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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

12/24/03  Gilat Satellite Networks Ltd      SC 13E3                1:47   Rstar Corp                        Zadok Keinan Ltd/FA

Document/Exhibit                   Description                      Pages   Size 

 1: SC 13E3     Tender-Offer Statement -- Going-Private             HTML    356K 
                          Transaction                                            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 13E-3

RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)

rStar Corporation
(Name of the Issuer)

Gilat Satellite Networks, Ltd.
(Name of Person(s) Filing Statement)

$0.01 Par Value Common Stock
(Title of Class of Securities)

98912E 10 0
(CUSIP Number of Class of Securities)

        This statement is filed in connection with (check the appropriate box):

Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. o

Check the following box if the filing is a final amendment reporting the results of the transaction. o

SUMMARY TERM SHEET

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the transaction, passed upon the merits or fairness of the transaction or passed upon the adequacy or accuracy of the disclosure in the document. Any representation to the contrary is a criminal offense.

        This summary and the remainder of this transaction statement on Schedule 13E-3 include information describing the “going private” transaction involving rStar Corporation, referred to herein as rStar, how it affects you, what your rights are with respect to the transaction as a stockholder of rStar and the position of Gilat Satellite Networks, Ltd., referred to herein as we, us or Gilat, on the fairness of the transaction to the unaffiliated public stockholders of rStar, that is, the stockholders other than Gilat and its affiliates. Please read this summary and the remainder of this document very carefully.

Principal Terms of the Transaction

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Fairness of the Going-Private Transaction

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Consequences of the Going-Private Transaction

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SPECIAL FACTORS

PURPOSES, ALTERNATIVES, REASONS AND EFFECTS OF THE GOING-PRIVATE TRANSACTION

Purposes

        The purpose of the going-private transaction is for Gilat to acquire the minority public interest in rStar thereby allowing Gilat to terminate rStar’s registration under the Exchange Act. Gilat believes that the going-private transaction is desirable because it will relieve rStar of the substantial costs of remaining a public company with reporting requirements. The direct and indirect costs associated with rStar’s compliance with the filing and reporting requirements of the Exchange Act have a material adverse effect on rStar’s financial performance and the various costs associated with remaining a public company are expected to increase as a result of recent legislative and regulatory initiatives to improve corporate governance.

        Gilat estimates that rStar spent approximately $[1,000,000] for the period from the end of the fiscal year ended December 31, 2002 through September 30, 2003, in costs related to being a public company, a significant portion of which can be attributed to securing directors’ and officers’ insurance ; fees related to filings with the SEC and NASDAQ ; legal fees payable to outside legal counsel; and fees paid for audit services and audit related services. Gilat estimates that the costs incurred for similar services would have been approximately $[80,000] if rStar had been a private company during that time period. Gilat estimates the costs of rStar being a public company, including complying with the reporting requirements, will total approximately $[1,350,000] in fiscal year 2004. Gilat estimates that the costs for similar services for rStar will be approximately $[105,000] annually, once the termination of the registration becomes effective.

        Gilat believes the savings will result from the elimination of NASDAQ stock market fees, press release expenses and certain legal fees, as well as a significant reduction in audit fees, independent directors’ compensation, officers and directors liability insurance, tax compliance, printing and mailing costs, filing fees, stock transfer agent expenses and other direct expenses associated with the required SEC filings.

        To Gilat’s knowledge, rStar has no present intention or, in its judgment, any current or foreseeable ability to raise capital through sales of securities in a public offering or to acquire other business entities using its stock as the consideration for any such acquisition. Therefore, rStar is unlikely to take advantage of its current status as a public company for these purposes. Based on rStar’s size and resources Gilat does not believe the costs associated with rStar remaining a public company are justified. Gilat has determined that the costs of rStar remaining a public company are too high and that it would be irresponsible to maintain rStar as a public company in such circumstances. In light of these disproportionate costs, Gilat believes that it is desirable to eliminate the administrative and financial burden of rStar remaining a public company subject to the reporting requirements of the Exchange Act.

Alternatives

        We believe that effecting the going-private transaction by way of a short-form merger of rStar with and into the acquisition subsidiary under Section 253 of the DGCL is the quickest and most cost effective way for us to acquire the outstanding public minority equity interest in rStar. We considered and rejected the alternative of a long-form merger because of the cost and delay of obtaining the approvals of rStar’s board of directors and of the unaffiliated public stockholders. We also rejected a tender offer for the rStar common stock held by unaffiliated public stockholders as it entailed additional costs and a subsequent short-form merger could still be required. Gilat also rejected the purchase of the assets of rStar because of the costs, delay and uncertainty associated with such a transaction.

