EXHIBIT 3
NON-TRANSFERABLE CONTINGENT STOCK RIGHT
THIS NON-TRANSFERABLE CONTINGENT STOCK RIGHT ("Right") is entered into as
of December 31, 1998, by and among GE AMERICAN COMMUNICATIONS, INC., a Delaware
corporation ("GE Americom"), GE CAPITAL SPACENET SERVICES, INC., a Delaware
corporation and a wholly owned subsidiary of GE Americom ("Spacenet"), GILAT
SATELLITE NETWORKS LTD., a corporation organized under the laws of Israel
("Gilat"), and JONAH ACQUISITION CORP., a Delaware corporation and a wholly
owned subsidiary of Gilat ("Merger Sub").
WHEREAS, GE Americom, Spacenet, Gilat and Merger Sub have entered into an
Agreement and Plan of Merger dated as of September 25, 1998 ("Merger Agreement")
pursuant to which Merger Sub will be merged with and into Spacenet, pursuant to
and subject to the terms and conditions of the Merger Agreement;
WHEREAS, this Right represents a portion of the consideration being paid by
Gilat for Spacenet and is being delivered by Gilat to GE Americom pursuant to
Section 2.1(b) of the Merger Agreement;
WHEREAS, each capitalized term used herein and not otherwise defined shall
have the meaning set forth in the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the respective
agreements hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I.
POST-CLOSING ADJUSTMENTS
SECTION 1.1. Post-Closing Adjustments.
(a) Closing Balance Sheet. Within 90 days after the Closing Date, GE
Americom shall cause to be prepared and delivered to Gilat an audited
consolidated balance sheet of Spacenet and the Spacenet Subsidiaries (which, for
purposes of this Section 1.1, shall include those entities set forth on Schedule
2.2(a) of the Merger Agreement) as of the Closing Date (the "Closing Audited
Balance Sheet"), which Closing Audited Balance Sheet shall be prepared by GE
Americom in accordance with generally accepted accounting principles, as in
effect in the United States, and substantially in the form of and in a manner
consistent with past practice, and which shall be audited by KPMG Peat Marwick
LLP or such other "Big Five" accounting firm (other than PricewaterhouseCoopers
LLP) as GE Americom shall determine. Together with the Closing Audited Balance
Sheet, GE
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Americom shall deliver to Gilat a balance sheet (hereinafter referred to as the
"Adjusted Closing Audited Balance Sheet") which shall be identical to the
Closing Audited Balance Sheet except that it shall be adjusted (w) to exclude
any bad debt reserve or similar reserve with respect to accounts receivable, (x)
to include $2.0 million for the contract referred to in Schedule 2.2(k) of the
Merger Agreement, (y) to exclude the Excluded Balance Sheet Assets (as defined
in Section 1.1(b)) as provided in Section 1.1(b) below and (z) to deduct the
Balance Sheet Liabilities (as defined in Section 1.1(c)) as provided in Section
1.1(c) below (but shall not be adjusted to add any amount for spare parts).
(b) Excluded Assets and Adjusting Liabilities. The following balance
sheet items (collectively, the "Excluded Balance Sheet Assets") shall be
excluded from the Adjusted Closing Audited Balance Sheet:
(i) Any Deferred Tax Asset (as defined in Schedule 2.2 of the
Merger Agreement);
(ii) Any goodwill asset other than the AB Goodwill (as defined in
Schedule 2.2 of the Merger Agreement);
(iii) Any TR Inventory (as defined in Schedule 2.2 of the Merger
Agreement) in excess of $5.5 million;
(iv) Any TR Fixed Assets (as defined in Schedule 2.2 of the
Merger Agreement) in excess of $8 million;
(v) Any TS Prepaid and Long Term Assets (as defined in Schedule
2.2 of the Merger Agreement); and
(vi) Any Spacenet Intercompany Receivables (as defined in
Schedule 2.2 of the Merger Agreement); and
(vii) An amount of $3.0 million.
