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As filed with the Securities and Exchange Commission on July 2, 2001
Registration No. 333-61524
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BROADBAND PARENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
(Successor to ANTEC Corporation, File No. 000-22336)
DELAWARE 3663 58-2588724
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
11450 TECHNOLOGY CIRCLE
DULUTH, GEORGIA 30097
(678) 473-2000
(Address, Including Zip Code, and Telephone Number, Including
Area Code of Registrant's Principal Executive Offices)
LAWRENCE A. MARGOLIS
11450 TECHNOLOGY CIRCLE
DULUTH, GEORGIA 30097
(678) 473-2000
(Address, Including Zip Code, and Telephone Number, Including Area Codes of
Agent For Service)
With Copies to:
W. BRINKLEY DICKERSON, JR. JAMES R. BURKE
TROUTMAN SANDERS LLP HALE AND DORR LLP
600 PEACHTREE STREET NE, SUITE 5200 60 STATE STREET
ATLANTA, GEORGIA 30308 BOSTON, MASSACHUSETTS 02109
(404) 885-3000 (617) 526-6000
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, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
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ANTEC CORPORATION
[ANTEC LOGO]
PROXY STATEMENT OF ANTEC/PROSPECTUS OF BROADBAND PARENT
PROPOSED TRANSACTION - YOUR VOTE IS IMPORTANT
--------------------------
Dear Stockholders:
We are asking ANTEC stockholders to vote on the purchase of Nortel
Networks LLC's interest in Arris Interactive L.L.C., a developer of broadband
cable access technology, and the reorganization of ANTEC into a holding company
structure in connection with the purchase. If the transaction is approved,
Nortel Networks will receive 37 million shares of common stock of the new
holding company, Broadband Parent Corporation, valued at approximately $431
million based upon the closing price of ANTEC common stock on June 26, 2001, and
each stockholder of ANTEC will receive one share of Broadband Parent common
stock in exchange for each share of ANTEC common stock that the stockholder
owns.
As a result of the proposed transaction, immediately after the
transaction Nortel Networks will own approximately 49% of Broadband Parent and
the current stockholders of ANTEC will own approximately 51% of Broadband
Parent. In addition, Broadband Parent will gain a membership interest in Arris
Interactive while Nortel Networks will own a membership interest in Arris
Interactive that Arris Interactive is required to redeem over approximately five
quarters. For a more detailed explanation of the steps and results of the
transaction, refer to the "Summary" beginning on page 1 and "The Transaction"
beginning on page 38 of this document.
The terms of the transaction are set forth in an Agreement and Plan of
Reorganization, which is included as Appendix I to this document. We cannot
complete the transaction unless ANTEC stockholders approve the Agreement and
Plan of Reorganization. We also are asking stockholders to approve a stock
incentive plan, a management incentive plan and an employee stock purchase plan
for Broadband Parent. Since Broadband Parent is a new corporation, these new
plans are needed to replace similar plans currently in place at ANTEC. However,
completing the transaction is not contingent upon approval of the new plans.
We have scheduled a special meeting for you on July 25, 2001, to vote
on the transaction and each of the plans. The meeting will be held at:
9:00 a.m., local time at
ANTEC Corporation's headquarters at
11450 Technology Circle,
Duluth, Georgia 30097.
Whether or not you plan to attend the meeting, please take the time to
vote by completing the enclosed proxy card and mailing it to us as soon as
possible. If you sign, date and mail your proxy card without indicating how you
want to vote, your card will be counted as a vote in favor of the transaction
and in favor of each of the plans. If you fail to return your card, the effect
will be a vote against the transaction and will not count as either a vote for
or against each of the plans.
This document provides you with detailed information about the
transaction and the proposed stock plans. We encourage you to read this entire
document carefully. Broadband Parent is offering approximately 38,200,000 shares
for sale pursuant to this document. These shares will be listed on the Nasdaq
National Market System under the symbol "ARRS".
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS DOCUMENT FOR A
DESCRIPTION OF CERTAIN RISKS ASSOCIATED WITH THE TRANSACTION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE TRANSACTION, THE COMMON STOCK TO BE ISSUED IN THE
TRANSACTION, OR THE FAIRNESS OF THE TRANSACTION, OR DETERMINED IF THIS DOCUMENT
IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This document is dated July 2, 2001, and it is first being mailed to
stockholders on or about July 3, 2001.
Sincerely yours,
Robert Stanzione, President
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TABLE OF CONTENTS
PAGE
----
SUMMARY............................................................................1
RISK FACTORS......................................................................13
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS.......................20
THE SPECIAL MEETING...............................................................21
BROADBAND PARENT - THE COMBINED COMPANY...........................................24
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION................................25
THE TRANSACTION...................................................................38
DIRECTORS AND MANAGEMENT OF BROADBAND PARENT FOLLOWING THE TRANSACTION............51
INTERESTS OF ANTEC EXECUTIVE OFFICERS AND DIRECTORS IN THE TRANSACTION............54
THE PLAN OF REORGANIZATION........................................................55
OTHER AGREEMENTS..................................................................63
STOCK OWNERSHIP OF ANTEC AND BROADBAND PARENT.....................................69
DESCRIPTION OF BROADBAND PARENT CAPITAL STOCK FOLLOWING THE TRANSACTION...........72
COMPARISON OF STOCKHOLDERS' RIGHTS................................................74
DESCRIPTION OF ARRIS INTERACTIVE..................................................75
APPROVAL OF 2001 STOCK INCENTIVE PLAN.............................................90
APPROVAL OF MANAGEMENT INCENTIVE PLAN.............................................92
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN..........................................94
LEGAL MATTERS.....................................................................96
EXPERTS...........................................................................96
FUTURE STOCKHOLDER PROPOSALS......................................................96
WHERE YOU CAN FIND MORE INFORMATION...............................................96
TRADEMARKS........................................................................97
INDEX TO FINANCIAL STATEMENTS....................................................F-1
APPENDIX I AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX II OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
APPENDIX III 2001 STOCK INCENTIVE PLAN
APPENDIX IV MANAGEMENT INCENTIVE PLAN
APPENDIX V EMPLOYEE STOCK PURCHASE PLAN
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SUMMARY
We have summarized below the proposed transaction by ANTEC and Arris
Interactive, information regarding the special meeting of stockholders that has
been called for you to vote upon the transaction, and the proposed benefit plans
that we also would like you to vote upon at the meeting. For a more complete
description of the transaction, we recommend that you read carefully this entire
document, and we have included page references parenthetically to direct you to
more complete descriptions of the topics presented in this summary. The
agreement and plan of reorganization is included as Appendix I to this document.
It is the legal document that governs the transaction, and we encourage you to
read it as well.
THE PRIMARY PARTIES
ANTEC CORPORATION
11450 TECHNOLOGY CIRCLE
DULUTH, GEORGIA 30097
(678) 473-2000
ANTEC Corporation is an international communications technology company
serving the broadband information transport industry. ANTEC specializes in the
manufacturing and distribution of products for hybrid fiber-coax broadband
networks, as well as the design and engineering of these networks. A hybrid
fiber-coax network is an optical and electronic network used to distribute cable
television signals, cable telephony and data, and consists of both fiber optic
lines (from a central office to an intermediate distribution point) and coaxial
cable (from the distribution point to the homes served).
Headquartered in Duluth, Georgia, ANTEC has:
- major offices in Duluth, Georgia and Englewood, Colorado;
- manufacturing facilities in Juarez, Mexico, El Paso, Texas, and Rock
Falls, Illinois; and
- sales offices in Europe, Asia/Pacific and Latin America.
Immediately prior to the closing of the transaction, ANTEC will own an
18.75% interest in Arris Interactive.
ARRIS INTERACTIVE L.L.C.
3871 LAKEFIELD DRIVE
SUWANEE, GEORGIA 30024
(770) 622-8400
Arris Interactive is a joint venture between Nortel Networks LLC and
ANTEC that develops products for delivering voice and data services over hybrid
fiber-coax networks. Headquartered in Suwanee, Georgia, Arris Interactive has
over 1,300,000 working lines of its Cornerstone family of telephony products
currently deployed worldwide with more than 26 system operators in 42 cities in
11 global markets and capacity for over 12 million telephone or data lines.
Arris Interactive sells its products solely through ANTEC and Nortel Networks
LLC.
NORTEL NETWORKS LLC
200 ATHENS WAY
NASHVILLE, TENNESSEE 37228
(615) 734-4000
Nortel Networks LLC is a wholly-owned subsidiary of Nortel Networks
Inc. and an indirect subsidiary of Nortel Networks Corporation. Nortel Networks
Corporation is a global Internet and communications equipment provider with
capabilities spanning optical, wireless, local Internet and e-business. Through
Nortel Networks LLC, Nortel Networks Inc. will own an 81.25% interest in Arris
Interactive immediately prior to the closing of the transaction. For
convenience, this document uses "Nortel Networks" to refer to all of Nortel
Networks Corporation, Nortel Networks Inc. and Nortel Networks LLC and specifies
the specific entity only where material.
BROADBAND PARENT CORPORATION
11450 TECHNOLOGY CIRCLE
DULUTH, GEORGIA 30097
(678) 473-2000
Broadband Parent recently was formed by ANTEC to be the holding company
for ANTEC and Arris Interactive following the transaction. Broadband Parent
currently does not conduct any business or have any assets but has a subsidiary,
Broadband Transition, that will merge with and into ANTEC as part of the
transaction.
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THE TRANSACTION (SEE PAGE 38)
The transaction involves the creation of a new holding company,
currently named Broadband Parent Corporation, and two integrated, concurrent
transactions:
- In one transaction, a wholly-owned subsidiary of Broadband Parent will
merge with and into ANTEC. As a result of this transaction, ANTEC will
continue to exist, retaining its historical assets and liabilities, but
rather than being an independent, publicly traded company, it will
instead be a subsidiary of Broadband Parent. ANTEC stockholders will
receive one share of Broadband Parent common stock for each share of
ANTEC common stock that they own.
- In the other transaction, Broadband Parent will acquire Nortel
Networks' interest in Arris Interactive in return for 37 million shares
of Broadband Parent common stock. Current indebtedness of Arris
Interactive to Nortel Networks and indirectly in part to ANTEC of
approximately $124 million will be canceled as a contribution to the
capital of Arris Interactive. Nortel Networks also will convert at the
closing payables and royalties due from, and advances made to, Arris
Interactive, estimated to be approximately $90 million, into a new
membership interest in Arris Interactive.
At the time of these transactions, Broadband Parent will be renamed Arris Group,
Inc.
As a result of these transactions:
- Nortel Networks will own approximately 49% of Broadband Parent
immediately after the transaction;
- Current stockholders of ANTEC will own approximately 51% of
Broadband Parent immediately after the transaction; and
- Nortel Networks will own 100% of a new membership interest in
Arris Interactive that Arris Interactive is required to redeem
over approximately five quarters.
Overall, the consideration to be paid for Arris Interactive consists
primarily of 37 million shares of stock, which based upon the closing price of
ANTEC's common stock on June 26, 2001, had a value of approximately $431
million.
The following illustrates the ownership of ANTEC, Broadband Parent and
Arris Interactive before and immediately after the transaction:
BEFORE TRANSACTION
[GRAPH]
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AFTER TRANSACTION
[GRAPH]
WHAT YOU WILL RECEIVE IN THE TRANSACTION (SEE PAGE 38)
ANTEC stockholders will receive one share of Broadband Parent common
stock in exchange for each share of ANTEC common stock that they own.
You should not send in your stock certificates until we instruct you to
do so after we complete the transaction.
Under Delaware law, ANTEC stockholders are not entitled to appraisal
rights.
NO MATERIAL DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS (SEE PAGE 74)
Upon completion of the transaction, your rights as stockholders of
Broadband Parent will be governed by Broadband Parent's charter and bylaws.
Broadband Parent's charter and bylaws do not differ in any material respects
from ANTEC's charter and bylaws, except that Broadband Parent's charter
authorizes the issuance of a greater number of shares of common stock.
MATERIAL TAX CONSEQUENCES (SEE PAGE 45)
As discussed more fully under the heading "Material Federal Income Tax
Consequences," we have received an opinion of Troutman Sanders LLP that the
transaction involving the merger of a wholly-owned subsidiary of Broadband
Parent with and into ANTEC will be treated as a reorganization for federal
income tax purposes. The transaction has been structured so that you will not
recognize a gain or loss upon the exchange of our shares solely for Broadband
Parent shares and your aggregate tax basis in the Broadband Parent common stock
that you receive in the transaction generally will be the same as your aggregate
tax basis in the stock surrendered in the transaction.
Tax matters are very complicated, and the tax consequences of the
transaction to you will depend on the facts of your own situation. You should
consult your
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tax advisor for a full understanding of the tax consequences of the transaction
to you.
ACCOUNTING TREATMENT (SEE PAGE 45)
The transaction will be accounted for under the purchase method of
accounting, and ANTEC will be the acquiror for accounting purposes.
BOARD OF DIRECTORS AND MANAGEMENT OF BROADBAND PARENT FOLLOWING THE TRANSACTION
(SEE PAGES 51 THROUGH 53)
Following the transaction, Broadband Parent's board of directors will
consist of 13 directors, two of whom will be designated by Nortel Networks. The
remaining directors will be the directors on ANTEC's board of directors
immediately prior to the transaction. In addition, the executive officers of
ANTEC will become executive officers of Broadband Parent.
OUR REASONS FOR THE TRANSACTION (SEE PAGES 42 THROUGH 44)
By acquiring Arris Interactive, we believe that:
- we will be able to substantially enhance our strategic
position to capture the potential upside from the anticipated
growth in converged telecommunication networks offering both
cable telephony and high-speed data, and
- we will be able to pursue the development of Arris Interactive
without the cumbersome joint venture structure currently in
place which, effectively, provides Nortel Networks with
substantial control over the joint venture.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 47)
ANTEC engaged Donaldson, Lufkin & Jenrette Securities Corporation, the
successor of which is Credit Suisse First Boston Corporation, which we refer to
in this document as CSFB, to act as ANTEC's financial advisor for the
transaction. On February 5, 2001, CSFB delivered its oral opinion to ANTEC's
board of directors, subsequently confirmed in writing by letter dated February
5, 2001, that, based upon and subject to the limitations, assumptions and
qualifications set forth in the opinion, as of the date of the opinion, the
consideration to be paid by Broadband Parent, consisting of 37 million shares of
Broadband Parent common stock, to Nortel Networks in exchange for Nortel
Networks' entire interest in Arris Interactive was fair, from a financial point
of view, to ANTEC and holders of ANTEC common stock. We have attached the
opinion of CSFB as Appendix II to this document and encourage you to read it in
its entirety.
CONDITIONS
The transaction is subject to the fulfillment of a number of
conditions, most of which are customary for transactions of this nature. One of
the most significant of these conditions is that ANTEC must obtain financing for
the ongoing needs of the combined business.
INTERESTS OF ANTEC'S OFFICERS AND DIRECTORS IN THE TRANSACTION (SEE PAGE 54)
You should be aware that a number of executive officers and directors
of ANTEC have interests in the transaction that are different from, or in
addition to, your interests. These interests include employment or severance
agreements, stock options and arrangements for their continuation as directors
or officers of Broadband Parent.
RECOMMENDATIONS TO STOCKHOLDERS (SEE PAGE 44)
The ANTEC board of directors believes that the transaction is in the
best interests of its stockholders and recommends that you vote "FOR" the
transaction.
THE SPECIAL MEETING (SEE PAGE 21)
We will hold the special meeting on July 25, 2001, at 9:00 a.m., local
time, at ANTEC's headquarters at 11450 Technology Circle, Duluth, Georgia 30097
to consider and vote on the transaction. At the special meeting, ANTEC
stockholders also will be asked to approve the 2001 Stock Incentive Plan, the
Management Incentive Plan and the Employee Stock Purchase Plan.
RECORD DATE; VOTING POWER (SEE PAGE 21)
You may vote at the stockholders meeting if you owned shares of ANTEC
common stock at the close of business on May 31, 2001. For each share of common
stock that you own on that date, you will have one vote on each proposal to be
presented at the meeting. On May 31, 2001, approximately 38,168,398 shares of
ANTEC common stock were outstanding.
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VOTES REQUIRED TO APPROVE THE TRANSACTION (SEE PAGE 21)
Approval of the transaction requires the affirmative vote of a majority
of the total shares entitled to vote.
VOTING AGREEMENTS (SEE PAGE 21)
Each of ANTEC's officers and directors, with the exception of John
(Ian) Anderson Craig, who will be abstaining from voting on the transaction due
to his prior affiliation with Nortel Networks, has entered into a voting
agreement in which that person has agreed to vote his shares of ANTEC common
stock in favor of the transaction. The aggregate number of shares represented by
these officers and directors was approximately 2,421,444 as of May 31, 2001,
which is approximately 6.3% of all shares of ANTEC common stock outstanding as
of that date.
In addition, AT&T has advised ANTEC that it intends to vote all of its
shares of ANTEC common stock in favor of the transaction. AT&T owns 6,827,000
shares of ANTEC common stock, which is approximately 17.9% of all shares of
ANTEC common stock outstanding as of May 31, 2001. Following the transaction
AT&T is expected to own approximately 10% of the shares.
RISKS ASSOCIATED WITH THE TRANSACTION (SEE PAGE 13)
You should be aware of and carefully consider the risks relating to the
transaction described under "Risk Factors." These risks include the possible
difficulties in integrating the operations of Arris Interactive with ANTEC's
operations.
RECENT ANNOUNCEMENT BY NORTEL NETWORKS REGARDING ACCESS SOLUTIONS BUSINESS
On June 15, 2001, Nortel Networks announced its decision to discontinue
its access solutions business operation, which includes Arris Interactive and
following the transaction would include its ownership interest in Broadband
Parent. As a result, Nortel Networks has informed ANTEC that, once its
membership interest in Arris Interactive is exchanged for the Broadband Parent
common stock as a result of this transaction, it may, among other things, sell a
substantial percentage of its Broadband Parent common stock within the next
twelve months and, to facilitate this, may exercise its demand registration
rights from time to time.
For the six months ended March 31, 2001, approximately 42.1% of Arris
Interactive's sales were to Nortel Networks. As part of the transaction, Nortel
Networks will become a sales representative for Arris Interactive's products,
rather than act as a distributor of those products, and has agreed to serve in
that sales representative role through December 31, 2001, for certain North
American customers, and December 31, 2003, for international markets. ANTEC is
in the process of developing its own distribution infrastructure to replace
Nortel Networks' infrastructure after these dates and, as a result of Nortel
Networks' announcement, to supplant Nortel Networks' infrastructure prior to
these dates, if necessary.
