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)

 

 

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:

 

 

 

 

 

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):

 

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

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.

 

 

Subject to Completion. Dated November 29, 2010.

 

 

RigNet, Inc.

 

 

 

		Per Share				Total
Initial public offering price		$				$
Underwriting discounts and commissions		$				$
Proceeds to RigNet, before expenses		$				$
Proceeds to selling stockholders, before expenses		$				$

Deutsche Bank Securities	Jefferies & Company

Oppenheimer & Co.	Simmons & Company

 

 

 

PROSPECTUS SUMMARY

	•	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;

	•	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.

	•	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.

	•	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.

	•	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.

	•	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.

		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.

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”

	•	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.

	•	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

	•	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.

	•	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.

	•	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,

		after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

														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

														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

	•	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.

	•	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.

	•	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.

														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

		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

 

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

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

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.

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

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 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

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

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.

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.

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

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

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:

 

 

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.

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:

 

 

 

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:

 

 

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

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

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.

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.

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”.

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.

 

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:

 

 

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.

 

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

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.

 

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.

 

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.

 

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.

 

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:

 

 

 

 

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.

 

 

 

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.

This table excludes the following shares:

 

 

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:

 

 

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.

 

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.

 

 

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.

 

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.

 

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.