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Reasons

        In determining whether to effect the going-private transaction, the board of directors of Gilat considered several factors, including:

        Our board of directors also considered the advantages and disadvantages of leaving rStar as a majority-owned, public subsidiary. In the view of Gilat, the principal advantage of leaving rStar as a majority-owned, public subsidiary would be the ability of Gilat to invest for other purposes the cash that would otherwise be required to buy the minority stockholder interest in rStar. The disadvantages of leaving rStar as a majority-owned, public subsidiary which was considered by Gilat included the inability to achieve many of the benefits discussed above. We concluded that the advantages of leaving rStar as a majority-owned, public subsidiary were significantly outweighed by the disadvantages of doing so, and accordingly that alternative was rejected.

        We determined to effect the going-private transaction at this time (i.e., as promptly as practicable after acquiring beneficial ownership of greater than 90% of the shares of rStar common stock) because we wish to immediately realize the benefits of taking rStar private. We were not able to effect a transaction like the going-private transaction before acquiring a significant equity interest in rStar including the prospective purchase of 9,672,031 shares of rStar common stock in the negotiated purchase described above. The value of rStar was not a significant factor in the timing of our decision to propose the going-private transaction.

        The first step in the going-private transaction was the negotiation and execution of the stock purchase agreement. The second step in the going-private transaction is structured as a short-form merger under Section 253 of the DGCL. This form of merger allows the unaffiliated public stockholders to receive cash for their shares of rStar common stock quickly and allows us to merge rStar with and into the acquisition subsidiary without any action by the board of directors of rStar or the unaffiliated public stockholders.

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Effects

        General.        Upon completion of the going-private transaction, we will have complete control over the conduct of rStar’s businesses and assets. In addition, we will receive the benefit of the right to participate in any future increases in the value of rStar’s business, and we will bear the complete risk of any losses incurred in the operation of rStar’s business and any decrease in the value of rStar’s business. Once the short-form merger is completed, the unaffiliated public stockholders will no longer be able to benefit from a sale of rStar to a third party.

        It is expected that immediately following the negotiated purchase and prior to the short-form merger we will own approximately 94.2% of the outstanding rStar common stock.

        Stockholders other than Gilat.        Upon completion of the short-form merger, the unaffiliated public stockholders will no longer have any interest in, and will not be stockholders of, rStar and therefore would not participate in rStar’s future earnings and potential growth and would no longer bear the risk of any decreases in the value of rStar. In addition, the unaffiliated public stockholders would not share in any distribution of proceeds after any sales of businesses of rStar, whether contemplated at the time of the short-form merger or thereafter. See Item 6(c), “Purposes of the Transaction and Plans or Proposals - Plans.” All of the unaffiliated public stockholders’ other indicia of stock ownership, such as the rights to vote on certain corporate decisions, to elect directors, to receive distributions upon the liquidation of rStar and to receive appraisal rights upon certain mergers or consolidations of rStar (unless such appraisal rights are perfected in connection with the short-form merger), as well as the benefit of potential increases in the value of a public stockholder’s holdings in rStar based on any improvements in rStar’s future performance, will be extinguished upon completion of the short-form merger.

        In addition, upon completion of the short-form merger, the unaffiliated public stockholders will no longer be entitled to receive any of the special distribution provided for in rStar’s certificate of incorporation. Pursuant to the terms of rStar’s certificate of incorporation adopted in connection with August 2002 acquisition by rStar of the Starband Latin America business from Gilat, rStar agreed that it would pay a special distribution to its stockholders (other than Gilat) if the Starband Latin America business did not achieve certain earnings targets for either one or both of the years ended June 30, 2003 and June 30, 2004. The earnings targets were satisfied for the year ended June 30, 2003 and, as a result, no special distribution was payable with respect to the period then ended. However, in the event that the net income (as defined in rStar’s certificate of incorporation) of the Starband Latin America business for the period from July 1, 2003 through June 30, 2004 is less than or equal to $11.0 million, the special distribution would be $5.0 million (or approximately $0.32 per rStar share (other than those held by Gilat) including those which are the subject of the negotiated purchase) and if the net income for the Starband Latin America business for the period from July 1, 2003 through June 30, 2004 is greater than $11.0 million and less than or equal to $16.5 million, the special distribution would be $2.5 million (or approximately $0.16 per rStar share (other than those held by Gilat) including those which are the subject of the negotiated purchase). If the applicable net income for the StarBand Latin America Business for the period from July 1, 2003 through June 30, 2004 is greater than $16.5 million, there would be no special distribution. As a result, in addition to no longer participating in the earnings and profits of rStar, unaffiliated public stockholders will not longer benefit from the downside protection provided by the terms of the special distribution.