APPROVAL OF BENEFIT PLANS (SEE PAGES 90 THROUGH 96)
Although ANTEC has various benefits plans for its employees, these
plans generally do not cover future grants for Broadband Parent common stock and
do not extend to employees of Broadband Parent or Arris Interactive. As a
result, Broadband Parent is seeking stockholder approval for a stock incentive
plan, a management incentive plan and an employee stock purchase plan. The terms
of these plans are substantially similar to ANTEC's current plans, except that
the new stock incentive plan and employee stock purchase plan provides for a
greater number of shares of stock. Copies of the plans are attached as
Appendices III, IV and V to this document. Approval of each of the plans
requires the affirmative vote of a majority of the total votes cast at the
special meeting. Approval of the transaction is not contingent upon the approval
of the plans.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND INFORMATION
ANTEC's common stock trades on the Nasdaq National Market System under
the symbol "ANTC." Following the transaction, Broadband Parent common stock will
trade on the Nasdaq National Market System under the symbol "ARRS". There is no
established public trading market for the membership interests in Arris
Interactive.
The following table reports the high and low trading prices per share
of ANTEC common stock on the Nasdaq National Market System.
ANTEC Common Stock
---------------------------
High Low
---------------------------
1999
First Quarter ............................... $ 29.6875 $ 18.00
Second Quarter .............................. 34.1875 19.00
Third Quarter ............................... 55.25 29.625
Fourth Quarter .............................. 60.25 23.25
2000
First Quarter ............................... $ 61.25 $ 28.9375
Second Quarter .............................. 57.00 34.375
Third Quarter ............................... 50.00 20.4375
Fourth Quarter .............................. 29.75 6.875
2001
First Quarter ............................... $ 14.375 $ 6.625
Second Quarter (through June 26, 2001)....... 15.76 5.25
On October 17, 2000, the last full trading day prior to the public
announcement of the transaction, the last reported sale price was $19.9375 per
share for ANTEC common stock. On June 26, 2001, the last reported sale price was
$11.64 per share for ANTEC common stock. We urge you to obtain current market
quotations prior to making any decision with respect to the transaction.
Post-transaction Dividend Policy. Following the transaction, Broadband
Parent does not have any immediate plans to pay dividends on its common stock.
Any payment of dividends in the future will be at the discretion of the
Broadband Parent board of directors and will be determined after consideration
of various factors, including the earnings and financial condition of Broadband
Parent and its subsidiaries. Further, as part of the transaction, Broadband
Parent will enter into a new credit agreement. We expect that the terms of the
credit facility will restrict Broadband Parent's ability to pay dividends. See
"Other Agreements -- New Credit Facility" on page 67.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the transaction. This information is only a
summary and you should read it together with the historical financial statements
of ANTEC and Arris Interactive and the related notes. The historical financial
statements of ANTEC and related notes (as restated) are included in ANTEC's Form
10-Q/A for the quarter ended March 31, 2001 and Form 10-K/A for the year ended
December 31, 2000, which are incorporated by reference into this document. The
historical financial statements of Arris Interactive and related notes (as
restated) are included elsewhere in this document. The selected financial data
of Arris Interactive as of and for the three month periods ended March 31, 2001
and 2000 are derived from unaudited financial statements included herein, which,
in the opinion of management, reflect all adjustments necessary for a fair
presentation of the results for the interim periods.
The historical financial information reflects the following items which
you should consider in making period-to-period comparisons:
ANTEC
- In 2000, the Emerging Issues Task Force reached a consensus on
EITF No. 00-10, Accounting for Shipping and Handling Fees and
Costs that states all amounts billed to a customer in a sale
transaction related to shipping and handling represent revenue
earned for the goods provided and should be classified as
revenue. Historically, ANTEC has not included amounts billed
to customers for shipping and handling as revenue. These
amounts were not previously recorded as revenue and the
related costs as cost of sales because they were netted as
pass-through expenses, reimbursed in total by ANTEC's
customers. Charges for shipping and handling billed to
customers in 1998, 1997 and 1996 are not readily available or
separately maintained, making it impracticable to reclassify
these financial statements. For the three months ended March
31, 2001 and 2000, shipping and handling costs, in the
aggregate, were approximately $1.8 million and $6.2 million,
respectively, and were appropriately reflected in net sales
and cost of sales. For the years ended December 31, 2000 and
1999, shipping and handling costs, in the aggregate, were
approximately $20.0 million and $18.2 million, respectively,
and were appropriately reclassified to net sales and cost of
sales. See note 3 and note 4 of the notes to the ANTEC
consolidated financial statements for the quarter ended March
31, 2001 and the year ended December 31, 2000, respectively.
- In the first quarter of 2000, ANTEC recorded a pre-tax gain of
$2.1 million realized as a result of the curtailment of
ANTEC's defined benefit pension plan. See note 14 of the notes
to the ANTEC consolidated financial statements for the year
ended December 31, 2000.
- In the fourth quarter of 1999, in conjunction with the
consolidation of its New Jersey facility to Georgia and the
Southwest, and with the discontinuance of certain product
offerings, ANTEC recorded pre-tax charges of approximately
$16.0 million. The charges included approximately $2.6 million
related to personnel costs and approximately $3.0 million
related to lease termination and other charges. The charges
also included an elimination of product lines resulting in an
inventory obsolescence charge totaling approximately $10.4
million, which has been reflected in cost of sales. During the
second quarter of 2000, ANTEC booked an additional $3.5
million pre-tax charge for product discontinuation costs as an
increase to cost of goods sold, related to this fourth quarter
1999 reorganization. See note 4 and note 5 of the notes to the
ANTEC consolidated financial statements for the quarter ended
March 31, 2001 and the year ended December 31, 2000,
respectively.
- In the first quarter of 1999, ANTEC and Nortel Networks
completed the combination of the Broadband Technology Division
of Nortel Networks, which we refer to as LANcity, with Arris
Interactive. At the expiration of that period, no further
dilution of ANTEC's interest occurred, and, based upon the
initial independent valuation, ANTEC, as previously disclosed,
recorded a one-time, pre-tax, non-cash gain of $60.0 million,
net of $2.5 million of transaction-related expenses, based on
an independent valuation of LANcity. The transaction was
accounted for as if it were a gain on the sale by ANTEC of a
12.50% interest in Arris Interactive to Nortel Networks in
exchange for 12.50% of LANcity and deferred income taxes were
provided on the gain. ANTEC's interest in Arris Interactive
was subject to further dilution based on its performance over
the 18-month period ended June 30, 2000. At the expiration of
that period, no further dilution of ANTEC's interest occurred,
and, based upon the initial independent valuation, ANTEC
previously recorded an additional one-time, pre-tax, non-cash
gain of $31.25 million to reflect its final ownership
percentage in the joint venture of 18.75% and deferred
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income taxes were provided on the gain. ANTEC has restated its
consolidated financial statements for the years ended December
31, 2000 and 1999 by eliminating the gain of $31.25 million
and $62.5 million, respectively, recorded on the LANcity
transaction in the second quarter of the year ended December
31, 2000 and the first quarter of the year ended December 31,
1999. The gains previously recorded for the years ended
December 31, 2000 and 1999 were based on the fair value of the
LANcity assets contributed to Arris Interactive by Nortel
Networks. Upon further review, in connection with the pending
acquisition of Nortel Networks' interest in Arris Interactive,
ANTEC determined that Arris Interactive accounted for the
contribution of LANcity into Arris Interactive at historical
cost in a manner similar to a pooling of interests since
LANcity and Arris Interactive were under the common control of
Nortel Networks. Accordingly, ANTEC revised its accounting for
the LANcity transaction to be consistent with the accounting
by Arris Interactive. As Arris Interactive continued to have a
deficit in members' equity subsequent to the LANcity
transaction and ANTEC's accounting for the transaction is
predicated on the accounting by Arris Interactive, ANTEC has
eliminated its one-time, pre-tax, non-cash gain on the LANcity
transaction. See note 2 of the notes to the ANTEC consolidated
financial statements for the year ended December 31, 2000.
- In the first quarter of 1998, in connection with the
consolidation of ANTEC's corporate and administrative
functions, ANTEC recorded a pre-tax charge of approximately
$10.0 million. The charge included approximately $7.6 million
related to personnel costs and approximately $2.4 million
related to lease termination and other costs. During the
fourth quarter of 1998, the restructuring charge was reduced
by $0.9 million as a result of the ongoing evaluation of the
estimated costs associated with these actions. See note 5 of
the notes to the ANTEC consolidated financial statements for
the year ended December 31, 2000.
- In the first quarter of 1997, in connection with its
combination with TSX Corporation, ANTEC recorded pre-tax
transaction/integration costs aggregating approximately $28.0
million. Included in the transaction/integration charge was a
write-off of redundant inventories totaling approximately $6.5
million that has been reflected in cost of sales. The
combination with TSX was accounted for as a pooling of
interests. See note 5 of the notes to the ANTEC consolidated
financial statements for the year ended December 31, 2000.
- Prior to the combination of ANTEC and TSX, TSX's fiscal year
ended on April 30 and ANTEC's fiscal year ended on December
31. In connection with the combination, TSX's historical
financial statements for periods prior to December 31, 1996
were adjusted to be within 93 days of ANTEC's year-end.
Consequently, ANTEC's statements of operations for the year
ended December 31, 1996 represent ANTEC's fiscal period ended
on that date combined with TSX's twelve months ended the last
Saturday in October 1996. All intercompany sales between TSX
and ANTEC were eliminated.
Arris Interactive
- In the first quarter of 1999, in connection with the
combination of LANcity with Arris Interactive, Nortel Networks
increased its membership interest in Arris Interactive from
75% to 81.25%. Since Nortel Networks owned all of LANcity and
had majority control of Arris Interactive, the sale of LANcity
to Arris Interactive was accounted for in a manner similar to
a pooling of interests. Accordingly, the 1999 and 1998
financial statements of Arris Interactive have been restated
to include the results of operations (which includes a
purchased in-process research and development charge of
$71,500,000 in 1998), financial position and cash flows of
LANcity since August 31, 1998, the date on which Nortel
Networks acquired LANcity.
- As consideration for increasing Nortel Networks' membership
interest in Arris Interactive from 75% to 81.25%, Arris
Interactive received cash of $15,000,000, inventories, fixed
assets and forgiveness of intercompany payables. The
allocation of profit and loss and cash flows of Arris
Interactive is defined in its operating agreement and related
documents. This agreement generally results in a sharing of
ongoing working capital requirements and profit and loss by
ANTEC and Nortel Networks based on initial membership
interests up until March 31, 1999 and adjusted thereafter to
reflect Nortel Networks' sale of LANcity to Arris Interactive
for an increase from 75% to 81.25% of members' capital
deficiency.
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ANTEC CORPORATION
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
Three Months Ended
Year Ended December 31, March 31, (unaudited)
------------------------------------------------------------- ----------------------
2000 1999 1998 1997 1996 2001 2000
--------- --------- --------- --------- --------- --------- ---------
(Restated) (Restated) (Restated) (Restated)
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Net sales ............................ $ 998,730 $ 844,756 $ 546,767 $ 480,078 $ 690,877 $ 212,788 $ 256,571
Cost of sales ........................ 812,958 679,774 404,999 365,860 511,646 180,697 205,291
--------- --------- --------- --------- --------- --------- ---------
Gross profit ....................... 185,772 164,982 141,768 114,218 179,231 32,091 51,280
Operating expenses:
Selling, general
administrative and
development expenses.............. 133,988 111,937 105,643 110,803 125,997 35,205 30,731
Amortization of goodwill ........... 4,917 4,946 4,910 4,927 4,981 1,229 1,229
Restructuring and other charges .... -- 5,647 9,119 21,550 2,109 -- --
--------- --------- --------- --------- --------- --------- ---------
138,905 122,530 119,672 137,280 133,087 36,434 31,960
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) .............. 46,867 42,452 22,096 (23,062) 46,144 (4,343) 19,320
Other expenses (income):
Interest expense ................... 11,053 12,406 9,337 6,264 8,037 2,746 2,598
Other (income) expense, net ........ 87 (745) (977) (348) (951) 254 273
Loss on marketable securities ...... 773 275 -- -- 450 359 --
(Gain) on sale of Canadian
business ......................... -- -- -- -- (3,835) -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax
expense (benefit) ................ 34,954 30,516 13,736 (28,978) 42,443 (7,702) 16,449
Income tax expense (benefit) ......... 14,285 13,806 7,911 (7,534) 16,083 (3,202) 6,722
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) .................... $ 20,669 $ 16,710 $ 5,825 $ (21,444) $ 26,360 $ (4,500) $ 9,727
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share:
Basic .............................. $ 0.54 $ 0.46 $ 0.16 $ (0.55) $ 0.69 $ (0.12) $ 0.26
========= ========= ========= ========= ========= ========= =========
Diluted ............................ $ 0.52 $ 0.43 $ 0.15 $ (0.55) $ 0.67 $ (0.12) $ 0.24
========= ========= ========= ========= ========= ========= =========
Weighted average common shares:
Basic .............................. 37,965 36,600 37,195 38,751 38,286 38,252 37,691
========= ========= ========= ========= ========= ========= =========
Diluted ............................ 39,571 38,867 38,751 38,751 39,523 38,252 44,513
========= ========= ========= ========= ========= ========= =========
CASH FLOWS DATA:
Cash flows provided by (used in)
operating activities ............. $ 4,722 $ (4,276) $ (28,696) $ 26,809 $ 28,089 $ 12,419 $ (2,325)
Cash flows (used in) investment
activities ....................... (23,696) (20,802) (22,973) (20,549) (1,567) (2,797) (4,258)
Cash flows provided by (used in)
financing activities ............. 24,791 23,613 48,861 (26,414) (13,199) (9,346) 9,944
OTHER FINANCIAL DATA:
Capital expenditures ................. $ 15,498 $ 20,802 $ 16,757 $ 12,841 $ 10,502 $ 2,797 $ 4,258
BALANCE SHEET DATA (AT PERIOD END):
Current assets ....................... $ 490,152 $ 460,537 $ 302,061 $ 209,061 $ 282,491 $ 506,344 $ 455,954
Property, plant and equipment, net ... 53,353 51,406 41,612 36,108 35,947 52,535 52,379
Total assets ......................... 731,495 700,541 532,645 443,883 510,249 744,896 697,322
Current liabilities .................. 184,231 205,537 101,867 75,759 97,203 289,825 184,110
Long-term debt ....................... 204,000 183,500 181,000 72,339 102,658 115,000 191,500
Total equity ......................... 341,902 309,338 249,778 295,785 310,388 338,709 321,712
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ARRIS INTERACTIVE
SUMMARY HISTORICAL FINANCIAL INFORMATION
----------------------------------------------------------- Three Months Ended
Year Ended December 31, March 31, (unaudited)
----------------------------------------------------------- ----------------------
2000(1) 1999(1) 1998(1) 1997 1996 2001(1) 2000(1)
--------- --------- --------- -------- -------- --------- ---------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net revenues ...................... $ 561,468 $ 370,168 $ 116,963 $ 15,299 $ 23,139 $ 100,502 $ 105,067
Cost of revenues .................. 423,388 267,389 92,441 25,183 29,029 89,311 81,775
--------- --------- --------- -------- -------- --------- ---------
Gross profit (loss) ............... 138,080 102,779 24,522 (9,884) (5,890) 11,191 23,292
Operating expenses:
Selling, general,
administrative and
development expenses ........... 100,730 69,475 109,752 21,941 40,051 23,319 18,748
Loss (gain) on equipment
disposal ....................... 250 1,130 -- (5) 225 -- --
--------- --------- --------- -------- -------- --------- ---------
Operating income (loss) ........... 37,100 32,174 (85,230) (31,820) (46,166) (12,128) 4,544
Other expenses (income):
Interest (income) ................. (2,189) (1,348) (338) (213) (54) (421) (507)
Interest expenses ................. 9,884 8,432 7,807 5,219 1,782 2,789 2,395
Other, net ........................ -- 617 53 (400) -- -- --
--------- --------- --------- -------- -------- --------- ---------
Net income (loss) ................. $ 29,405 $ 24,473 $ (92,752) $(36,426) $(47,894) $ (14,496) $ 2,656
========= ========= ========= ======== ======== ========= =========
CASH FLOWS DATA:
Cash flows from (used by)
operating activities ......... $ 11,873 $ 12,834 $ (6,305) $(24,902) $(38,317) $ (235) $ 14,082
Cash flows used in investment
activities ................... (19,986) (9,011) (11,582) (1,703) (2,495) (2,444) (2,793)
Cash flows from financing
activities ................... -- 12,460 23,968 22,028 46,821 8,000 --
OTHER FINANCIAL DATA:
Capital expenditures .............. $ 19,986 $ 9,526 $ 11,582 $ 3,208 $ 2,495 $ 2,444 2,793
BALANCE SHEET DATA (AT PERIOD
END):
Current assets .................... $ 242,813 $ 145,506 $ 34,906 $ 7,928 $ 20,822 $ 240,664 $ 174,379
Property, plant and
equipment, net ............... 26,445 14,240 9,731 4,387 3,711 26,342 15,886
Total assets ...................... 269,942 160,874 46,855 13,500 24,533 267,611 191,430
Current liabilities ............... 163,700 91,607 21,647 17,019 19,317 155,104 119,716
Long-term liabilities ............. 135,099 127,529 123,490 89,696 62,005 155,860 127,320
Members' capital deficiency ....... (28,857) (58,262) (98,282) (93,215) (56,789) (43,353) (55,606)
(1) As restated. See Note 11 to the Arris Interactive L.L.C. financial
statements.
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
We present below summary unaudited pro forma combined financial
information for ANTEC and Arris Interactive to give effect to the transaction.
This summary unaudited pro forma combined financial information is derived from
the historical financial statements and related notes thereto of ANTEC and Arris
Interactive, which are incorporated by reference or included elsewhere in this
document. This information assumes the transaction was consummated at the
beginning of the applicable period, in the case of statement of operations data,
and at period end, in the case of balance sheet data. This information is
presented for illustrative purposes only and does not purport to represent what
the financial position or results of operations of ANTEC, Arris Interactive or
the combined company would actually have been had the transaction occurred at
the applicable dates, or to project ANTEC's, Arris Interactive's or the combined
company's results of operations for any future period or date. The data set
forth below should be read together with the unaudited pro forma combined
financial statements and the separate historical financial statements and notes
thereto of ANTEC (as restated) and Arris Interactive (as restated), which are
incorporated by reference or included elsewhere in this document.