(c) Balance Sheet Liabilities. The following balance sheet items
(collectively, the "Balance Sheet Liabilities") shall be deducted from the
Adjusted Closing Audited Balance Sheet:
(i) $500,000;
(ii) Any TS/CL Liabilities (as defined in Schedule 2.2 of the
Merger Agreement) in excess of $2.5 million; and
(iii) Any Spacenet Intercompany Payables (as defined in Schedule
2.2 of the Merger Agreement).
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(d) Resolution of Objections. If Gilat or its representatives shall
have any objections to the Adjusted Closing Audited Balance Sheet, Gilat shall
deliver a written notice describing such objections to GE Americom within 60
days after receiving the Adjusted Closing Audited Balance Sheet. Gilat and GE
Americom (by themselves or through their respective representatives) will use
their reasonable best efforts to engage in good-faith negotiations to resolve
any such objections promptly after receipt by GE Americom of such notice.
If a final resolution is not obtained promptly after GE Americom first
receives notice of Gilat's objections to the Adjusted Closing Audited Balance
Sheet, the parties shall submit their disagreement to Deloitte & Touche LLP or
such other "Big Five" accounting firm (other than KPMG Peat Marwick LLP or
PricewaterhouseCoopers LLP) as GE Americom and Gilat may agree upon (the
"Independent Third Party") for resolution. The Independent Third Party, acting
as experts and not as arbitrators, upon a review of the Adjusted Closing Audited
Balance Sheet and consideration of the written objections thereto, shall resolve
any such remaining objections and revise the Adjusted Closing Audited Balance
Sheet (as agreed to by GE Americom and Gilat or as revised following resolution
by the Independent Third Party, the "Final Adjusted Closing Audited Balance
Sheet"), determine the Consideration Adjustment (as defined in Section 1.1(e)),
if any, and communicate the foregoing to Gilat and GE Americom in writing, not
later than 30 days following the submission of such dispute to the Independent
Third Party (unless Gilat and GE Americom agree, upon request of the Independent
Third Party, to provide the Independent Third Party with additional time to make
its determination, which agreement shall not be unreasonably withheld).
(e) Consideration Adjustment. In the event that the net assets,
calculated by subtracting total net liabilities from total net assets on the
Final Adjusted Closing Audited Balance Sheet (the "Net Assets"), shall be equal
to or greater than Eighty-Five Million U.S. Dollars ($85,000,000) (the "Required
Amount"), Gilat shall, within six months after the Closing Date (if possible)
and in any event promptly after final determination of the Net Asset amount
(either by agreement of Gilat and GE Americom or the determination of the
Independent Third Party), issue and deliver to GE Americom such number of Gilat
Ordinary Shares as is equal in value to the amount by which Net Assets exceeds
the Required Amount (the "Consideration Adjustment"), with each Gilat Ordinary
Share being deemed to have a value equal to (a) if the average closing price of
the Gilat Ordinary Shares on the Nasdaq Stock Market for the five consecutive
trading days immediately preceding the date of determination is more than 10%
higher or more than 10% lower, as the case may be, than $41.3816 (the
"Determination Price"), then such average closing price, or (b) if such average
closing price is within 10% of $41.3816, then $41.3816. For the avoidance of
doubt, in order to calculate the Net Assets, Gilat and GE Americom agree that
any Spacenet inventory resulting from the equipment purchases referred to in
paragraph (1) of Schedule 6.19 of the Merger Agreement and paid for prior to
Closing shall be included in computing Net
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Assets; any inventory that is not paid for, and any payable associated
therewith, shall be excluded in computing Net Assets.
(f) Utilization of Deferred Tax Asset. For the period following the
Closing through the fifth anniversary thereof, to the extent that the Surviving
Corporation and the Spacenet Subsidiaries, on a consolidated basis, have pre-tax
gross income in any calendar year, Gilat shall within 45 days after the end of
each such calendar year notify GE Americom in writing of the amount of the
pre-tax gross income and the amount of U.S. corporate income tax the Surviving
Corporation would have paid if such pre-tax gross income had constituted taxable
income to the Surviving Corporation for such calendar year ("Post-Closing Tax
Savings"). Within 10 days of receipt of such notice, Gilat shall issue to GE
Americom a number of Gilat Ordinary Shares equal to the amount of the
Post-Closing Tax Savings divided by the Determination Price. Notwithstanding the
foregoing, Gilat shall not be obligated to issue any Gilat Ordinary Shares to GE
Americom to the extent that the aggregate amount of Post-Closing Tax Savings
exceeds the lesser of the Deferred Tax Asset and $2 million.