        Upon completion of the short-form merger, the unaffiliated public stockholders will also not bear the risks of potential decreases in the value of their holdings in rStar based on any downturns in rStar’s future performance. Instead, the unaffiliated public stockholders will have liquidity in the form of the merger consideration in place of an ongoing equity interest in rStar in the form of the shares of rStar common stock. In summary, if the short-form merger is completed, the unaffiliated public stockholders will have no ongoing rights as stockholders of rStar other than statutory appraisal rights in the case of unaffiliated public stockholders who are entitled to and perfect these rights under Delaware law.

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        The shares of rStar Common Stock. If the short-form merger is consummated, public trading of the shares of rStar Common Stock will cease. Gilat intends to delist the rStar common stock from the Nasdaq SmallCap Market and to deregister the rStar common stock under the Exchange Act. As a result, rStar will no longer be required under the federal securities laws to file reports with the SEC and will no longer be subject to the proxy rules under the Exchange Act. In addition, the principal stockholders of rStar will no longer be subject to reporting their ownership of shares of rStar common stock under Section 16 of the Exchange Act or to the requirement under Section 16 of the Exchange Act to disgorge to rStar certain profits from the purchase and sale of shares of rStar common stock.

        Treatment of options and warrants. Pursuant to the terms of the short-form merger, all vested options to purchase rStar common stock will be converted into the right to receive the short-form merger consideration of $0.60 per share. In accordance with the terms of their option agreements, the unvested options held by Samer Salameh (rStar’s Chief Executive Officer), and each of rStar’s directors will lapse upon consummation of the short-form merger. Upon exercise of options, each holder will receive the difference between the exercise price of its options and $0.60 per option share. All warrants to purchase rStar common stock will remain outstanding after the short-form merger in accordance with their terms.

        Directors. The board of directors of Gilat consists of the persons listed in Schedule I to this transaction statement.

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SELECTED FINANCIAL DATA

        The selected consolidated financial information presented below, under the captions “Income Statement Data” for the years ended December 31, 2002, 2001 and 2000 and “Balance Sheet Data” at December 31, 2002 and 2001, have been prepared in accordance with U.S. GAAP and have been derived from rStar’s audited consolidated financial statements included in rStar’s annual report on Form 10-K for the fiscal year ended December 31, 2002, filed with the SEC on April 15, 2003.

        The selected consolidated financial information presented below, under the captions “Income Statement Data” for the nine months ended September 30, 2003 and 2002 and “Balance Sheet Data” at September 30, 2003, have been prepared in accordance with U.S.GAAP and have been derived from rStar’s consolidated financial statements included in rStar’s September 30, 2003 Form 10-Q filed with the SEC on November 14, 2003. Please note that the interim results are not necessarily indicative of results that may be expected for any other period of the year.

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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE GOING-PRIVATE TRANSACTION

        The following is a general summary of the material U.S. federal income tax consequences of the going-private transaction to beneficial owners of shares of rStar Common Stock. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable treasury regulations thereunder, judicial decisions and current administrative rulings as in effect on the date of this Schedule 13E-3. The discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular taxpayers in light of their personal circumstances or to taxpayers subject to special treatment under the Code (for example, financial institutions, real estate investment trusts, regulated investment companies, brokers, dealers or traders in securities or foreign currencies, life insurance companies, foreign corporations, foreign partnerships, foreign estates or trusts, or individuals who are not citizens or residents of the United States and beneficial owners whose shares of rStar Common Stock were acquired pursuant to the exercise of warrants, employee stock options or otherwise as compensation) and does not address any aspect of state, local, foreign or other taxation.