Year Ended Three Months
December 31, 2000 Ended March 31, 2001
----------------- --------------------
(in thousands, except (in thousands, except
per share amounts) per share amounts)
STATEMENT OF OPERATIONS DATA:
Net sales .......................................... $ 1,293,602 $ 237,201
Cost of sales ...................................... 947,048 186,763
----------- ----------
Gross profit ....................................... 346,554 50,438
Operating expenses:
Selling, general and administrative ............ 134,480 35,085
Research and development ....................... 100,238 23,439
Amortization of intangibles .................... 45,970 11,492
----------- ----------
Total operating expenses ................... 280,688 70,016
----------- ----------
Operating income (loss) ............................ 65,866 (19,578)
Other expense (income):
Interest expense ............................... 11,053 2,746
Other (income) expense, net .................... (1,182) 5
Loss on marketable securities .................. 773 359
----------- ----------
Income (loss) before income tax expense ............ 55,222 (22,688)
Income tax expense (benefit) ....................... 24,129 (8,441)
----------- ----------
Net income (loss) .................................. 31,093 (14,247)
Return on new membership interest .................. (3,736) (2,205)
----------- ----------
Net income (loss) attributable to common stock ..... $ 27,357 $ (16,452)
=========== ==========
Net income (loss) per common share:
Basic .......................................... $ 0.36 $ (0.22)
=========== ==========
Diluted ........................................ $ 0.36 $ (0.22)
=========== ==========
Weighted average common shares:
Basic .......................................... 74,965 75,252
=========== ==========
Diluted ........................................ 76,571 75,252
=========== ==========
BALANCE SHEET DATA (AT MARCH 31, 2001):
Current assets ..................................... $ 650,341
Property, plant and equipment, net ................. 78,877
Total assets ....................................... 1,071,382
Current liabilities ................................ 287,557
Long-term debt ..................................... 115,000
New membership interest in Arris Interactive ....... 88,500
Total stockholders' equity ......................... 532,461
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED
PER SHARE AND DIVIDEND INFORMATION
The following table summarizes the per share information for ANTEC on a
historical and unaudited pro forma combined basis after giving effect to the
transaction. The unaudited pro forma per share data, which are derived from the
unaudited pro forma combined financial statements and notes beginning on page 25
of this document, do not purport to represent what the financial position or
results of operations of ANTEC or the combined company would actually have been
had the transaction occurred at the beginning of the applicable period, in the
case of statement of operations data, or at period end, in the case of balance
sheet data. The pro forma per share data also do not purport to project ANTEC's
or the combined company's results of operations for any future period or date.
The data set forth below should be read together with the unaudited pro forma
combined financial statements and the separate historical financial statements
and notes thereto of ANTEC (as restated) and Arris Interactive (as restated),
which are incorporated by reference or included elsewhere in this document.
Per share and dividend information for Arris Interactive is not
presented because Arris Interactive is a limited liability company and does not
have shares of stock like a corporation. For information about Arris
Interactive's financial position and results of operations please see Arris
Interactive's historical financial statements and notes thereto (as restated),
which are included elsewhere in this document.
At or for the At or for the
Year Ended Three Months Ended
December 31, 2000 March 31, 2001
----------------- --------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
(Restated)
ANTEC
Book value per share ........................................... $ 8.97 $ n/a $ 8.89 $ 7.09
====== ===== ====== ======
Cash dividends declared per share .............................. -- -- -- --
====== ===== ====== ======
Income (loss) per basic share from continuing operations ....... 0.54 0.36 (0.12) (0.22)
====== ===== ====== ======
Income (loss) per diluted share from continuing operations ..... 0.52 0.36 (0.12) (0.22)
====== ===== ====== ======
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RISK FACTORS
In deciding whether to approve the transaction, you should consider the
following risks related to the transaction and to your investment in Broadband
Parent following the transaction. You should consider carefully these risks
along with the other information in this document and the documents to which we
have referred you.
FACTORS RELATING TO THE TRANSACTION
BROADBAND PARENT MAY ENCOUNTER DIFFICULTIES IN INTEGRATING THE OPERATIONS OF
ANTEC AND ARRIS INTERACTIVE AND MAY NOT FULLY ACHIEVE, OR ACHIEVE WITHIN THE
ANTICIPATED TIME FRAME, EXPECTED STRATEGIC OBJECTIVES AND OTHER BENEFITS OF THE
TRANSACTION.
The transaction will result in the combination of the businesses of
ANTEC and Arris Interactive. ANTEC and Arris Interactive have previously
operated independently. There are a large number of systems that may be
integrated, including management information, purchasing, accounting and
finance, sales, billing, payroll and benefits and regulatory compliance. The
integration of ANTEC and Arris Interactive as wholly-owned subsidiaries of
Broadband Parent also will require significant attention from management. The
diversion of management attention and any difficulties associated with the
integration could have a material adverse effect on the revenues, the levels of
expenses and the operating results of Broadband Parent after the transaction and
the value of Broadband Parent's shares.
THE NEW CREDIT FACILITY TO BE ENTERED INTO BY ANTEC AND ARRIS INTERACTIVE WILL
IMPOSE FINANCIAL COVENANTS THAT MAY ADVERSELY AFFECT THE REALIZATION OF
STRATEGIC OBJECTIVES BY BROADBAND PARENT.
As part of the transaction, ANTEC, Arris Interactive and some of
ANTEC's subsidiaries, which we refer to collectively in this document as the
"borrowers," will be entering into a new credit facility, which is expected to
be an asset-based credit facility of approximately $175 million, subject to
availability under a borrowing base. The availability under the credit facility
may be increased to $200 million at a later date. Broadband Parent will guaranty
all of the obligations of the borrowers under the new credit facility. We expect
that the interest rate for borrowings under the new credit facility will be
significantly higher than ANTEC's current credit facility. In addition, we
anticipate that Broadband Parent's new credit facility will impose, among other
things, covenants limiting the incurrence of additional debt and liens and
requires Broadband Parent to meet certain financial objectives.
We expect the new credit facility to have a maturity date three years
from its effective date, which will be the closing date of the transaction.
However, the maturity date of the credit facility will be December 31, 2002 in
the event that ANTEC's 4.5% convertible subordinated notes due May 15, 2003 are
not either fully refinanced or fully converted to Broadband Parent common stock
prior to December 31, 2002 in a manner satisfactory to the lenders under the
credit facility. The acceleration of the maturity date of the credit facility
could have a material adverse effect on the Broadband Parent business.
BROADBAND PARENT WILL HAVE GREATER DEBT THAN ANTEC, WHICH MAY ADVERSELY AFFECT
ITS RESULTS OF OPERATIONS AND REALIZATION OF STRATEGIC OBJECTIVES.
The significant indebtedness of the combined companies after the
transaction could impact Broadband Parent's ability to compete effectively
against better funded competitors and to withstand downturns in its business or
the economy in general, and could limit its ability to pursue business
opportunities that may be in the interests of Broadband Parent and its
stockholders.
FACTORS RELATING TO BROADBAND PARENT AFTER THE TRANSACTION
ANTEC'S BUSINESS HAS MAINLY COME FROM TWO KEY CUSTOMERS, AND BROADBAND PARENT'S
BUSINESS WILL DEPEND SIGNIFICANTLY UPON THESE CUSTOMERS. THE LOSS OF ONE OR BOTH
OF THESE CUSTOMERS OR A SIGNIFICANT REDUCTION IN SERVICES TO ONE OR BOTH OF
THESE CUSTOMERS WOULD HAVE A MATERIAL ADVERSE EFFECT ON BROADBAND PARENT'S
BUSINESS.
ANTEC's two largest customers are AT&T and Cox Communications. For the
three months ended March 31, 2001 and the year ended December 31, 2000, sales to
AT&T (including sales to MediaOne Communications, which was acquired by AT&T
during 2000) accounted for approximately 42.7% and 43.2%, respectively, of
ANTEC's total
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sales, while sales to Cox Communications accounted for approximately 13.2% and
11.8%, respectively. No other customer provided more than 5% of ANTEC's total
sales for the year ended December 31, 2000. ANTEC currently is the exclusive
provider of telephony products for both AT&T and Cox Communications in eight
metro areas.
ANTEC and Arris Interactive expect that, following the transaction,
AT&T and Cox Communications will account for a higher amount of total revenues
for Broadband Parent as a result of Broadband Parent receiving the entire
manufacturer's concession on Arris Interactive products sold to AT&T and Cox
Communications. Currently, ANTEC receives only a commission on sales of these
products. The loss of either AT&T or Cox Communications or both of these
customers, or a significant reduction in the services provided to one or both of
them, would have a material adverse impact on Broadband Parent.
On November 24, 2000, AT&T Broadband, a unit of AT&T Corporation,
announced that it would not accept or pay for product shipments that it had
previously ordered until mid-January 2001. On the trading day following the AT&T
Broadband announcement, ANTEC's stock fell $2.36 per share, or 21%, from its
previous closing price. The delayed shipments had a material adverse effect on
ANTEC's revenue and earnings in the fourth quarter of 2000. ANTEC anticipates
that overall sales to AT&T in 2001 will be lower than sales levels in 2000.
In addition, on October 25, 2000, AT&T announced that it will
voluntarily break itself up into four separate publicly traded companies that
will bundle each other's services through inter-company agreements. The
immediate consequences, if any, to ANTEC and Arris Interactive, and the future
consequences to Broadband Parent, regarding product orders from AT&T, as a
result of this split-up are not yet determinable. It is possible that the AT&T
break-up will have a future material adverse effect on Broadband Parent's
business. Circumstances significantly altering the relationship between
Broadband Parent and either of AT&T or Cox Communications may arise in the
future.
BROADBAND PARENT'S BUSINESS IS DEPENDENT ON CUSTOMERS' CAPITAL SPENDING ON
BROADBAND COMMUNICATION SYSTEMS, AND REDUCTIONS BY CUSTOMERS IN CAPITAL SPENDING
COULD ADVERSELY AFFECT BROADBAND PARENT'S BUSINESS.
ANTEC's and Arris Interactive's performance has been, and Broadband
Parent's performance will be, largely dependent on customers' capital spending
for constructing, rebuilding, maintaining or upgrading broadband communications
systems. Capital spending in the telecommunications industry is cyclical. A
variety of factors will affect the amount of capital spending and, therefore,
Broadband Parent's sales and profits and your return on your investment in
Broadband Parent, including general economic conditions, availability and cost
of capital, other demands and opportunities for capital, regulations, demand for
network services, competition and technology, and real or perceived trends or
uncertainties in these factors.
BROADBAND PARENT WILL HAVE SUBSTANTIAL STOCKHOLDERS THAT MAY NOT ACT CONSISTENT
WITH THE INTERESTS OF THE OTHER STOCKHOLDERS.
ANTEC currently has one large stockholder, AT&T Corporation, which
beneficially owns approximately 20% of ANTEC's common stock. Following the
transaction, Nortel Networks will own approximately 49% of Broadband Parent's
common stock and AT&T will beneficially own approximately 10% of Broadband
Parent's common stock. These respective ownership interests will result in both
Nortel Networks and AT&T having a substantial influence over Broadband Parent.
Nortel Networks and/or AT&T may not exert their respective influences in a
manner that is consistent with the interests of other stockholders. Nortel
Networks will, in its capacity as a stockholder, be able to block stockholder
action, including, for instance, stockholder approval of a merger or large
acquisition. See "Other Agreements -- Amended and Restated Investor Rights
Agreement" on page 64 and "Description of Broadband Parent Capital Stock
Following the Transaction -- Common Stock" on page 72.
THE TWO LARGEST STOCKHOLDERS WILL HAVE THE POWER TO SELL A LARGE PORTION OF
BROADBAND PARENT STOCK IN THE FUTURE, WHICH COULD CAUSE THE PRICE OF BROADBAND
PARENT STOCK TO DECLINE.
Any sales of substantial amounts of Broadband Parent common stock in
the public market, or the perception that such sales might occur, whether
pursuant to the registration rights agreement or otherwise, could lower the
price of the Broadband Parent common stock. At the close of the transaction,
Broadband Parent will enter into a registration rights agreement with Nortel
Networks. Under this agreement, which is described more fully at "Other
Agreements - Amended and Restated Investor Rights Agreement" on page 64, Nortel
Networks will have the power to cause
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Broadband Parent to initiate a public offering for all or part of Nortel
Networks' shares of Broadband Parent common stock. Further, Nortel Networks
could cause Broadband Parent to file a shelf registration statement, which would
allow Nortel Networks to sell its Broadband Parent shares on the open market at
an undetermined point in the future. AT&T currently has similar registration
rights with ANTEC that will be assumed by Broadband Parent upon the completion
of the transaction. Through the exercise of their registration rights, either
Nortel Networks or AT&T or both could sell a large number of shares to the
public. Under the terms of Nortel Networks' registration rights agreement,
Nortel Networks is entitled to exercise these rights immediately after the
closing of the transaction or at any point in the future.
On June 15, 2001, Nortel Networks announced its decision to discontinue
its access solutions business operation, which includes Arris Interactive and
following the transaction would include its ownership interest in Broadband
Parent. As a result, Nortel Networks has informed ANTEC that, once its
membership interest in Arris Interactive is exchanged for the Broadband Parent
common stock as a result of this transaction, it may, among other things, sell a
substantial percentage of its Broadband Parent common stock within the next
twelve months and, to facilitate this, may exercise its demand registration
rights from time to time.
THE CONVERSION OF NORTEL NETWORKS' INTEREST IN ARRIS INTERACTIVE COULD DILUTE
BROADBAND PARENT'S STOCKHOLDERS.
As part of the transaction Nortel Networks is converting payables and
royalties due from, and advances made to, Arris Interactive, estimated to be
approximately $90 million, into a new membership interest in Arris Interactive.
The terms of the new membership interest require Nortel Networks to exchange the
membership interest for common stock, convertible preferred stock, or
convertible notes of Broadband Parent if, in general, Broadband Parent or ANTEC
sells any of its interest in Arris Interactive, ANTEC's lenders for the new
credit facility foreclose on property of Arris Interactive, or ANTEC's lenders
during an event of default require the exchange. The exchange for, and
conversion into, Broadband Parent common stock would occur at the then
prevailing market price of the common stock. Since some of the circumstances
under which exchange and/or conversion is permitted may occur in the event that
Broadband Parent and ANTEC are in significant financial distress, it is possible
that the market price of the common stock would be quite low and that Nortel
Networks would be able to convert its new membership interest into a
significant, but presently undeterminable, portion of Broadband Parent's common
stock.
THE MARKETS IN WHICH BROADBAND PARENT WILL OPERATE ARE INTENSELY COMPETITIVE,
AND BROADBAND PARENT'S RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY
COMPETITIVE PRESSURES.
The markets for broadband communication systems are extremely
competitive and dynamic, requiring the companies that compete in these markets
to react quickly and capitalize on change. This will require Broadband Parent to
retain skilled and experienced personnel as well as deploy substantial resources
toward meeting the ever-changing demands of the industry. Broadband Parent will
compete with national and international manufacturers, including many companies
larger than Broadband Parent. After the transaction, Broadband Parent's major
competitors will include:
- ADC Telecommunications, Inc.
- C-COR.net Corporation
- Cisco Systems
- General Instrument Corporation, now a part of Motorola, Inc.
- Harmonic Inc.
- Philips
- Scientific-Atlanta, Inc.
- Tellabs
The rapid technological changes occurring in the broadband markets may
lead to the entry of new competitors, including those with substantially greater
resources than Broadband Parent. Since the markets in which Broadband Parent
will compete are characterized by rapid growth and, in certain cases, low
barriers to entry, smaller niche market companies and start-up ventures also may
become principal competitors in the future. Actions by existing competitors and
the entry of new competitors may have an adverse effect on Broadband Parent's
sales and profitability. The broadband communications industry is further
characterized by rapid technological change. In the future,
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technological changes could lead to the obsolescence of some of ANTEC's and
Arris Interactive's current products, which could have a material adverse effect
on Broadband Parent's business.
Further, many of Broadband Parent's large competitors are in a better
position to withstand any significant reduction in capital spending by customers
in these markets. They often have broader product lines and market focus and
therefore will not be as susceptible to downturns in a particular market. In
addition, several of Broadband Parent's competitors have been in operation
longer than either ANTEC or Arris Interactive and therefore have more
long-standing and established relationships with domestic and foreign broadband
service providers than will Broadband Parent following the transaction.
Broadband Parent may not be able to compete successfully in the future, and
competition may harm Broadband Parent's business.
AS PART OF THE TRANSACTION, NORTEL NETWORKS WAS RELEASED FROM CONTRACTUAL
RESTRICTIONS, ALLOWING NORTEL NETWORKS TO COMPETE DIRECTLY WITH ARRIS
INTERACTIVE.
Currently, Arris Interactive is a joint venture between ANTEC and
Nortel Networks. The joint venture agreement prohibited Nortel Networks and
ANTEC from directly competing against Arris Interactive with any product that
uses a hybrid fiber-coaxial cable network. As part of the transaction, Nortel
Networks was released as of April 9, 2001 from the contractual provisions that
prevented competition with Arris Interactive, permitting Nortel Networks to
directly compete against Arris Interactive and ANTEC. Future competition from
Nortel Networks, should it opt to enter the portion of the broadband
communications market serviced by Arris Interactive, ANTEC or Broadband Parent,
could have a material adverse effect on Broadband Parent's business.
THE INABILITY OF BROADBAND PARENT TO DEVELOP A SALES, DISTRIBUTION AND SUPPORT
INFRASTRUCTURE IN ITS INTERNATIONAL MARKETS AND THE COSTS ASSOCIATED WITH
DEVELOPING THIS INFRASTRUCTURE MAY ADVERSELY AFFECT BROADBAND PARENT'S RESULTS
OF OPERATIONS.
Arris Interactive has relied upon Nortel Networks exclusively for
sales, distribution and support of its products in the international markets and
for certain customers in the North American market. Following completion of the
transaction, Nortel Networks will enter into a non-exclusive sales
representation agreement to market Arris Interactive's products. This agreement
terminates on December 31, 2001, with respect to North American markets and
December 31, 2003, with respect to international markets. Nortel Networks
recently announced that it is realigning its business, which will include the
discontinuance of Nortel Networks' access solutions operations (which includes
its Arris Interactive related operations); it is unclear what the ramifications
of this discontinuance to Broadband Parent will be and how it will affect Nortel
Networks' distribution of Arris Interactive's products. To avoid reliance on
Nortel Networks and other third parties, Broadband Parent intends to develop its
own sales, marketing, distribution and support infrastructure, particularly to
support and enhance its international sales. Broadband Parent may be unable to
develop this infrastructure in a timely manner, if at all. In addition,
Broadband Parent may be required to expend significant amounts to develop this
infrastructure. Further, in the future, Nortel Networks may cease to be an
effective sales channel for Arris Interactive products as a result of its recent
announcement.
