. Mr. Matthews is the chairman of this committee. Our board of directors has determined that Mr. Matthews satisfies the requirements for independence under the NASDAQ rules.
 
Our corporate governance and nominating committee is responsible for, among other things:
 
  •  assisting our board of directors in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to the board of directors;
 
  •  reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our board of directors;
 
  •  reviewing succession planning for our executive officers;
 
  •  overseeing the evaluation of our board of directors and management;
 
  •  determining the compensation of our directors; and
 
  •  recommending members for each board committee of our board of directors.
 
Compensation Committee Interlocks and Insider Participation
 
None of the members of our compensation committee is an officer or employee of our Company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.
 
Director Compensation for the Year Ended December 31, 2009
 
We did not grant any options or other equity compensation to any member of our board of directors in 2009. The following table summarizes the cash compensation of each member of our board of directors in 2009:
 
         
    Fees Earned or
Name
 
Paid in Cash
 
Thomas M. Matthews
  $ 106,750 (1)
Charles L. Davis
     
Omar Kulbrandstad
     
Dirk McDermott
     
Kevin Neveu
  $ 31,866 (2)
Ørjan Svanevik