(g) Determinations of Independent Third Party. The determinations of
the Independent Third Party shall for all purposes (including without limitation
purposes of Section 1.3(b)) be conclusive, final and non-appealable, shall not
be subject to judicial review under any circumstances and shall be binding on
Gilat and GE Americom and their respective affiliates. Each of Gilat and GE
Americom and their respective affiliates hereby waive the right to appeal any
decision of the Independent Third Party, whether to a court of law or otherwise,
or to seek to stay or vacate any determination of the Independent Third Party.
The fees and expenses of the Independent Third Party incurred in the resolution
of such objections shall be shared equally by Gilat and GE Americom. In all
cases, Gilat and GE Americom each shall provide each other, their respective
representatives and the Independent Third Party full reasonable access to the
books and records, any other information, including work papers of its
accountants, and to any employees to the extent necessary for the preparation of
all financial statements referred to in this Section 1.1.
(h) Issuances in Lieu of Cash. To the extent that the amount of any
cash that GE Americom has a right to receive pursuant to the Merger Agreement is
reduced pursuant to Section 2.4 of the Merger Agreement, GE Americom shall be
entitled under this Right to receive from Gilat a number of Gilat Ordinary
Shares with a value that is equal to the amount by which such cash is reduced
(with each Gilat Ordinary Share being deemed to have a value equal to the
Determination Price).
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SECTION 1.2. CERTAIN RESTRICTIONS.
(a) Until the time Gilat Ordinary Shares are issued under this Right,
dividends will not accrue on and GE Americom will not be entitled to any
dividends on the Gilat Ordinary Shares which may be issued under this Right, and
GE Americom will not be entitled to exercise any voting rights of such shares.
(b) The maximum number of Gilat Ordinary Shares to be issued purant to
this Right shall not exceed the lesser of (i) Three Million (3,000,000) Gilat
Ordinary Shares or (ii) the number of Gilat Shares issued to GE Americom
pursuant to Section 2.1(b) of the Merger Agreement minus one.
(c) All Gilat Ordinary Shares to be issued pursuant to this Right
shall be issued within five (5) years from the Closing Date.
(d) In no event shall GE Americom be entitled to receive any cash or
property other than Gilat Ordinary Shares pursuant to this Right.
SECTION 1.3. CERTAIN ADJUSTMENTS.
(a) If between the date hereof and the time at which Gilat is required
to deliver Gilat Ordinary Shares to GE Americom pursuant to this Right, the
outstanding Gilat Ordinary Shares shall be changed into a different number of
shares by reason of any reclassification, recapitalization, split-up,
combination or exchange of shares, or any dividend payable in shares or other
securities shall be declared thereon with a record date within such period, the
number of Gilat Ordinary Shares to be delivered to GE Americom pursuant to this
Right shall be adjusted accordingly to provide to GE Americom the same economic
effect as contemplated by this Right prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.
(b) If between the date hereof and the time at which Gilat is required
to deliver Gilat Ordinary Shares to GE Americom pursuant to this Right, Gilat
agrees to sell all or substantially all of its assets or agrees to any merger,
consolidation, reorganization, division or other corporate transaction in which
Gilat Ordinary Shares are converted into another security or into the right to
receive securities or property, Gilat and GE Americom agree that any Gilat
Ordinary Shares to be issued under this Right shall be issued prior to such
conversion. GE Americom and Gilat shall engage in good faith negotiations to
determine the number of Gilat Ordinary Shares to be issued. If GE Americom and
Gilat are unable to promptly resolve such determination, the parties shall
submit their disagreement to the Independent Third Party for prompt resolution.