BROADBAND PARENT MAY DISPOSE OF EXISTING PRODUCT LINES OR ACQUIRE NEW PRODUCT
LINES IN TRANSACTIONS THAT MAY ADVERSELY IMPACT IT AND ITS FUTURE RESULTS.
On an ongoing basis Broadband Parent will evaluate its various product
offerings in order to determine whether any should be sold or closed and whether
there are businesses that it should pursue acquiring. Currently ANTEC is
evaluating whether to dispose of one of its minor product lines. No purchase
agreement has been agreed to. Future acquisitions and divestitures entail
various risks, including:
- The risk that Broadband Parent will not be able to find a buyer for a
product line while product line sales and employee morale will have
been damaged because of general awareness that the product line is for
sale;
- The risk that the purchase price obtained will not be equal to the book
value of the assets for the product line that it sells; and
- The risk that acquisitions will not be integrated or otherwise perform
as expected.
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PRODUCTS CURRENTLY UNDER DEVELOPMENT MAY FAIL TO REALIZE ANTICIPATED BENEFITS.
The technology applications currently under development by ANTEC and
Arris Interactive that will be used in future products, may not be successfully
developed. Even if the developmental products are successfully developed, they
may not be widely used or Broadband Parent may not be able to successfully
exploit these technology applications. To compete successfully after the
transaction, Broadband Parent must quickly design, develop, manufacture and sell
new or enhanced products that provide increasingly higher levels of performance
and reliability. However, Broadband Parent may not be able to successfully
develop or introduce these products if its products:
- are not cost effective;
- are not brought to market in a timely manner; or
- fail to achieve market acceptance.
Furthermore, Broadband Parent's competitors may develop similar or
alternative new technology applications that, if successful, could have a
material adverse effect on Broadband Parent. Broadband Parent's strategic
alliances will be based on business relationships that have been forged by ANTEC
and Arris Interactive. Generally, those relationships have not been the subject
of written agreements expressly providing for the alliance to continue for a
significant period of time. The loss of a strategic partner could have a
material adverse effect on the progress of new products under development with
that partner.
CONSOLIDATIONS IN THE TELECOMMUNICATIONS INDUSTRY COULD RESULT IN DELAYS OR
REDUCTIONS IN PURCHASES OF PRODUCTS, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT
ON BROADBAND PARENT'S BUSINESS.
The telecommunications industry has experienced the consolidation of
many industry participants and this trend may continue. After the transaction,
Broadband Parent and one or more of its competitors may each supply products to
the businesses that have merged or will merge. Consolidations could result in
delays in purchasing decisions by the merged businesses, with Broadband Parent
playing a greater or lesser role in supplying the communications products to the
merged entity. These purchasing decisions of the merged companies could have a
material adverse effect on Broadband Parent's business.
Mergers among the supplier base also have increased, and this trend may
continue. The larger combined companies with pooled capital resources may be
able to provide solution alternatives with which Broadband Parent would be put
at a disadvantage to compete. The larger breadth of product offerings by these
consolidated suppliers could result in customers electing to trim their supplier
base for the advantages of one-stop shopping solutions for all of their product
needs. These consolidated supplier companies could have a material adverse
effect on Broadband Parent's business.
BROADBAND PARENT'S SUCCESS WILL DEPEND IN LARGE PART ON ITS ABILITY TO ATTRACT
AND RETAIN QUALIFIED PERSONNEL.
Competition for qualified personnel is intense, and Broadband Parent
may not be successful in attracting and retaining key executive, marketing,
engineering and sales personnel, which could impact its ability to maintain and
grow its operations. Broadband Parent's future success will depend, to a
significant extent, on the ability of its management to operate effectively. In
the past, competitors and others have attempted to recruit ANTEC and Arris
Interactive employees. In the future, competitors may attempt to recruit key
employees of Broadband Parent. The loss of the services of any key personnel,
the inability to attract or retain qualified personnel in the future or delays
in hiring required personnel, particularly engineers and other technical
professionals, could negatively affect Broadband Parent's business.
BROADBAND PARENT WILL BE SUBSTANTIALLY DEPENDENT ON CONTRACT MANUFACTURERS, AND
AN INABILITY TO OBTAIN ADEQUATE AND TIMELY DELIVERY OF SUPPLIES COULD ADVERSELY
AFFECT BROADBAND PARENT'S BUSINESS.
Many components, subassemblies and modules necessary for the
manufacture or integration of ANTEC and Arris Interactive products are obtained
from a sole supplier or a limited group of suppliers, including Nortel Networks.
After the transaction, Broadband Parent's reliance on sole or limited suppliers,
particularly foreign suppliers, and its reliance on subcontractors will involve
several risks as current suppliers for ANTEC and Arris Interactive or essential
suppliers, may want to deal with the combined companies on terms that are less
favorable or financially profitable for
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the combined companies. The resultant risks to Broadband Parent's business
include a potential inability to obtain an adequate supply of required
components, subassemblies or modules and reduced control over pricing, quality
and timely delivery of components, subassemblies or modules. Historically,
neither ANTEC nor Arris Interactive has generally maintained long-term
agreements with any of its suppliers or subcontractors. An inability to obtain
adequate deliveries or any other circumstance that would require Broadband
Parent to seek alternative sources of supply could affect its ability to ship
products on a timely basis. Any inability to reliably ship its products on time
could damage relationships with current and prospective customers and harm
Broadband Parent's business.
BROADBAND PARENT'S INTERNATIONAL OPERATIONS WILL BE ADVERSELY AFFECTED BY ANY
DECLINE IN THE DEMAND FOR BROADBAND SYSTEMS DESIGNS AND EQUIPMENT IN
INTERNATIONAL MARKETS.
Broadband Parent will have significantly more sales in international
markets than either ANTEC or Arris Interactive would have alone. Historically,
sales of broadband communications equipment into international markets have been
an important part of ANTEC's and Arris Interactive's businesses, a trend that
Broadband Parent expects to continue. After the transaction, the entire line of
Arris Interactive products will be marketed and made available to existing and
potential international customers by Broadband Parent. In addition, United
States broadband system designs and equipment are increasingly being employed in
international markets, where market penetration is relatively lower than in the
United States. While international operations are expected to comprise an
integral part of Broadband Parent's future business, international markets may
no longer continue to develop at the current rate, or at all. Broadband Parent
may fail to receive additional contracts to supply ANTEC and Arris Interactive
equipment in these markets.
BROADBAND PARENT'S INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY CHANGES
IN THE FOREIGN LAWS IN THE COUNTRIES IN WHICH ANTEC OR ARRIS INTERACTIVE HAS
MANUFACTURING OR ASSEMBLY PLANTS.
A significant portion of Broadband Parent's products will be
manufactured or assembled in Mexico and other countries outside of the United
States. The governments of the foreign countries in which ANTEC or Arris
Interactive, and thus Broadband Parent, has plants may pass laws that impair
ANTEC or Arris Interactive's operations, such as laws that impose exorbitant tax
obligations on the business or nationalize segments of ANTEC's or Arris
Interactive's businesses.
BROADBAND PARENT MAY FACE DIFFICULTIES IN CONVERTING EARNINGS FROM INTERNATIONAL
OPERATIONS TO U.S. DOLLARS.
Broadband Parent may encounter difficulties in converting its earnings
from international operations to U.S. dollars for its use in the United States,
such as difficulties in moving funds out of the countries in which the funds
were earned and difficulties in collecting accounts receivable in foreign
countries where the usual accounts receivable payment cycle is longer.
ANTEC'S PROFITABILITY HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE, WHICH COULD
ADVERSELY AFFECT THE PRICE OF BROADBAND PARENT STOCK.
For the third and fourth quarters of 2000, ANTEC failed to meet the
level of profitability expected by the investment community. Further, ANTEC has
experienced years with significant operating losses. ANTEC's business may not be
profitable or meet the level of expectations of the investment community in the
future, which could have a material adverse impact on Broadband Parent's stock
price.
BROADBAND PARENT MAY FACE HIGHER COSTS ASSOCIATED WITH PROTECTING ITS
INTELLECTUAL PROPERTY.
Broadband Parent's future success depends in part upon its proprietary
technology. The future success of ANTEC and Arris Interactive will depend upon
product development, technological expertise and distribution channels. Neither
ANTEC nor Arris Interactive can predict whether it can protect its technology,
or whether competitors can develop similar technology independently.
As the competition in the communications equipment industry intensifies
and the functionality of the products in this industry further overlap,
Broadband Parent believes that companies in the communications equipment
industry may increasingly become subject to infringement claims. ANTEC and Arris
Interactive have received and may
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continue to receive from third parties, including some of their competitors,
notices claiming that they have infringed third-party patents or other
proprietary rights. Broadband Parent cannot predict that it will prevail in any
litigation over third-party claims, or that Broadband Parent will be able to
license any valid and infringed patents on commercially reasonable terms. Any of
these claims, whether with or without merit, could result in costly litigation,
divert the time, attention and resources of Broadband Parent's management, delay
Broadband Parent's product shipments, or require Broadband Parent to enter into
royalty or licensing agreements. Further, third parties may be unwilling to
enter into royalty or licensing agreements on acceptable terms, if at all. If a
claim of product infringement against Broadband Parent is successful and
Broadband Parent fails to obtain a license or develop or license non-infringing
technology, Broadband Parent's business and operating results could be adversely
affected.
BROADBAND PARENT MAY NOT BE ABLE TO EFFECTIVELY MANAGE THE GROWTH OF ARRIS
INTERACTIVE, WHICH WOULD NEGATIVELY AFFECT BROADBAND PARENT'S BUSINESS.
The recent rapid growth in Arris Interactive's business has placed, and
is expected to continue to place, a significant strain on its personnel,
management and other resources. Arris Interactive's ability to manage any future
growth effectively will require it to attract, train, motivate and manage new
employees successfully, to integrate new employees into its overall operations,
to retain key employees and to continue to improve its operational, financial
and management systems. If Arris Interactive fails to manage its future growth
effectively, Broadband Parent's business could be adversely affected.
THE TRANSACTION COULD HAVE AN ADVERSE EFFECT ON ARRIS INTERACTIVE CUSTOMER
PURCHASING DECISIONS.
Following the transaction, current customers of Arris Interactive may
find the loss of Nortel Networks as an active member in the management of Arris
Interactive or the absence of Nortel Networks as the exclusive distributor in
Europe and South America to be significant, and these factors may influence such
customers' future purchasing decisions. The business of Broadband Parent or
Arris Interactive may be adversely affected by changes in the purchasing
decisions of these customers.
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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
This document contains numerous forward-looking statements about the
financial condition, results of operations, cash flows, dividends, financing
plans, business strategies, operating efficiencies, capital and other
expenditures, competitive positions, growth opportunities for existing products,
plans and objectives of management, markets for stock or ownership interests of
ANTEC, Arris Interactive and Broadband Parent and other matters. The words
"estimate," "project," "intend," "expect," "believe," "forecast" and similar
expressions are intended to identify these forward-looking statements, but some
of these statements may use other phrasing. Any statement in this document that
is not a historical fact is a forward-looking statement. Except to the extent
required by applicable law, none of ANTEC, Arris Interactive or Broadband Parent
undertakes any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events. Such
forward-looking statements, wherever they occur in this document, are
necessarily estimates reflecting the best judgment of the senior management of
ANTEC, Arris Interactive and Broadband Parent and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Important factors that could cause
actual results to differ materially from those suggested by the forward-looking
statements are described in the risk factors above and elsewhere in this
document. In addition:
- all of the factors affecting ANTEC's, Arris Interactive's or
Broadband Parent's businesses may not have been correctly
identified and assessed;
- the publicly available and other information, upon which the
analysis contained in this document is based, may not be
complete or correct;
- the analysis may not be correct; or
- the strategies, which are based in part on this analysis, may
not be successful.
These statements speak only as of the date of this document.
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THE SPECIAL MEETING
ANTEC will hold a special meeting of its stockholders. This document is
furnished to you in order to solicit your proxy for use at the special meeting.
DATE, TIME AND PLACE
The ANTEC special meeting will be held at ANTEC's headquarters at 11450
Technology Circle, Duluth, Georgia 30097, on July 25, 2001 at 9:00 a.m., local
time.
PURPOSES
At the special meeting, ANTEC stockholders will be asked:
- to consider and vote upon the proposal to approve and adopt
the plan of reorganization;
- to consider and vote upon the stock incentive plan;
- to consider and vote upon the management incentive plan;
- to consider and vote upon the employee stock purchase plan;
and
- to transact such other matters as may properly come before the
meeting, or any adjournment or postponement of the meeting.
Approval of the plan of reorganization also will constitute approval of
the merger and the other transactions contemplated by the plan of
reorganization.
NOTICE OF SPECIAL MEETING
THIS DOCUMENT CONSTITUTES NOTICE UNDER DELAWARE LAW OF THE SPECIAL
MEETING OF ANTEC STOCKHOLDERS AND THE MATTERS SCHEDULED TO BE CONSIDERED.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
ANTEC's board of directors has established the close of business on May
31, 2001 as the record date for the meeting. Only ANTEC stockholders of record
at the close of business on May 31, 2001, are entitled to notice of and to vote
at the special meeting. On the record date, there were approximately 310
stockholders of record holding an aggregate of 38,168,398 shares of ANTEC common
stock.
Each share of ANTEC common stock is entitled to one vote. The presence,
in person or by proxy, of at least a majority of the voting power of ANTEC stock
entitled to vote at the special meeting is necessary to constitute a quorum.
Abstentions and broker non-votes will count in determining a quorum.
Approval of the proposal concerning the transaction requires the
affirmative vote of a majority of the total votes represented by the outstanding
ANTEC common stock.
Approval of the proposals concerning the stock incentive plan, the
management incentive plan and the employee stock purchase plan each require the
affirmative vote of a majority of the total votes cast at the meeting, assuming
a quorum is present. Approval of the transaction is not contingent upon the
approval of the stock incentive plan, the management incentive plan or the
employee stock purchase plan.
As of the record date, ANTEC directors and executive officers and their
affiliates owned approximately 0.5% of the voting power of ANTEC common stock
entitled to vote at the meeting. ANTEC's directors (with the exception of Mr.
John (Ian) Anderson Craig who will be abstaining from voting due to his prior
affiliation with Nortel Networks) and executive officers have agreed in voting
agreements to vote their shares of ANTEC common stock "FOR" the approval of the
transaction, and ANTEC currently expects that all of its directors, executive
officers and their affiliates will vote "FOR" each of the stock incentive plan,
the management incentive plan and the employee stock purchase plan. For
additional information on the ownership and voting of ANTEC common stock, ANTEC
directors and executive officers, see "Stock Ownership of ANTEC and Broadband
Parent" on page 69.
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As of the record date, AT&T owned 6,827,000 shares of ANTEC common
stock, or approximately 17.9% of the shares entitled to vote at the ANTEC
special meeting. AT&T has advised ANTEC that it intends to vote all of its
shares of ANTEC common stock "FOR" the approval of the transaction.
PROXIES
Proxies are being solicited by the ANTEC board of directors. If you
sign, complete and return a proxy and ANTEC receives the proxy before or at the
special meeting, your proxy will be voted as you instructed. All proxies
returned without instructions will be voted "FOR" the approval of the
transaction and "FOR" each of the stock incentive plan, the management incentive
plan and the employee stock purchase plan. If a properly-executed proxy card or
voting instruction is returned and the stockholder has abstained from voting,
the ANTEC common stock represented by the proxy or voting instructions will be
considered present at the special meeting for purposes of determining a quorum,
but will not be considered to have voted in favor of approval of the transaction
or any of the stock incentive plan, the management incentive plan or the
employee stock purchase plan.
If your shares are held in the name of a broker, bank, or other record
holder, you must either direct the record holder as to how to vote your shares
or obtain a proxy from the record holder to vote at the meeting. Under the
Nasdaq National Market rules, brokers who hold shares in street name for
customers have the authority to vote on certain "routine" proposals when they
have not received instructions from beneficial owners. Such brokers are
precluded from exercising their voting discretion with respect to proposals for
non-routine matters such as the ones described in this document with the
exception of the management incentive plan and the employee stock purchase plan.
Thus, absent specific instructions from the beneficial owners of such shares,
brokers are not empowered to vote such shares with respect to the approval of
the transaction proposal or the stock incentive plan proposal.
Broker non-votes, which are shares held by brokers or nominees that are
represented at a meeting but with respect to which the broker or nominee is not
empowered to vote on a particular proposal, and abstentions will be treated as
shares that are present for purposes of determining the presence of a quorum.
However, because shares which abstain and shares represented by broker non-votes
are considered outstanding shares, abstentions and broker non-votes will have
the same effect as a vote "AGAINST" approval of the transaction, which requires
the affirmative vote of a majority of the total votes represented by the
outstanding ANTEC common stock. Abstentions and broker non-votes will have no
effect on the voting to approve the 2001 stock incentive plan, the management
incentive plan or the employee stock purchase plan, which require the
affirmative vote of a majority of the votes cast at the meeting.
REVOCATION OF PROXIES
You may revoke your proxy at any time prior to its use. To revoke your
proxy, you must either: (a) deliver to the Secretary of ANTEC, 11450 Technology
Circle, Duluth, Georgia 30097, a signed notice of revocation or a later-dated
signed proxy or (b) attend the special meeting and vote in person regarding the
matters for which you submitted a proxy. Attendance at the special meeting will
not, in and of itself, constitute the revocation of a proxy.
SOLICITATION OF PROXIES
ANTEC will bear its own expenses of soliciting proxies from its
stockholders for its special meeting. In addition to solicitation by mail,
arrangements will be made with brokerage houses and other custodians, nominees,
and fiduciaries to send proxy materials to beneficial owners. ANTEC will
reimburse these parties for their reasonable expenses. Further, ANTEC's
directors, officers and employees may solicit proxies in person or by telephone,
telegram or by any other means of communication. These individuals will not
receive any special compensation for soliciting proxies, but they will be
reimbursed for their out-of-pocket expenses. ANTEC anticipates that it will
retain Morrow & Co. to aid in the solicitation of proxies for a fee that is
usual and customary for such services.
In order to assure sufficient representation at the meeting, ANTEC may
request by telephone, telecopy or e-mail the return of your proxy card. Please
assist us by promptly returning your proxy card without delay.
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OTHER MATTERS
If any other matters are properly presented for consideration at the
special meeting, the person named in the proxy will have discretion to vote or
not vote on those matters in accordance with his or her best judgment, unless
authorization to use that discretion is withheld. ANTEC is unaware of any
business for consideration at the special meeting other than as described in
this document.
In the event that insufficient proxy cards with votes "FOR" the
approval of the transaction are received prior to the scheduled meeting date,
ANTEC may decide to postpone or adjourn the special meeting, in which event the
proxies that have been received that either have been voted for any of the
proposals or contain no instructions will be voted for adjournment. Proxies
marked "AGAINST" approval and adoption of any proposal will vote against a
proposal to adjourn the meeting for the purpose of soliciting additional
proxies.