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        The receipt of cash by a stockholder, pursuant to the short-form merger or pursuant to the exercise of the stockholder’s statutory appraisal rights, will be a taxable transaction for U.S. federal income tax purposes and may also be taxable for state and local income tax purposes as well. Accordingly, a stockholder whose shares of rStar common stock are converted, pursuant to the short-form merger, into a right to receive cash will recognize gain or loss equal to the difference between (a) the amount of cash that such stockholder receives in the short-form merger and (b) such stockholder’s adjusted tax basis in such shares of rStar common stock. Such gain or loss will be capital gain or loss, and generally will be long-term capital gain or loss if at the effective date of the short-form merger the stockholder’s holding period for the shares of rStar common stock is more than one year. Holders of shares of rStar common stock should be aware that [______], the paying agent, will be required in certain cases to withhold and remit to the United States Treasury 31% of amounts payable in the short-form merger to any stockholder that (1) has provided either an incorrect tax identification number or no number at all, (2) is subject to backup withholding by the Internal Revenue Service for failure to report the receipt of interest or dividend income properly, or (3) has failed to certify to the paying agent that such stockholder is not subject to backup withholding or that such stockholder is an “Exempt Recipient.” Backup withholding is not an additional tax, but rather may be credited against the taxpayer’s tax liability for the year.

        In general, cash received by unaffiliated public stockholders who exercise statutory appraisal rights in respect of appraisal rights will result in the recognition of gain or loss to the dissenting stockholder. Any such dissenting stockholder should consult with its tax advisor for a full understanding of the tax consequences of the receipt of cash in respect of appraisal rights pursuant to the short-form merger.

        Neither the acquisition subsidiary nor rStar expects to recognize any gain, loss or income by reason of the short-form merger.

        EACH BENEFICIAL OWNER OF SHARES OF RSTAR COMMON STOCK IS URGED TO CONSULT SUCH BENEFICIAL OWNER’S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH BENEFICIAL OWNER OF THE SHORT-FORM MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

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FAIRNESS OF THE GOING-PRIVATE TRANSACTION

        Fairness. We currently own approximately 84.9% of the outstanding shares of rStar common stock and expect to own approximately 94.2% of the outstanding shares of rStar common stock after the consummation of the negotiated purchase. Thus, we may be deemed an “affiliate” of rStar under Rule 12b-2 of the Exchange Act. Accordingly, the rules of the SEC require Gilat to express its belief as to the substantive and procedural fairness of the going-private transaction to the unaffiliated stockholders of rStar. In compliance with Rule 13e-3 under the Exchange Act, our board of directors has considered the fairness of the going-private transaction to the unaffiliated public stockholders.

        On September 16, 2003, our board of directors considered a proposed plan to acquire the minority stockholder interest in rStar through the going-private transaction. Our board of directors then resolved to take rStar private by negotiating the purchase of the shares of certain individual rStar stockholders followed by a short-form merger whereby an acquisition subsidiary of Gilat would acquire for cash, through the short-form merger, all of the shares of rStar common stock held by the unaffiliated public stockholders. At a subsequent meeting of the Board of Directors held on December 17, 2003, our board of directors determined that the $0.60 purchase price in the going-private transaction is fair to the unaffiliated public stockholders.

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        Factors not considered in determining fairness. Gilat did not consider the following factors in determining the fairness of the going-private transaction because they were not considered material to the determination:

        In order to evaluate and reach conclusions in connection with the factors discussed above, we conducted the following analyses:

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        In addition, we intend to retain our majority holdings in rStar, and we do not intend to seek a buyer for rStar in the foreseeable future. This fact foreclosed the opportunity to consider an alternative transaction with a third party purchaser of rStar or otherwise provide liquidity in the form of a third party offer to the unaffiliated public stockholders. Accordingly, it is unlikely that finding a third party buyer for rStar was a realistic option for the unaffiliated public stockholders. We considered the absence of any third party buyer for rStar to support the fairness of the going-private transaction to the unaffiliated public stockholders because the absence of a third party buyer demonstrated that the proposed short-form merger with the acquisition subsidiary was the only likely source of prompt liquidity for the shares of rStar common stock which was simultaneously available to all of the unaffiliated public stockholders.

        Procedural fairness. We also determined that the going-private transaction is procedurally fair to the unaffiliated public stockholders. In making such determination, we considered the fact that the unaffiliated public stockholders who believe that the terms of the short-form merger are not fa