Such issuance of Gilat Ordinary Shares shall be in full satisfaction of Gilat's
obligation to issue Gilat Ordinary Shares pursuant to this Right.
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ARTICLE II.
GENERAL PROVISIONS
SECTION 2.1. NOTICES.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted, and shall be effective upon receipt,
if delivered personally, mailed by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the telecopier number specified
below:
(A) If to GE Americom or Spacenet:
GE American Communications, Inc.
Four Xxxxxxxx Xxx
Xxxxxxxxx, XX 00000-0000
Telecopier No.: (000) 000-0000
Attention: Xxxx Xxxxxxx
WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Xxxxx & Xxxxxxx L.L.P.
Columbia Square
000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Telecopier No.: (000) 000-0000
ATTENTION: Xxxxx X. Xxxxxxxx, Esq.
(B) If to Gilat or Merger Sub:
Gilat Satellite Networks Ltd.
Xxxxx Xxxxxxx Xx., Xxxxxx Xxxx
Xxxxx Xxxxx 00000
Xxxxxx
Telecopier No.: (000) 0-000-0000
Attention: Xxxx Xxxxxxxxxx
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WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO:
Kleinhendler & HaLevy
Law Xxxxxxx
00 Xxxxxxxx Xxxxxx
Xxx-Xxxx 00000
Xxxxxx
Telecopier No.: (000)0-000-0000
Attention: Xxxx Xxxxxxxxxxxx, Esq.
and
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, X.X. 00000
Telecopier No.: (000) 000-0000
Attention: Xxxxx Xxxxxxxx, Esq.
SECTION 2.2. HEADINGS.
The headings contained in this Right are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Right.
SECTION 2.3. SEVERABILITY.
If any term or other provision of this Right is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Right shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Right so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 2.4. ENTIRE AGREEMENT.
This Right (together with the Merger Agreement and the Exhibits, the
Schedules and the other documents delivered pursuant hereto and thereto) and the
Confidentiality Agreement constitute the entire agreement of the parties and
supersede any prior agreements and undertakings, both written and oral, between
the parties, or any of them, with respect to the subject matter hereof and,
except as otherwise expressly provided herein, are not intended to confer upon
any other person any rights or remedies hereunder.
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SECTION 2.5. SPECIFIC PERFORMANCE.
The transactions contemplated by this Right are unique. accordingly,
each of the parties acknowledges and agrees that, in addition to all other
remedies to which it may be entitled, each of the parties hereto is entitled to
a decree of specific performance, provided such party is not in material default
hereunder.
SECTION 2.6. ASSIGNMENT.
Neither this Right nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise). this Right shall be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
SECTION 2.7. THIRD PARTY BENEFICIARIES.
This Right shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Right, express or implied, is intended to
or shall confer upon any other person any Right, benefit or remedy of any nature
whatsoever under or by reason of this right.
SECTION 2.8. GOVERNING LAW.
Except as otherwise provided herein, this Right shall be governed by,
and construed in accordance with, the laws of the State of New York, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of law.
SECTION 2.9. COUNTERPARTS.
This Right may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Right
to be executed and delivered on its behalf as of the date first written above.
GE AMERICAN COMMUNICATIONS, INC.
By: /s/ Xxxx X. Xxxxxxxx
---------------------------
Name: Xxxx X. Xxxxxxxx
Title: President and Chief
Executive Officer
GE CAPITAL SPACENET SERVICES, INC.
By: /s/ Xxxx X. Xxxxxxx
----------------------------
Name: Xxxx X. Xxxxxxx
Title: President
GILAT SATELLITE NETWORKS LTD.
By: /s/ Xxxx Gat
------------------------------
Name: Xxxx Gat
Title: Chief Executive Officer
JONAH ACQUISITION CORPORATION
By: /s/ Xxxx Xxxxxxxxxx
-------------------------------
Name: Xxxx Xxxxxxxxxx
Title: Vice President, Chief Financial
Officer and Secretary
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