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BROADBAND PARENT - THE COMBINED COMPANY
Upon completion of the transaction, Broadband Parent will be a holding
company for all of the stock of ANTEC and Nortel Networks' ownership interest in
Arris Interactive. The remaining interest in Arris Interactive will continue to
be owned by ANTEC. Broadband Parent will be renamed Arris Group, Inc. and,
following the closing of the transaction, Broadband Parent's common stock will
trade on the Nasdaq National Market System under the symbol "ARRS".
The board of directors of Broadband Parent will consist of the current
11 members of the board of directors of ANTEC and two additional directors to be
designated by Nortel Networks. Nortel Networks has named Craig Johnson and
Vickie Yohe as its two designees. The current senior executives of ANTEC will
continue as the senior executives of Broadband Parent. For a further description
of the directors and management of Broadband Parent, see "Directors and
Management of Broadband Parent Following the Transaction."
On a pro forma basis, the combined company had revenues for the year
ended December 31, 2000 of approximately $1.29 billion, consisting approximately
of:
- 47% ($604 million) from the current Arris Interactive/ANTEC
family of Cornerstone products,
- 20% ($260 million) from optical and broadband transmission
products,
- 13% ($170 million) from outside plant and powering products,
and
- 20% ($260 million) from products in the supplies and services
category.
Consolidated gross profit margin on a pro forma basis for the year ended
December 31, 2000 was approximately 27%. See "Unaudited Pro Forma Combined
Financial Information."
On a pro forma basis, the combined company had revenues for the three
months ended March 31, 2001 of approximately $237.2 million, consisting
approximately of:
- 54% ($127.4 million) from the current Arris Interactive/ANTEC
family of Cornerstone products,
- 13% ($30.7 million) from optical and broadband transmission
products,
- 15% ($36.0 million) from outside plant and powering products,
and
- 18% ($43.1 million) from products in the supplies and services
category.
Consolidated gross profit on a pro forma basis for the three months
ended March 31, 2001 was approximately 21%. See "Unaudited Pro Forma Combined
Financial Information."
Because ANTEC is already a distributor for Arris Interactive's
products, Broadband Parent's products will be the same as are currently offered
by ANTEC. Nortel Networks also is a distributor of Arris Interactive's products,
generally to U.S. non-cable and international customers. Following the
transaction, Nortel Networks will continue as a non-exclusive sales agent
(domestically through 2001 and internationally through 2003). As a result,
Broadband Parent expects to ultimately be able to capture substantially all of
the international revenues and domestic non-cable television revenues and all of
the gross profit related to the sale of Arris Interactive's products previously
recognized by Arris Interactive or Nortel Networks. Broadband Parent also
expects to have a more diversified revenue base than ANTEC as a result of the
absorption of most of the sales previously achieved in the Nortel Networks
channel. Moreover, control of global marketing and sales will be in the new
company and will not be bifurcated between Nortel Networks and ANTEC.
At the time of the closing of the transaction, Broadband Parent,
through ANTEC and Arris Interactive, will employ approximately 400 engineers and
approximately 2,100 non-engineering personnel and will own outright or license
from Nortel Networks (on a royalty-free basis for all hybrid fiber-coax
applications) all of the intellectual property rights associated with its
operations. For a description of the license arrangements with Nortel Networks,
see "Other Agreements -- Intellectual Property Rights Agreement." Broadband
Parent will be able, subject to some limitations, to utilize this intellectual
property to expand its product offerings without the contractual constraints
related to the Arris Interactive joint venture that were previously imposed upon
ANTEC and Nortel Networks.
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Broadband Parent will continue Arris Interactive's focus on developing a
platform of next generation Internet protocol, or "IP," products for high-speed
data and carrier grade voice transmission.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet and statements
of operations are presented to give effect to the proposed transaction. The pro
forma information was prepared based on the historical financial statements and
related notes of ANTEC (as restated) and Arris Interactive (as restated), which
are incorporated by reference or included in this document. The unaudited pro
forma combined balance sheet has been prepared to reflect the transaction as of
March 31, 2001. The unaudited pro forma combined statements of operations
combine the results of operations of ANTEC and Arris Interactive for the year
ended December 31, 2000 and the three months ended March 31, 2001 as if the
transaction occurred on January 1, 2000.
The unaudited pro forma combined financial statements and the notes
thereto should be read in conjunction with the historical financial statements
and related notes of ANTEC (as restated) and Arris Interactive (as restated),
which are incorporated by reference or included elsewhere in this document.
These unaudited pro forma combined financial statements were prepared in
accordance with rules and regulations established by the Securities and Exchange
Commission and are not necessarily reflective of the actual or future results of
operations or the financial position of Broadband Parent.
The transaction involves the creation of a new holding company,
currently named Broadband Parent Corporation, and two integrated, concurrent
transactions. In one transaction, a wholly-owned subsidiary of Broadband Parent
will merge with and into ANTEC. As a result of this transaction, ANTEC will
continue to exist, retaining its historical assets and liabilities, but rather
than being an independent, publicly traded company, it will instead be a
subsidiary of Broadband Parent. ANTEC stockholders will receive one share of
Broadband Parent common stock in exchange for each share of ANTEC common stock.
In the other transaction, Broadband Parent will acquire Nortel Networks'
interest in Arris Interactive in return for 37 million shares of Broadband
Parent common stock valued at approximately $227.2 million based on a closing
price of $6.14 for ANTEC common stock on April 9, 2001. Indebtedness of Arris
Interactive to Nortel Networks and ANTEC of approximately $124 million is being
canceled as a contribution to the capital of Arris Interactive. Additionally,
indebtedness of Arris Interactive to Nortel Networks estimated to be
approximately $88 million, which is expected to be $90 million at closing, is
being converted into a new membership interest in Arris Interactive that will be
issued to Nortel Networks. At the time of these transactions, Broadband Parent
will be renamed Arris Group, Inc. The transaction will be accounted for using
the purchase method of accounting and, following the closing of the transaction,
the results of operations of Arris Interactive will be included in the results
of Broadband Parent.
For purposes of this pro forma information, the purchase price has been
allocated to the assets of Arris Interactive based on the information available
at the time of the printing of this document. The excess of the purchase price
over the fair value of the net tangible and intangible assets acquired has been
allocated to goodwill. Although the purchase price and its allocation are not
final, it is anticipated that a portion of the purchase price will be allocated
to existing technology, in-process research and development and the workforce.
Since Arris Interactive is an operating business, the assets and liabilities
actually acquired and the fair market values of the assets will change prior to
completion of the transaction. As a result, the final allocation of the purchase
price will be determined after the transaction is completed and after completion
of thorough analyses to identify and determine the fair values of Arris
Interactive's tangible and identifiable intangible assets and liabilities as of
the date the transaction is completed. Any change in the fair value of the net
assets of Arris Interactive will change the amount of the purchase price
allocable to goodwill. Additionally, changes in Arris Interactive's members'
capital deficiency including net income (loss) from April 1, 2001, through the
date the transaction is completed, will also change the amount of goodwill
recorded. In addition, the final allocation may be materially different from the
unaudited pro forma adjustments presented herein.
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The unaudited pro forma combined financial statements are based on the
estimates and assumptions set forth in the notes to such statements, which are
preliminary and have been made solely for the purpose of developing such pro
forma information. ANTEC expects that the existing technology will have an
amortization period ranging from two to four years and the workforce will have
an amortization period ranging from three to six years. At this time, the work
needed to provide the basis for estimating these fair values and amortization
periods has not been completed. The amortization of intangible assets and
goodwill is reflected in the unaudited pro forma combined statements of
operations using the following estimated useful lives:
Existing technology 3 years
Workforce 5 years
Goodwill 10 years
Changes in the allocations of the purchase price and the useful lives
of the intangible assets could change the amount of annual amortization expense
and the related tax effect, as applicable. The following table shows the effect
on pro forma operating income (loss), net income (loss) and net income (loss)
per share based upon the range of the amortization periods, as well as possible
value, that could be reasonably determined for each intangible asset identified
and goodwill:
Year ended December 31, 2000
-------------------------------------------------
Net
income
Net income per Net income
attributable common per common
Operating to common share share
Income stock Basic Diluted
--------- ------------ --------- ----------
(in thousands, except per share data)
As disclosed in the pro forma financial information $65,866 $27,357 $ 0.36 $ 0.36
Based upon the shortest economic life of the range (see note (F)) 47,469 16,025 0.21 0.21
Based upon the longest economic life of the range (see note (F)) 74,511 32,682 0.44 0.43
Based upon a 10% increase in the value of intangible assets (see note (D)) 63,250 26,112 0.35 0.34
Based upon a 10% decrease in the value of intangible assets (see note (D)) 68,481 28,602 0.38 0.37
Based upon a 20% increase in the value of intangible assets (see note (D)) 60,635 24,867 0.33 0.32
Based upon a 20% decrease in the value of intangible assets (see note (D)) 71,096 29,847 0.40 0.39
Three months ended March 31, 2001
-------------------------------------------------
Net
(loss)
Net (loss) per Net (loss)
attributable common per common
Operating to common share share
(loss) stock Basic Diluted
--------- ------------ --------- ----------
(in thousands, except per share data)
As disclosed in the pro forma financial information $(19,578) $(16,452) $ (0.22) $ (0.22)
Based upon the shortest economic life of the range (see note (F)) (24,178) (19,285) (0.26) (0.26)
Based upon the longest economic life of the range (see note (F)) (17,417) (15,121) (0.20) (0.20)
Based upon a 10% increase in the value of intangible assets (see note (D)) (20,232) (16,763) (0.22) (0.22)
Based upon a 10% decrease in the value of intangible assets (see note (D)) (18,925) (16,141) (0.21) (0.21)
Based upon a 20% increase in the value of intangible assets (see note (D)) (20,866) (17,075) (0.23) (0.23)
Based upon a 20% decrease in the value of intangible assets (see note (D)) (18,271) (15,830) (0.21) (0.21)
27
31
The unaudited pro forma combined financial statements are not
necessarily indicative of the results that would have been achieved had such
transactions been consummated as of the dates indicated, or that may be achieved
in the future, or the results that would have been realized had the entities
been a single entity during these periods. These unaudited pro forma combined
financial statements should be read together with the audited and unaudited
historical financial statements and related notes of ANTEC and Arris
Interactive, and other financial information pertaining to ANTEC and Arris
Interactive, including ANTEC's Form 10-K/A for the year ended December 31, 2000
and Form 10-Q/A for the quarter ended March 31, 2001, which are incorporated by
reference in this document, and the sections entitled "Description of Arris
Interactive - Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Risk Factors" included elsewhere in this document.
28
32
BROADBAND PARENT
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NORTEL
NETWORKS' ADJUSTED
(A) ARRIS CAPITAL ARRIS PRO FORMA PRO FORMA
ANTEC INTERACTIVE CONTRIBUTION INTERACTIVE ADJUSTMENTS COMBINED
----- ----------- ------------ ----------- ----------- --------
Net sales $998,730 $561,468 $ 0 $561,468 $(266,596)(C) $ 1,293,602
Cost of sales 812,958 423,388 0 423,388 (266,596)(C) 947,048
2,558 (E)
(25,260)(H)
-------- -------- ------- -------- --------- -----------
Gross profit 185,772 138,080 0 138,080 22,702 346,554
Operating expenses:
Selling, general and administrative 110,554 23,926 0 23,926 0 134,480
Research and development 23,434 76,804 0 76,804 0 100,238
Amortization of intangibles 4,917 0 0 0 41,053 (F) 45,970
-------- -------- ------- -------- --------- -----------
Total operating expenses 138,905 100,730 0 100,730 41,053 280,688
-------- -------- ------- -------- --------- -----------
Operating income (loss) 46,867 37,350 0 37,350 (18,351) 65,866
Other expense (income):
Interest expense 11,053 9,884 0 9,884 (670)(C) 11,053
(9,214)(K)
Other expense (income), net 87 (1,939) 0 (1,939) 670 (C) (1,182)
Loss on marketable securities 773 0 0 0 0 773
-------- -------- ------- -------- --------- -----------
Income (loss) before income tax expense 34,954 29,405 0 29,405 (9,137) 55,222
Income tax expense 14,285 0 0 0 11,292 (G) 24,129
(1,448)(J)
-------- -------- ------- -------- --------- -----------
Net income (loss) 20,669 29,405 0 29,405 (18,981) 31,093
Return on new membership interest 0 0 0 0 (3,736)(L) (3,736)
-------- -------- ------- -------- --------- -----------
Net income (loss) attributable to
common stock $ 20,669 $ 29,405 $ 0 $ 29,405 $ (22,717) $ 27,357
======== ======== ======= ======== ========= ===========
Net income per common share:
Basic $ 0.54 $ 0.36
======== ===========
Diluted $ 0.52 $ 0.36
======== ===========
Weighted average common shares:
Basic 37,965 37,000 (D) 74,965
======== ========= ===========
Diluted 39,571 37,000 (D) 76,571
======== ========= ===========
29
33
BROADBAND PARENT
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2001
(IN THOUSANDS EXCEPT PER SHARE DATA)
NORTEL
NETWORKS' ADJUSTED
(A) ARRIS CAPITAL ARRIS PRO FORMA PRO FORMA
ANTEC INTERACTIVE CONTRIBUTION INTERACTIVE ADJUSTMENTS COMBINED
----- ----------- ------------ ----------- ----------- --------
Net sales $ 212,788 $ 100,502 $ 0 $ 100,502 $(76,089)(C) $ 237,201
Cost of sales 180,697 89,311 0 89,311 (76,089)(C) 186,763
(2,298)(E)
(4,858)(H)
--------- --------- ------- --------- -------- ---------
Gross profit 32,091 11,191 0 11,191 7,156 50,438
Operating expenses:
Selling, general and administrative 29,596 5,489 0 5,489 0 35,085
Research and development 5,609 17,830 0 17,830 0 23,439
Amortization of intangibles 1,229 0 0 0 10,263 (F) 11,492
--------- --------- ------- --------- -------- ---------
Total operating expenses 36,434 23,319 0 23,319 10,263 70,016
--------- --------- ------- --------- -------- ---------
Operating (loss) (4,343) (12,128) 0 (12,128) (3,107) (19,578)
Other expense (income):
Interest expense 2,746 2,789 0 2,789 (172)(C) 2,746
(2,617)(K)
Other expense (income), net 254 (421) 0 (421) 172 (C) 5
Loss on marketable securities 359 0 0 0 0 359
--------- --------- ------- --------- -------- ---------
Loss before income tax benefit (7,702) (14,496) 0 (14,496) (490) (22,688)
Income tax (benefit) (3,202) 0 0 0 (5,566)(G) (8,441)
327 (J)
--------- --------- ------- --------- -------- ---------
Net (loss) (4,500) (14,496) 0 (14,496) 4,749 (14,247)
Return on new membership interest 0 0 0 0 (2,205)(L) (2,205)
--------- --------- ------- --------- -------- ---------
Net (loss) income attributable to
common stock $ (4,500) $ (14,496) $ 0 $ (14,496) $ 2,544 $ (16,452)
========= ========= ======= ========= ======== =========
Net (loss) per common share:
Basic $ (0.12) $ (0.22)
======== =========
Diluted $ (0.12) $ (0.22)
======== =========
Weighted average common shares:
Basic 38,252 37,000(D) 75,252
========= ======== =========
Diluted 38,252 37,000(D) 75,252
========= ======== =========
30
34
BROADBAND PARENT
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 2001
(IN THOUSANDS)
NORTEL
NETWORKS' ADJUSTED
ARRIS CAPITAL ARRIS PRO FORMA PRO FORMA
ANTEC INTERACTIVE CONTRIBUTION INTERACTIVE ADJUSTMENTS COMBINED
----- ----------- ------------ ----------- ----------- --------
ASSETS:
Current assets:
Cash and cash equivalents $ 9,064 $ 21,104 $ 0 $ 21,104 $ 0 $ 30,168
Accounts receivable, net of allowances 111,410 146,602 0 146,602 (103,271)(C) 154,434
(307)(C)
Accounts receivable from AT&T 43,044 0 0 0 0 43,044
Inventories 277,264 71,224 0 71,224 0 348,488
Note receivable - Nortel - current 0 700 0 700 0 700
Income taxes recoverable 20,725 0 0 0 0 20,725
Deferred income taxes 19,083 0 0 0 6,911 (D) 25,994
Investments held for resale 1,202 0 0 0 0 1,202
Other current assets 24,552 1,034 0 1,034 0 25,586
-------- -------- -------- -------- ----------- -----------
Total current assets 506,344 240,664 0 240,664 (96,667) 650,341
Property, plant & equipment, net of
accumulated depreciation 52,535 26,342 0 26,342 0 78,877
Intangible assets:
Goodwill, net of accumulated amortization 143,690 0 0 0 53,665 (D) 197,355
Other intangibles, net of accumulated 0 0 0 0 113,700 (D) 113,700
amortization
Investments 12,085 0 0 0 0 12,085
Deferred income taxes 6,773 0 0 0 0 6,773
Deferred financing costs, net of accumulated 2,074 0 0 0 0 2,074
amortization
Other assets 21,395 0 0 0 (11,823)(C) 9,572
Note receivable - Nortel 0 605 0 605 0 605
-------- -------- -------- -------- ----------- -----------
$744,896 $267,611 $ 0 $267,611 $ 58,875 $ 1,071,382
======== ======== ======== ======== =========== ===========
31
35
BROADBAND PARENT
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 2001
(IN THOUSANDS)
NORTEL
NETWORKS' ADJUSTED
ARRIS CAPITAL ARRIS PRO FORMA PRO FORMA
ANTEC INTERACTIVE CONTRIBUTION INTERACTIVE ADJUSTMENTS COMBINED
----- ----------- ------------ ----------- ----------- --------
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 166,702 $ 132,871 $ 0 $ 132,871 $ (103,271)(C) $ 135,265
(307)(C)
(60,730)(M)
Royalties payable - Nortel 0 4,864 0 4,864 (4,864)(M) 0
Accrued compensation, benefits &
related taxes 16,245 8,299 0 8,299 0 24,544
Other accrued liabilities 27,878 9,070 0 9,070 11,800 (D) 48,748
Current portion of long-term debt 79,000 0 0 0 0 79,000
--------- --------- --------- --------- ----------- -----------
Total current liabilities 289,825 155,104 0 155,104 (157,372) 287,557
Long-term debt 115,000 0 0 0 0 115,000
Long-term notes payable 0 151,298 (116,569)(B) 34,729 (11,823)(C) 0
(22,906)(M)
Long-term employee compensation 0 4,562 0 4,562 4,683 (D) 9,245
Deferred income taxes 1,362 0 0 0 37,257 (D) 38,619
--------- --------- --------- --------- ----------- -----------
Total liabilities 406,187 310,964 (116,569) 194,395 (150,161) 450,421
New membership interest in Arris 0 0 0 0 65,594 (M) 88,500
22,906 (M)
Stockholders' equity:
Preferred stock 0 0 0 0 0 0
Common stock 384 0 0 0 370 (D) 754
Capital in excess of par 267,737 103,332 116,569(B) 219,901 226,810 (D) 486,419
(116,569)(I)
(103,332)(I)
(8,128)(I)
Retained earnings 73,069 (146,685) 0 (146,685) (25,300)(D) 47,769
146,685(I)
Unrealized holding loss on
marketable securities (1,668) 0 0 0 0 (1,668)
Unearned compensation (802) 0 0 0 0 (802)
Cumulative translation adjustments (11) 0 0 0 0 (11)
--------- --------- --------- --------- ----------- -----------
Total stockholders' equity 338,709 (43,353) 116,569 73,216 120,536 532,461
--------- --------- --------- --------- ----------- -----------
$ 744,896 $ 267,611 $ 0 $ 267,611 $ 58,875 $ 1,071,382
========= ========= ========= ========= =========== ===========
32
36
BROADBAND PARENT
PRO FORMA ADJUSTMENTS
Pro Forma adjustments are as follows:
(A) This column represents the historical results of operations of ANTEC
(as restated for the year ended December 31, 2000) except that research
and development expenses, which are normally included with selling,
general and administrative expenses, have been separately disclosed for
the purposes of these statements.
(B) This adjustment is to record the $116.6 million contribution of capital
(equal to Nortel Networks' participating interest in the outstanding
notes payable balance as of December 31, 2000 of $114.3 million plus
the interest accrued thereon through March 31, 2001) by Nortel Networks
to Arris Interactive contemplated by Article IV of the Agreement and
Plan of Reorganization.
(C) This adjustment is to record the intercompany eliminations between
ANTEC and Arris Interactive as follows:
At or for the At or for the
Year Ended Three Months Ended
December 31, 2000 March 31, 2001
----------------- ------------------
Sales and related costs of sales by Arris Interactive to ANTEC $ (266,596) $ (76,089)
Interest expense recorded by Arris Interactive to ANTEC (670) (172)
Accounts receivable from ANTEC recorded by Arris Interactive n/a (103,271)
Accounts receivable from Arris Interactive recorded by ANTEC n/a (307)
Notes receivable from Arris Interactive recorded by ANTEC
including participating interest n/a (11,823)
(D) This adjustment is to record ANTEC's purchase of Nortel Networks'
ownership interest in Arris Interactive for 37,000,000 shares of ANTEC
common stock on April 9, 2001 at $6.14 per share as quoted on the
Nasdaq National Market System. In addition, transaction costs were
estimated to be approximately $11,800,000, principally for investment
banking, legal and accounting fees.
(in thousands)
--------------
37,000,000 shares of ANTEC's $0.01 par value common stock at $6.14 per share $ 227,180
Acquisition costs (i.e. investment banking fees, legal and accounting fees,
printing costs, etc.) 11,800
Additional accrual for Broadband Parent options to be issued to Arris
Interactive employees as a result of the transaction 4,683
---------
$ 243,663
=========
This adjustment is to allocate the purchase price:
(in thousands)
--------------
Net tangible assets acquired(a) $ 81,344
Intangible assets:
Existing technology 97,100
Workforce 16,600
Goodwill 53,665
In-process research and development 25,300
Deferred tax asset 6,911
Deferred tax liability (non-current) (37,257)
---------
$ 243,663
=========
(a) Net tangible assets of Arris Interactive acquired (pre-transaction
($43,353 x 81.25% owned by Nortel Networks)) $ (35,225)
Contribution to capital by Nortel Networks as part of the transaction 116,569
---------
81,344
=========
33
37
The value assigned to in-process research and development, in
accordance with accounting principles generally accepted in the United
States, was written off at the time of the acquisition and is reflected
in the unaudited pro forma combined balance sheet adjustments as a pro
forma reduction of stockholders' equity. In accordance with SEC
regulations, this write-off is not reflected as an adjustment in the
unaudited pro forma combined statement of operations as it represents a
non-recurring charge directly attributable to the transaction.
Overview of purchased in-process research and development
Included in this acquisition is an aggregate amount of in-process
research and development of approximately $25.3 million, which will be
charged directly to earnings upon the completion of this transaction.
The $25.3 million of in-process technology valued for the transaction
relates to three projects that are targeted at the carrier-grade
telephone and high-speed data markets. The value of the in-process
technology was calculated separately from all other acquired assets.
The projects include:
Advanced Internet Protocol Module ("AIPM"), a migration vehicle
allowing for the deployment of Internet protocol ready products into an
existing constant bit rate system architecture. The following table
identifies specific assumptions for the project, in millions:
----------------- ------------------- --------------------- ----------------- ----------------- ----------------
Project Fair value at Estimated Expected cost Expected date to Discount rate
date of valuation percentage of to complete complete
completion
----------------- ------------------- --------------------- ----------------- ----------------- ----------------
----------------- ------------------- --------------------- ----------------- ----------------- ----------------
AIPM $0.2 71.2% $3.3 March 2002 27%
----------------- ------------------- --------------------- ----------------- ----------------- ----------------
There are specific risks associated with this in-process technology. In
order for the AIPM to achieve its product objective, it must fit within
space, power and thermal constraints imposed by its design and desired
functionality. From a hardware perspective, the AIPM must meet certain
DOCSIS specifications for radio frequency transmission and receiving.
The constraints placed on its power consumption add additional
complexity to meeting the DOCSIS transmit levels and performance as
well as its receive sensitivity and performance. From a software
perspective, the AIPM uses a next generation processor that is smaller
in size and that consumes less power than those previously used. The
change in processor increases risk of the functional operation of this
product.
It is anticipated that the AIPM project will be in service in field
trials during the latter part of the fourth quarter of 2001 and is
expected to begin contributing to consolidated revenues by the end of
the first quarter 2002.
Multi-service Access System ("MSAS"), a high-density multiple stream
cable modem termination system providing carrier-grade availability and
high-speed routing technology on the same headend targeted at the
carrier-grade telephone and high-speed data market. The following table
identifies specific assumptions for the project, in millions:
------------------- ----------------- ------------------- ------------------ ---------------- -----------------
Project Fair value at Estimated Expected cost Expected date Discount rate
date percentage of to complete to complete
of valuation completion
------------------- ----------------- ------------------- ------------------ ---------------- -----------------
------------------- ----------------- ------------------- ------------------ ---------------- -----------------
MSAS $15.1 82.0% $3.2 March 2002 27%
------------------- ----------------- ------------------- ------------------ ---------------- -----------------
There are specific risks associated with this in-process technology. As
the MSAS has a unique capability to perform hardware sparing through
its functionality via use of a radio frequency switching matrix, there
is risk involved in being able to achieve the isolation specifications
related to this type of technology. Additionally, because of the
complexity of its design and the routing of signals through the radio
frequency switching matrix, meeting FCC specifications is also a
challenge.
34
38
It is anticipated that the MSAS project will be in service in field
trials during the latter part of the fourth quarter of 2001 and is
expected to begin contributing to consolidated revenues by the end of
the first quarter 2002. Currently, prototype versions of all hardware
circuit packs are available and all hardware and software functions
have been tested. In addition, full mechanicals, cabling and power have
been demonstrated.
Packet Port II, an outside voice over Internet protocol terminal
targeted at the carrier-grade telephone market. The following table
identifies specific assumptions for the project, in millions:
------------------- ----------------- ------------------ --------------- ------------------ -----------------
Project Fair value at Estimated Expected cost Expected date Discount rate
date of percentage of to complete to complete
valuation completion
------------------- ----------------- ------------------ --------------- ------------------ -----------------
------------------- ----------------- ------------------ --------------- ------------------ -----------------
Packet Port II $10.0 33.8% $10.6 March 2002 27%
------------------- ----------------- ------------------ --------------- ------------------ -----------------
There are specific risks associated with this in-process technology.
Based on the key product objectives of the Packet Port II, from a
hardware perspective, the product is required to achieve power supply
performance capable of meeting a wide range of input power, operating
conditions and loads. From a software perspective, Arris is dependent
on a third party for reference design software critical to this
product. Since development of this reference design software is
currently in process, the ordinary risks associated with the completion
and timely delivery of the software are inherent to this project.
Additionally, there are sophisticated power management techniques
required to meet the target power consumption of this product. There
are technical/schedule risks associated with implementing processor
power down that can simultaneously meet power consumption targets
without affecting the voice or data functionality of this technology
application.
It is anticipated that the Packet Port II project will be in service in
field trials during the latter part of the fourth quarter of 2001 and
is expected to begin contributing to consolidated revenues by the end
of the first quarter 2002. First prototypes of the Packet Port II are
currently being developed. This will allow testing on the functionality
of the major subsystems of this product.
Valuation of in-process research and development
The fair values assigned to each developed technology as related to
this transaction were valued using an income approach based upon the
current stage of completion of each project in order to calculate the
net present value of each in-process technology's cash flows. The cash
flows used in determining the fair value of these projects were based
on projected revenues and estimated expenses for each project. Revenues
were estimated based on relevant market size and growth factors,
expected industry trends, individual product sales cycles, the
estimated life of each product's underlying technology, and historical
pricing. Estimated operating expenses include cost of goods sold,
selling, general and administrative and research and development
expenses. The estimated research and development expenses include costs
to maintain the products once they have been introduced into the market
and are generating revenues and costs to complete the in-process
research and development. It is anticipated that the acquired
in-process technologies will yield similar prices and margins that have
been historically recognized by Arris and expense levels consistent
with historical expense levels for similar products.
A risk-adjusted discount rate was applied to the cash flows related to
each existing products' projected income stream for the years 2002
through 2006. This discount rate assumes that the risk of revenue
streams from new technology is higher than that of ANTEC and Arris as a
whole. The discount rate used in the present value calculations was
generally derived from a weighted average cost of capital, adjusted
upward to reflect the additional risks inherent in the development life
cycle, including the useful life of the technology, profitability
levels of the technology, and the uncertainty of technology advances
that are known at the assumed transaction date. Product-specific risk
includes the stage of completion of each product, the complexity of the
development work completed to date, the likelihood of achieving
technological feasibility, and market acceptance.
35
39
Risk factors related to in-process research and development
The risks and uncertainties of the business as previously disclosed are
inclusive of the risks and uncertainties of new product development.
However, in general, Broadband Parent's future success will depend, in
part, on its ability to develop, introduce and market new products in a
timely manner. We also must respond to competitive pressures, evolving
industry standards and technological advances. There can be no
assurances that the current technology applications discussed above
will be successfully developed or, if successfully developed, that they
will be widely used or timely deployed. If Broadband Parent is unable
to introduce these products effectively or in a timely manner,
Broadband Parent runs the risk of losing some or all of the
time-to-market advantage Broadband Parent might otherwise have had.
Furthermore, competitors may develop similar or alternative new
technology applications that, if successful, could have a material
adverse effect on Broadband Parent's business. The markets for these
technology applications are also subject to evolving standards, market
compliance and technological advances in these arenas. There is no
guarantee that Broadband Parent will be successful in keeping pace with
future technological advances in these arenas. In future filings
Broadband Parent will continue to assess these risks and uncertainties
based on the multitude of factors that affect them.
Additionally, the forecast data employed in the valuation analyses was
based upon both forecast information maintained by Arris Interactive
and Broadband Parent's estimate of future performance of the business.
The inputs used in analyzing the in-process research and development
projects were based upon assumptions that management believes to be
reasonable but which are inherently uncertain and unpredictable. These
assumptions may be incomplete or inaccurate, and no assurance can be
given that unanticipated events and circumstances will not occur.
Accordingly, actual results may vary from the forecasted results. While
Broadband Parent believes that these development projects will be
successfully completed, failure of any of these projects to achieve
technological feasibility, and/or any variance from forecasted results,
may result in a material adverse effect on the business, results of
operations and financial condition of Broadband Parent.
It should be noted that the amounts estimated for each in-process
technology being acquired is subject to change based on the timing and
consummation of the proposed transaction and final valuation of the
in-process research and development costs to be conducted at that time.
The status of each project, their respective percentage of completion
at the close of the transaction, the estimated remaining cost and
timing to complete and all other factors considered in this valuation
will be reviewed and updated.
The in-place workforce was valued using a cost approach, incorporating
hiring and training costs, as well as time to achieve full
productivity.
The final allocation of the purchase price will be determined after the
transaction is completed and after completion of thorough analyses to
identify and determine the fair values of Arris Interactive's tangible
and identifiable intangible assets and liabilities as of the date the
transaction is completed. Any change in the fair value of the net
assets of Arris Interactive will change the amount of the purchase
price allocable to goodwill. Additionally, changes in Arris
Interactive's members' capital deficiency, including net income (loss)
from April 1, 2001, through the date the transaction is completed, will
also change the amount of goodwill recorded. In addition, the final
allocation may be materially different from the unaudited pro forma
adjustments presented herein. See further discussion in note (G) below.
(E) These adjustments are to reflect the change in gross profit included in
ending inventory of ANTEC for products purchased from Arris Interactive
totaling $(2,298) and $2,558 for the three months ended March 31, 2001
and the year ended December 31, 2000, respectively.
(F) The amortization of intangible assets and goodwill of $10,263 and
$41,053 for the three months ended March 31, 2001 and the year ended
December 31, 2000, respectively, is reflected in the unaudited pro
forma combined statements of operations using the following estimated
useful lives:
Existing technology 3 years
Workforce 5 years
Goodwill 10 years
36
40
ANTEC expects that the existing technology will have an amortization
period ranging from two to four years and the workforce will have an
amortization period ranging from three to six years. At this time, the work
needed to provide the basis for estimating these fair values and amortization
periods has not been completed.
Under the new statement on business combinations, which is currently
being finalized by the FASB staff, all business combinations accounted for by
the purchase method that are completed after June 30, 2001, are subject to the
provisions of the final statement relating to the nonamortization,
impairment-only approach for accounting for goodwill. As this transaction is
expected to close after June 30, 2001, the goodwill acquired in the transaction
will not be amortized. Goodwill amortization has been reflected in the pro forma
combined statements of operations as they have been prepared to reflect the
transaction as if it had occurred on January 1, 2000, prior to the effective
date of the new statement.
Changes in the allocations of the purchase price and the useful lives
of the intangible assets could change the amount of annual amortization expense
and the related tax effect, as applicable. The following table shows the effect
on pro forma operating income (loss), net income (loss) and net income (loss)
per share based upon the range of the amortization periods, as well as possible
value, that could be reasonably determined for each intangible asset identified
and goodwill:
Year ended December 31, 2000
----------------------------------------------------
Net income
Net income per common Net income
Operating attributable share per common
Income to common Basic share
stock Diluted
--------- ------------ ---------- ----------
(in thousands, except per share data)
As disclosed in the pro forma financial information $ 65,866 $ 27,357 $0.36 $0.36
Based upon the shortest economic life of the range (see note (F)) 47,469 16,025 0.21 0.21
Based upon the longest economic life of the range (see note (F)) 74,511 32,682 0.44 0.43
Based upon a 10% increase in the value of intangible assets (see note (D)) 63,250 26,112 0.35 0.34
Based upon a 10% decrease in the value of intangible assets (see note (D)) 68,481 28,602 0.38 0.37
Based upon a 20% increase in the value of intangible assets (see note (D)) 60,635 24,867 0.33 0.32
Based upon a 20% decrease in the value of intangible assets (see note (D)) 71,096 29,847 0.40 0.39
Three months ended March 31, 2001
----------------------------------------------------
Net (loss) Net (loss) Net (loss)
Operating attributable per common per common
(loss) to common share share
stock Basic Diluted
--------- ------------ ---------- ----------
(in thousands, except per share data)
As disclosed in the pro forma financial information $ (19,578) $ (16,452) $(0.22) $(0.22)
Based upon the shortest economic life of the range (see note (F)) (24,178) (19,285) (0.26) (0.26)
Based upon the longest economic life of the range (see note (F)) (17,417) (15,121) (0.20) (0.20)
Based upon a 10% increase in the value of intangible assets (see note (D)) (20,232) (16,763) (0.22) (0.22)
Based upon a 10% decrease in the value of intangible assets (see note (D)) (18,925) (16,141) (0.21) (0.21)
Based upon a 20% increase in the value of intangible assets (see note (D)) (20,866) (17,075) (0.23) (0.23)
Based upon a 20% decrease in the value of intangible assets (see note (D)) (18,271) (15,830) (0.21) (0.21)
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(G) The adjustments of $(5,566) and $11,292 are to tax effect Arris
Interactive's (loss) income before tax for the three months ended March
31, 2001 and the year ended December 31, 2000, respectively, as Arris
Interactive is a limited liability company and is therefore not subject
to income tax.
(H) This adjustment is to eliminate the $4,858 and $25,260 of royalty
expense incurred by Arris Interactive during the three months ended
March 31, 2001 and the year ended December 31, 2000, respectively.
These royalties are paid to Nortel Networks for Cornerstone products
manufactured at non-Nortel Networks facilities. As a result of the
transaction, these royalties will cease to be incurred.
(I) This adjustment is to eliminate the $116,600 capital contribution made
by Nortel Networks in conjunction with the transaction as discussed in
note (B) and pre-transaction equity, consisting of a capital in excess
of par balance of $103,332 and retained earnings balance of $(146,685).
This adjustment also reflects $(8,128) representing ANTEC's 18.75%
carryover basis in the pre-transaction equity of Arris Interactive
($43,353 x 18.75% = $8,128). As Nortel Networks' capital contribution
was made in conjunction with the purchase and would not otherwise have
been made, it has been excluded from ANTEC's 18.75% carryover basis.
(J) The $327 and $(1,448) adjustments reflect the tax effect of the pro
forma adjustments to (loss) income before taxes for the three months
ended March 31, 2001 and the year ended December 31, 2000,
respectively.
(K) This adjustment is to eliminate $2,617 and $9,214 of interest expense
incurred on Arris Interactive's note payable to Nortel Networks during
the three months ended March 31, 2001 and the year ended December 31,
2000, respectively, as the note and accrued interest is being
contributed to Arris Interactive as a result of the transaction as
discussed in note (B).
(L) This adjustment is to record the payment-in-kind dividends earned on
the $88.5 million of accounts payable due from Arris Interactive to
Nortel Networks that are being converted into a new membership interest
in Arris Interactive as discussed in note (M). The new membership
interest is entitled to a return of 10% per annum. The $2,205 and
$3,736 of dividends earned during the three months ended March 31, 2001
and year ended December 31, 2000, respectively, were calculated based
on the average outstanding balances of $88,200 and $37,360 during the
respective periods.
(M) This adjustment is to record the issuance of the new membership
interest in exchange for amounts payable to Nortel Networks from Arris
Interactive for accrued and unpaid trade obligations and royalty
payments of $65,594 and the increase in long term notes payable due to
Nortel Networks since January 1, 2001 of approximately $22,906 at
closing. Subject to the satisfaction of certain conditions, Arris
Interactive will redeem this new membership interest beginning six
months after the closing of the transaction. Nortel Networks is
entitled to a 10% return per annum on the outstanding balance
(estimated total of $88.5 million at closing) in the form of
payment-in-kind dividends as discussed in note (L).
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THE TRANSACTION
GENERAL
We are furnishing this document to the stockholders of ANTEC in
connection with the solicitation of proxies by the ANTEC board for use at the
special meeting. At the special meeting, which will be held on July 25, 2001,
ANTEC stockholders will be asked to approve and adopt the plan of
reorganization.
The board of directors of ANTEC has agreed to acquire Nortel Networks'
interest in Arris Interactive, a developer of broadband cable access technology.
The transaction is relatively complex, but in general involves:
- the creation of a new publicly-traded company, currently named
Broadband Parent Corporation, that will acquire Nortel
Networks' interest in Arris Interactive for 37 million shares
of Broadband Parent common stock;
- capital contributions by ANTEC and Nortel Networks to Arris
Interactive in the form of the cancellation of approximately
$124 million of existing indebtedness of Arris Interactive to
Nortel Networks and, indirectly, to ANTEC; and
- the conversion of the remaining indebtedness of Arris
Interactive to Nortel Networks and of outstanding accounts
payable due to Nortel Networks, estimated to be approximately
$90 million, into a new membership interest in Arris
Interactive and a guaranty by Broadband Parent of Arris
Interactive's obligation to redeem such new membership
interest.
At the same time, Broadband Transition Corporation, a wholly-owned
subsidiary of Broadband Parent, will merge with and into ANTEC. In the merger,
each stockholder of ANTEC will receive one share of Broadband Parent common
stock in exchange for each share of ANTEC common stock that the stockholder
owns. As a result of these proposed transactions:
- Nortel Networks will own approximately 49% of Broadband Parent
immediately after the transaction;
- Current stockholders of ANTEC will own approximately 51% of
Broadband Parent immediately after the transaction; and
- Nortel Networks will own a membership interest in Arris
Interactive that Arris Interactive is required to redeem over
approximately five quarters.
Throughout this document we generally refer to the ANTEC merger and the
acquisition of Arris Interactive together as "the transaction." Prior to or upon
the transaction, Broadband Parent will be renamed Arris Group, Inc.
We have attached a copy of the plan of reorganization as Appendix I to
this document.
BACKGROUND OF THE TRANSACTION
The ANTEC board of directors and management continually review
strategic options to enhance stockholder value, including joint ventures,
strategic investments, transactions and dispositions. Throughout its history
ANTEC has been involved in several transactions and joint ventures. The Arris
Interactive joint venture with Nortel Networks, begun in November 1995, has been
one of the most successful of these endeavors. Initially, Arris Interactive was
owned 75% by Nortel Networks and 25% by ANTEC. In 1999, Nortel Networks
contributed certain assets of LANcity to Arris Interactive in exchange for an
increase in its ownership percentage to 81.25%. In general, Arris Interactive
designs and provides a line of products which is then distributed by ANTEC to
the United States cable market and by Nortel Networks to other markets.
In March 2000, ANTEC and Nortel Networks began discussing a potential
business combination involving the acquisition by Nortel Networks of ANTEC. The
parties were unable to agree on the major terms of a transaction and discussions
were terminated in June 2000. ANTEC did not have any substantive discussions
with any other party.
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However, since June 2000, in various discussions, ANTEC, Nortel
Networks and Arris Interactive senior management have focused on how the current
structure of Arris Interactive may impede further rapid growth and development
of the Arris Interactive business. These possible impediments include:
- the lack of an equity currency to retain, motivate and recruit
personnel or to make transactions;
- the lack of freedom under the joint venture agreements to
develop products outside traditional hybrid fiber-coaxial
architectures, or to develop products and technologies that
may theoretically impinge on one or the other parent's
strategic directions; and
- market confusion and conflict between the channels on the sale
of Arris Interactive products.
Arris Interactive's management was asked to review these impediments in
connection with the strategic alternatives for the Arris Interactive business.
At an August 2, 2000 meeting of Arris Interactive's members committee, these
issues and others were discussed in depth. After management's presentations and
a discussion were completed, the Nortel Networks and ANTEC members of the
committee met privately. After the meeting, John M. Egan, Chairman of the board
of directors of ANTEC, Robert J. Stanzione, President, Chief Executive Officer
and Director of ANTEC, and Lawrence A. Margolis, Executive Vice President and
Chief Financial Officer of ANTEC, proposed the possibility to Steven Pusey,
President - Cable Media Solutions of Nortel Networks, Michael Pangia, Vice
President - Finance Market Segments of Nortel Networks, and Adrian Donoghue,
Vice President - Mergers & Acquisitions of Nortel Networks, that ANTEC acquire
all of Nortel Networks' ownership interest in Arris Interactive. Immediately
thereafter, ANTEC engaged Donaldson, Lufkin & Jenrette Securities Corporation,
the successor of which is Credit Suisse First Boston Corporation, which we refer
to as CSFB, to assist in evaluating the Arris Interactive business and to assist
in structuring, negotiating and evaluating the proposed transaction. At ANTEC's
regularly scheduled board meeting held on August 10, 2000, the board of
directors discussed the strategic alternatives for the Arris Interactive
business, including an acquisition by ANTEC of Nortel Networks' interest in
Arris Interactive.
Several conferences and meetings took place with CSFB and, on August
31, 2000, Messrs. Stanzione and Margolis met with Messrs. Pusey and Pangia at
ANTEC's offices in Duluth, Georgia. At that meeting, after a discussion of
strategic directions of each company, ANTEC delivered a proposed term sheet for
the purchase of Nortel Networks' interest in the joint venture, subject to
completion of due diligence and several other conditions. Messrs. Stanzione,
Margolis, Pusey and Pangia, together with Craig Johnson, Vice President -
Mergers & Acquisitions of Nortel Networks Limited, had several conferences in
the ensuing days to discuss the terms and various elements of the transaction.
Subsequently, the parties prepared and discussed term sheets and reconvened in
Boston, Massachusetts on September 15, 2000 with investment bankers and legal
counsel. The parties continued to exchange views concerning the term sheets and,
on October 4, 2000, ANTEC delivered the first draft of the plan of
reorganization. The plan of reorganization and other ancillary agreements
continued to be negotiated through October 18, 2000. The parties structured the
reorganization to include a holding company, or Broadband Parent, so that the
transaction would qualify as a "reorganization" for federal income tax purposes.
In mid-September 2000, ANTEC commenced discussions of a financing
package with The Bank of New York to finance the transaction purchase price as
well as on-going combined operations. These discussions and negotiations
continued until October 17, 2000, when the bank and ANTEC signed a commitment
letter with respect to a $550 million credit facility.
During October 2000, representatives from ANTEC and Nortel Networks met
with members of Arris Interactive's management, investment bankers, commercial
bankers, lawyers and accountants to commence due diligence, which continued for
two weeks.
Throughout the August through October time period, ANTEC management
actively conferred with various members of the ANTEC board of directors by
teleconference. On October 12, 2000, ANTEC's board of directors met formally by
teleconference with senior management, legal counsel and the investment bankers.
At this meeting the board of directors considered and thoroughly discussed the
reasons for the transaction, valuations, the plan of reorganization, the advice
of its financial advisors and other items. On October 15, 2000, the board of
directors met again to review the terms of the proposed financing package with
The Bank of New York, the terms being negotiated with Nortel Networks, the due
diligence being conducted on Arris Interactive and various personnel matters. On
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October 16, 2000, the board of directors met again and reviewed the final terms
of the transaction. In general, the plan of reorganization provided for Nortel
Networks to receive 33 million shares of Broadband Parent common stock, and $325
million in cash (which amount included the repayment of existing indebtedness
owed by Arris Interactive to Nortel Networks). At the October 16 meeting, CSFB
delivered its oral opinion that, as of that date, based upon and subject to the
limitations, assumptions and qualifications set forth in its written opinion,
the consideration to be paid by Broadband Parent, consisting of 33 million
shares of Broadband Parent common stock and $325 million in cash (which amount
included the repayment of existing indebtedness owed by Arris Interactive to
Nortel Networks), to Nortel Networks in exchange for Nortel Networks' 81.25%
interest in Arris Interactive was fair, from a financial point of view, to ANTEC
and holders of ANTEC common stock. A further discussion of the benefits and
risks of the proposed transaction occurred and the board of directors approved
the transaction and determined to recommend the transaction for the approval of
ANTEC stockholders.
On October 18, 2000, ANTEC and Nortel Networks signed the plan of
reorganization, issued a joint press release and held a webcast press conference
announcing the transaction. On the signing date, the closing price of ANTEC
common stock was $11.56 per share.
On November 24, 2000, AT&T Broadband, a unit of AT&T Corp., announced
that it would postpone until mid-January 2001 taking product shipments that it
had previously ordered. On December 14, 2000, ANTEC informed Nortel Networks
that ANTEC believed that it would be unable to satisfy the closing condition of
obtaining financing sufficient to make the closing payment of $325 million to
Nortel Networks, due to its lender's election not to provide funding to ANTEC.
On December 15, 2000, ANTEC, in a joint press release with Nortel Networks,
announced that as a result of changes in industry conditions and financial
markets, ANTEC needed to seek new financing for the transaction. On the date of
the joint press release, the closing price of ANTEC common stock was $8.94 per
share. Immediately after the joint press release through January 8, 2001,
Messrs. Margolis and Michael Dadoun, Senior Manager of Global Mergers &
Acquisitions of Nortel Networks, entered into discussions on proposed revised
terms of a plan of reorganization.
On January 10, 2001, Messrs. Stanzione and Margolis and Michael
Graziano, Treasurer of ANTEC, met with Messrs. Johnson, Dadoun and Pangia in
Houston, Texas to discuss restructuring the transaction. As a result of this
meeting, it tentatively was agreed that Nortel Networks would receive an
additional two million shares, or 35 million shares of common stock, and a
promissory note in the principal amount of $50 million (in lieu of the repayment
of existing indebtedness). As of the meeting date, the closing price of ANTEC
common stock was $10.31 per share. However, during subsequent negotiations in
late January through April, 2001, the parties agreed to revise the terms of the
transaction such that Nortel Networks would receive an additional four million
shares, or 37 million shares of common stock, in exchange for its interest in
Arris Interactive. Under the revised terms, the existing indebtedness of Arris
Interactive to Nortel Networks and indirectly to ANTEC of approximately $124
million would be canceled as a contribution to the capital of Arris Interactive.
During the period of these negotiations, the closing price of ANTEC common stock
decreased from $13.94 per share on January 31, 2001, to $10.50 per share on
February 15, 2001, to $8.97 per share on February 28, 2001, to $8.00 per share
on March 15, 2001 and to $7.28 per share on March 30, 2001. On the signing date
of the amendment to the plan of reorganization, April 9, 2001, the closing price
of ANTEC common stock was $6.14 per share. In addition to the change in the
number of shares received by Nortel Networks, the parties agreed to modify the
provisions of other transaction documents as follows:
- to accelerate the termination of the exclusivity provisions of
existing agreements among ANTEC, Arris Interactive and Nortel
Networks from the effective date of the transaction to April
9, 2001;
- to extend the outside closing date in the plan of
reorganization from April 30, 2001 to July 31, 2001, unless
Nortel Networks terminates the plan of reorganization at an
earlier date following the termination of the commitment to
provide financing to ANTEC by its lender;
- to permit Nortel Networks to terminate the plan of
reorganization if the amount of Arris Interactive's payment
obligation to Nortel Networks to be exchanged for the new
membership interest in Arris Interactive, as described below,
exceeds $100 million;
- to allow Nortel Networks, at any time prior to the termination
of the investor rights agreement, to participate in
discussions with third parties for the acquisition by third
parties of at least 90% of the
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outstanding shares of Broadband Parent, provided that
Broadband Parent is notified of and allowed to participate in
the discussions, and
- to provide for Arris Interactive to repurchase inventory of
Arris Interactive products held by Nortel Networks.
Under the terms of the October 18, 2000 agreement, the board of
directors of either party had the right to terminate the agreement if the other
party failed to satisfy its closing conditions, which included obtaining
financing sufficient to make the closing payment, prior to April 30, 2001.
Throughout these discussions, ANTEC management regularly updated its
board of directors regarding the negotiations with Nortel Networks and its
efforts to obtain financing for the transaction. On February 5, 2001, ANTEC's
board met formally by teleconference with its senior management, legal counsel
and CSFB. At this meeting, the board considered and thoroughly discussed the
proposed revisions to the transaction and financing. CSFB reviewed its analysis
with respect to the fairness of the transaction and delivered its oral opinion
that as of that date, based upon and subject to the limitations, assumptions and
qualifications set forth in its written opinion attached to this document as
Appendix II, the consideration to be paid by Broadband Parent, consisting of 37
million shares of Broadband Parent common stock, to Nortel Networks in exchange
for Nortel Networks' entire interest in Arris Interactive was fair, from a
financial point of view, to ANTEC and holders of ANTEC common stock. After
further examination of the risks and benefits of the transaction, the board
approved the amendments to the agreements for the transaction and called for the
special meeting.
From January through April 2001, ANTEC negotiated with two bank groups
concerning a new asset-based credit facility. During this period, the bank
groups conducted due diligence on ANTEC, Arris Interactive and Broadband Parent.
The new credit facility is necessary to insure that ANTEC and Arris Interactive
will have sufficient working capital following the completion of the
transaction. On April 9, 2001, ANTEC signed a commitment letter with CSFB to act
as the agent and arranger for secured revolving credit facility in an aggregate
principal amount, subject to a borrowing base, of $175 million. For a
description of the commitment letter for the new credit facility, please see
"Other Agreements -- New Credit Facility."
As part of the transaction, Arris Interactive initially agreed to bring
current at closing its accounts payable to Nortel Networks and as part of the
negotiations in January and February agreed to pay the accounts payable on a
deferred basis. This would have required cash payments of between $80 million
and $100 million. The commitment letter required that those cash payments be
deferred and ANTEC's lender for the new credit facility expressed its
unwillingness to allow the deferred payment to be structured as a subordinated
note of Arris Interactive. As a result, Nortel Networks agreed to contribute the
amount due to it by Arris Interactive in exchange for a new membership interest
in Arris Interactive. Nortel Networks may terminate the plan of reorganization
if the amount of Arris Internative's payment obligation to be exchanged for the
new membership interest exceeds $100 million. Additionally, ANTEC's lender may
refuse to close on the financing if the amount of the new membership interest in
Arris Interactive will exceed $84.7 million. The new membership interest is as
set forth in the amended limited liability operating agreement of Arris
Interactive and has the following features:
- the new membership interest represents a redeemable capital
account balance of between $80 million and $100 million, and
accrues an annually compounded return of 10% per year;
- the new membership interest has a liquidation preference;
- during the first six months after the closing of the
transaction, Arris Interactive is not required or permitted to
make any redemption payments on the new membership interest
except for a redemption of up to $10 million upon closing of
the new credit facility if Arris Interactive and ANTEC will,
after giving effect to the redemption, have at least $85
million remaining available under the new credit facility;
- the redemption right of the new membership interest is
subordinated to the obligations owed to the senior lenders of
Arris Interactive and ANTEC under the new credit facility, and
the new membership interest may not be redeemed in the event
of a default on the senior indebtedness or, after giving
effect to any
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redemption, if Arris Interactive or ANTEC will have less than
$75 million available under its new credit facility with its
senior lenders;
- subject to the above limitations on redemption, the new
membership interest must be redeemed for cash starting six
months after the closing of the transaction at a rate of up to
$33 million per fiscal quarter;
- in the event of a change in control of Broadband Parent or six
months after the final maturity of the new credit facility or
any modified or replacement facility, the new membership
interest must be redeemed in full;
- the new membership interest does not provide Nortel Networks
with management rights in Arris Interactive or with the right
to receive distributions, aside from the redemption as
discussed above;
- the new membership interest is subject to mandatory exchange
for common stock, preferred stock or a subordinated note of
Broadband Parent, as may be selected by Nortel Networks, in
the event that Broadband Parent and/or ANTEC sell their
interest in Arris Interactive, there is a foreclosure or
similar event under the new credit facility, or the lenders
under the new credit facility require the mandatory exchange
to take place during the existence of any event of default
under the new credit facility; and
- Arris Interactive's redemption obligations with respect to the
new membership interest are guaranteed by Broadband Parent on
a subordinated basis, and in connection with this guaranty,
Broadband Parent will be restricted from paying any dividends
until the new membership interest is redeemed in full.
On April 9, 2001, upon receipt of the signed commitment letter from
CSFB, ANTEC and Nortel Networks signed amendments to the plan of reorganization
and several other transaction documents that were revised as part of the
negotiating process and issued a joint press release announcing the revised
terms of the transaction.
On June 15, 2001, Nortel Networks announced its decision to discontinue
its access solutions business operation, which includes Arris Interactive. As a
result, Nortel Networks has informed ANTEC that, once its membership interest in
Arris Interactive is exchanged for the Broadband Parent common stock as a result
of this transaction, it may, among other things, sell a substantial percentage
of its Broadband Parent common stock within the next twelve months and, to
facilitate this, may exercise its demand registration rights from time to time.
REASONS FOR THE TRANSACTION
The ANTEC board of directors believes that the terms of the transaction
are fair to and in the best interests of ANTEC and its stockholders and
unanimously, with Mr. Craig abstaining, recommends to its stockholders that they
vote "FOR" the transaction.
In determining to approve the transaction and recommend it to its
stockholders, the ANTEC board of directors considered a number of factors,
including the following:
- ANTEC believes that the growth prospects for conveyed
telecommunications networks offering cable telephony and high
speed data are significant. Under the present Arris
Interactive structure its participation in that growth is
limited to its minority 18.75% interest. The transaction
provides ANTEC with 100% of this opportunity.
- The transaction provides ANTEC the potential to pursue product
and technology extensions in its existing business using the
engineering and design expertise of the Arris Interactive
organization.
- The transaction enables the combined company to acquire new
products or technology to expand Arris Interactive's product
offering using the equity of Broadband Parent. As a joint
venture Arris Interactive did not have the ready ability to
issue new equity, and few, if any, sellers would be interested
in receiving illiquid equity in a closely held business.
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- The transaction enables ANTEC stockholders to more directly
benefit from ANTEC's investment in Arris Interactive, an
investment which is currently illiquid, cannot be sold to
purchasers competitive to Nortel Networks without the consent
of Nortel Networks and, even if sellable, would have a limited
value because of ANTEC's minority, non-controlling position in
the limited liability company.
- ANTEC believes that it is viewed by the analytical community
primarily as a distributor of products despite its ownership
interest in Arris Interactive and other design and
manufacturing operations. By owning all of Arris Interactive,
the mix of ANTEC's business will shift further away from lower
margin distribution business, which may result in valuations
of Broadband Parent's business based upon higher pricing
multiples.
- The transaction eliminates restrictions on certain strategic
combinations which under the existing joint venture
arrangements would allow Nortel Networks to buy out ANTEC's
interest in Arris Interactive.
- The transaction enables continued sourcing of products from
Nortel Networks directly through December 31, 2001 and
thereafter by technology license.
- The transaction allows ANTEC to diversify its customer base
and reduce its dependence on current customers since the
Nortel Networks distribution channel migrates to a
non-exclusive sales agency relationship. This relationship
will last at least three years, allowing ANTEC the benefit of
the Nortel Networks worldwide sales force during that period
while enabling ANTEC to pursue sales directly worldwide.
- The transaction expands ANTEC's international presence.
International sales of Arris Interactive products were $22.3
and $215.2 million for the three months ended March 31, 2001
and the year ended December 31, 2000, respectively, more than
twice as much as ANTEC's stand-alone international sales for
the same periods.
- The transaction solidifies ANTEC's reputation as a premier
telecommunications supplier by permitting it, on a world-wide
basis, to distribute a broader product offering to all
potential customers.
- The transaction is expected to be neutral to slightly
accretive to the earnings per share of ANTEC before
amortization of intangibles and to positively change ANTEC's
financial and business profile to a higher gross margin
business with a substantial investment in research and
development and proprietary technology.
- The favorable terms and structure of the transaction,
including the fixed number of shares being issued and the
absence of termination fees should the transaction close due,
for instance, to ANTEC's inability to obtain necessary
financing.
- The strength of the combined management team for the merged
companies.
- The high equity ownership level and economic interest of
Nortel Networks in the success of the new company and the
agreement to have two Nortel Networks representatives on
Broadband Parent's board of directors.
- The opinion of CSFB to the effect that, as of February 5,
2001, based upon and subject to the limitations, assumptions
and qualifications set forth in its written opinion attached
to this document as Appendix II, the consideration to be paid
by Broadband Parent, consisting of 37 million shares of
Broadband Parent common stock, to Nortel Networks in exchange
for Nortel Networks' entire interest in Arris Interactive was
fair, from a financial point of view, to ANTEC and holders of
ANTEC common stock.
- The purchase price being paid for Nortel Networks' interest is
less than the implied valuation of Arris Interactive, as
compared to the evaluation of comparable public companies and
a discounted cash flow analysis as presented to the ANTEC
board of directors by CSFB.
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The ANTEC board of directors also considered several potentially
unfavorable factors. The most significant of these were:
- The significant ownership interest of Nortel Networks which
will have a significant ability to influence Broadband
Parent's management and operations. However, Nortel Networks'
influence will be constrained by the Amended and Restated
Investor Rights Agreement, which limits Nortel Networks' board
representation to two members and contains extensive
limitations should it elect to increase or decrease the size
of its ownership position.
- An agreement to sell ANTEC might provide a larger immediate
increase in stock prices. The board of directors concluded,
however, that the long-term value received by stockholders was
likely to be greater with the transaction.
- Nortel Networks' willingness to provide only limited
representations and warranties in the plan of reorganization
with respect to Arris Interactive's business. Generally, a
seller will give a wide range of representations and
warranties. As a result of ANTEC's familiarity with Arris
Interactive, Nortel Networks was willing to give broad
representations and warranties regarding only Arris
Interactive's financial statements, employee benefit plans and
compliance with laws.
- The effect of the substantial goodwill expected to result from
the transaction and the application of recently proposed
accounting rules with respect to goodwill valuation and
amortization.
- The risk that key employees of Arris Interactive, some of whom
are long-term Nortel Networks' employees, might not want to
work for Broadband Parent.
- The challenges of integrating Arris Interactive and ANTEC.
- The significant time and financial resources required for the
development of new products by Arris Interactive, whose
business therefore generally is riskier than ANTEC's current
business.
- Previously Nortel Networks and ANTEC were not allowed to
compete with Arris Interactive's business. As a condition to
signing the plan of reorganization, Nortel Networks insisted
upon being released from these restrictions. As a result,
ANTEC's board of directors was concerned with the risk that
while the transaction would not be consummated, the
non-competition agreements between Nortel Networks and Arris
Interactive would terminate in any event.
Overall, ANTEC's board of directors concluded that these factors were
substantially outweighed by the benefits expected to result from the
transaction.
No one factor was the reason for any individual director's decision,
and each director attached his or her own weight to the many factors considered.
However, based on the total mix of information available to them, all directors,
except for Mr. Craig, who abstained from voting, determined to approve and
recommend the transaction to ANTEC stockholders. They concluded that the
strategic, operational and financial opportunities the transaction presents will
enhance ANTEC stockholder value and that stockholders should stand to benefit in
the future by holding ownership interests in the combined entity.
RECOMMENDATION OF THE ANTEC BOARD
The ANTEC board of directors, by unanimous vote with Mr. Craig
abstaining, approved and adopted the plan of reorganization, believes the
transaction is fair and in the best interests of ANTEC and its stockholders, and
recommends that ANTEC stockholders vote "FOR" approval and adoption of the plan
of reorganization. Mr. Craig abstained from voting with respect to the
transaction because he retired as Chief Marketing Officer of Nortel Networks and
continues to receive retirement and other benefits from Nortel Networks.
This recommendation is based primarily on the board of directors'
conclusions that the transaction (1) will fulfill the strategic objectives
described above under "Reasons for the Transaction" and (2) will be favorable
financially to
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ANTEC and its stockholders. This second conclusion, in turn, is the product of
substantial financial analysis by ANTEC. In general this analysis suggests that
the transaction will be neutral to slightly accretive to the earnings per share
of ANTEC before amortization of intangibles.
In addition, in arriving at its recommendations, ANTEC's board of
directors relied upon the opinion of its financial advisor, which is described
more fully under "The Transaction - Opinion of Financial Advisor" on page 47.
ACCOUNTING TREATMENT
We will account for the transaction as a purchase of Arris Interactive
by ANTEC. This accounting treatment is based on various factors present in the
transaction, including the majority ownership (and voting control) of ANTEC's
stockholders following the transaction and the limitation of influence of Nortel
Networks through limiting it to two representatives on the board of directors.
As a result, the consolidated financial statements of Broadband Parent after the
transaction will reflect the assets and liabilities of ANTEC at book value and
the assets and liabilities of Arris Interactive at fair value. For presentation
of the anticipated effects of the accounting treatment on the consolidated
financial position and results of operations of Broadband Parent, we have
included unaudited pro forma combined financial statements in this document.
REGULATORY MATTERS
A summary of the material regulatory requirements affecting the
transaction are set forth below. Additional consents or notifications to
governmental agencies may be necessary or appropriate in connection with the
transaction.
Consummation of the transaction is conditioned upon receipt of final
orders from the various government entities described below that do not impose
terms or conditions that would have, or would be reasonably likely to have, a
material adverse effect on Broadband Parent. While we believe that we will
receive the requisite regulatory approvals and clearances for the transaction
that are summarized below, there can be no assurance that any such approvals
will be obtained or timely granted, not be appealed by interveners to the
appropriate courts or contain terms, conditions or qualifications that fail to
satisfy the conditions to the consummation of the transaction.
Antitrust Considerations
The transaction is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, which prevents specified transactions from
being completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and specified waiting periods are terminated or expire. On January 5, 2001, the
parties were notified by the Federal Trade Commission that the transaction had
been granted early termination of the waiting period. As a result, ANTEC and
Nortel Networks are free to proceed with the completion of the transaction under
the Hart-Scott-Rodino Antitrust Improvements Act.
In addition, the transaction is subject to the filing and information
requirements of other foreign jurisdictions. Under the laws of various foreign
nations, the transaction may not be completed unless filings are made with these
nations' antitrust regulatory authorities and until these authorities approve or
clear the transaction. In particular, ANTEC and Nortel Networks are required to
make a filing with the antitrust authorities in Brazil. ANTEC and Nortel
Networks are not aware of any other foreign governmental approvals or actions
that may be required for completion of the transaction.
APPRAISAL RIGHTS
Under the Delaware General Corporation Law, appraisal rights will not
be available to stockholders of ANTEC in connection with the transaction.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material anticipated U.S. federal
income tax consequences of the transaction to the ANTEC stockholders who hold
shares of ANTEC common stock as a capital asset at the effective time of the
merger. The discussion is based on laws, regulations, rulings and decisions in
effect on the date hereof, all of which
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are subject to change (possibly with retroactive effect) and to differing
interpretations. This discussion does not address all aspects of U.S. federal
income taxation or aspects that may be relevant to particular holders in light
of their personal circumstances or to holders subject to special treatment under
the Internal Revenue Code, including, without limitation, banks, tax-exempt
organizations, insurance companies, dealers in securities or foreign currency,
traders in securities that elect to mark to market, holders who received their
ANTEC common stock through the exercise of employee stock options or otherwise
as compensation, holders who are not U.S. persons (as defined in Section
7701(a)(30) of the Internal Revenue Code) and holders who hold ANTEC common
stock as part of a hedge, straddle or conversion transaction. In addition, the
discussion does not address any state, local or foreign tax consequences of the
transaction.
EACH HOLDER OF ANTEC COMMON STOCK IS URGED TO CONSULT THEIR TAX ADVISOR
WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE TRANSACTION TO SUCH
HOLDER.
Tax Consequences of the Merger. In connection with the filing of the
registration statement, Troutman Sanders LLP, counsel to ANTEC, has delivered to
ANTEC its opinion that, subject to the assumptions, limitations, qualifications
and other considerations described below under "Certain Considerations with
Respect to Tax Opinions," the merger (the merger being the aspect of the
transaction that is significant to the holders of ANTEC common stock) will be
treated as a reorganization for U.S. federal income tax purposes within the
meaning of Section 368(a) of the Internal Revenue Code and the U.S. federal
income tax consequences of the merger will be that (1) no gain or loss will be
recognized by ANTEC, Broadband Parent, or Broadband Parent's wholly-owned
subsidiary that will merge into ANTEC, as a result of the merger; (2) no gain or
loss will be recognized by holders who exchange all of their shares of ANTEC
common stock in the merger solely for shares of Broadband Parent common stock;
(3) the tax basis of the shares of Broadband Parent common stock received by
holders will be the same as the tax basis of the shares of ANTEC common stock
surrendered in exchange therefor; and (4) the holding period of the shares of
Broadband Parent common stock received in the merger by holders of ANTEC common
stock will include the holding period of the shares of ANTEC common stock
surrendered in exchange therefor, provided that ANTEC common stock is held as a
capital asset at the effective time.
Closing Condition Tax Opinions. ANTEC's obligation to consummate the
transaction is conditioned upon the receipt by ANTEC of its counsel's opinion,
referred to as the "closing tax opinion," dated as of the effective date of the
merger, that subject to certain assumptions, limitations, qualifications and
other considerations described below under "Certain Considerations with Respect
to Tax Opinions," the merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, and taken together with
the contribution will constitute an exchange under Section 351 of the Internal
Revenue Code, and accordingly, without taking into consideration any aspect of
the transaction other than those set forth in the plan of reorganization (and
not the ancillary agreements) (1) no gain or loss will be recognized by ANTEC,
Broadband Parent or Broadband Parent's wholly-owned subsidiary that will merge
into ANTEC; and (2) no gain or loss will be recognized by a stockholder of ANTEC
who receives Broadband Parent common stock in exchange for ANTEC common stock.
If ANTEC is unable to obtain the closing tax opinion from its counsel,
ANTEC has the right to waive the receipt of the closing tax opinion as a
condition to ANTEC's obligation to consummate the transaction. As of the date of
this document, ANTEC does not intend to waive the receipt of the closing tax
opinion as a condition to the consummation of the transaction. However, if in
fact ANTEC fails to obtain the closing tax opinion and ANTEC then elects to
waive such condition, ANTEC will resolicit your vote to approve the transaction.
Additionally, Nortel Networks' obligation to consummate the transaction
is conditioned upon the receipt by Nortel Networks of its counsel's opinion,
dated as of the effective date of the merger, to the effect that, on the basis
of facts, representations and assumptions set forth in such opinion, the
contribution will constitute an exchange under Section 351 of the Internal
Revenue Code.
Certain Considerations with Respect to Tax Opinions. The closing tax
opinion and the foregoing description of the anticipated U.S. federal income tax
consequences of the merger are based upon, and are subject to certain
assumptions, limitations and qualifications, including certain factual
representations made by the respective managements of ANTEC, Arris Interactive,
Broadband Parent and others. If any of such representations or assumptions are
inconsistent with the actual facts, the U.S. federal income tax consequences of
the merger could be adversely affected. In addition, no ruling from the Internal
Revenue Service with respect to the tax consequences of
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the merger has been, or will be, requested and the tax opinion is not binding on
the Internal Revenue Service or the courts and does not preclude the Internal
Revenue Service from adopting a contrary position and a court from sustaining
such position.
THE DISCUSSION ABOVE AND THE TAX OPINION ADDRESS THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE TRANSACTION TO HOLDERS NOT COVERED BY SPECIAL
RULES, BUT DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL
POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION. IN ADDITION, THE
DISCUSSION ABOVE AND THE TAX OPINION DO NOT ADDRESS TAX CONSEQUENCES WHICH MAY
VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS
DISCUSSION AND THE TAX OPINION DO NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN,
STATE OR LOCAL TAX CONSEQUENCES OF THE TRANSACTION. THIS DISCUSSION AND THE TAX
OPINIONS DO NOT ADDRESS THE TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE
MERGER. WE STRONGLY URGE YOU TO CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE
PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX
CONSEQUENCES OF THE TRANSACTION TO YOU.
OPINION OF FINANCIAL ADVISOR
ANTEC engaged Donaldson, Lufkin & Jenrette Securities Corporation, the
successor of which is Credit Suisse First Boston Corporation, to act as ANTEC's
financial advisor for the transaction. ANTEC asked CSFB, in its role as
financial advisor to ANTEC, to render an opinion to the ANTEC board of directors
as to the fairness, from a financial point of view, to ANTEC and holders of
ANTEC common stock of the consideration to be paid by Broadband Parent in
accordance with the terms of the plan of reorganization. On February 5, 2001,
CSFB delivered its oral opinion, subsequently confirmed in writing by letter
dated February 5, 2001, to the ANTEC board of directors to the effect that, as
of that date, based on and subject to the assumptions, limitations and
qualifications set forth in its written opinion, the consideration to be paid by
Broadband Parent, consisting of 37 million shares of Broadband Parent common
stock, to Nortel Networks in exchange for Nortel Networks' entire interest in
Arris Interactive in accordance with the agreement and plan of reorganization
was fair to ANTEC and holders of ANTEC common stock from a financial point of
view.
The full text of CSFB's opinion is attached to this document as
Appendix II. You are urged to read the CSFB opinion carefully in its entirety
for the assumptions made, the procedures followed, the matters considered, and
the limits of the review made by CSFB in connection with its opinion. CSFB
prepared its opinion for the ANTEC board of directors. The opinion is directed
only to the fairness of the consideration to be paid by Broadband Parent,
consisting of 37 million shares of Broadband Parent common stock, to Nortel
Networks in exchange for Nortel Networks' entire interest in Arris Interactive
from a financial point of view. CSFB's opinion did not address the relative
merits of the transaction and the other business strategies considered by the
ANTEC board of directors nor did it address the board's decision to proceed with
the transaction. The CSFB opinion does not constitute a recommendation to any
stockholder as to how to vote or act on any matter relating to the transaction
and does not constitute an opinion as to the actual value of Broadband Parent
common stock when issued in connection with the transaction or the prices at
which Broadband Parent common stock will trade at any time. ANTEC and Nortel
Networks determined the consideration to be paid by Broadband Parent in exchange
for Nortel Networks' interest in Arris Interactive in arm's length negotiations,
in which CSFB advised ANTEC.
ANTEC selected CSFB as its financial advisor with respect to the
transaction because CSFB is an internationally recognized investment banking
firm that has substantial experience providing strategic advisory services. CSFB
was not retained as an advisor or agent to the stockholders of ANTEC or any
person other than ANTEC. CSFB, as part of its investment banking services, is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. ANTEC did not impose any restrictions or limitations upon CSFB with
respect to the investigations made or the procedures followed by CSFB in
rendering its opinion.
In arriving at its opinion, CSFB:
- reviewed certain business and financial information
relating to Arris Interactive and certain publicly
available business and financial information relating
to ANTEC;
- reviewed the agreement and plan of reorganization,
dated October 18, 2000, the draft dated February 5,
2001 of the first amendment to agreement and plan of
reorganization and drafts of certain related
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documents and assumed that the final form of the
first amendment to agreement and plan of
reorganization and the final forms of the related
documents would not vary in any respect material to
CSFB's analysis;
- reviewed certain other information, including
financial forecasts, relating to Arris Interactive,
ANTEC and Broadband Parent that was provided to or
discussed with CSFB by Arris Interactive and ANTEC;
- met with ANTEC's management to discuss the business
and prospects of Arris Interactive, ANTEC and
Broadband Parent;
- considered certain financial data of Arris
Interactive and certain financial and stock market
data of ANTEC and compared those data with similar
data for publicly-held companies in businesses
similar to those of Arris Interactive and ANTEC;
- considered the financial terms of certain other
business combinations and other transactions which
have recently been effected; and
- considered such other information, financial studies,
analyses and investigations and financial, economic
and market criteria which CSFB deemed relevant.
In connection with CSFB's review, CSFB did not assume any
responsibility for independent verification of any of the foregoing information
and relied on such information being complete and accurate in all material
respects. With respect to financial forecasts, CSFB assumed that the financial
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of ANTEC's management as to the future
financial performance of Arris Interactive, ANTEC and Broadband Parent. ANTEC
informed CSFB, and CSFB assumed, that the transaction would be treated as a
tax-free reorganization for federal income tax purposes. In addition, CSFB was
not requested to make, and did not make, an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of Arris Interactive, nor
was CSFB furnished with any such evaluations or appraisals. CSFB also assumed
that the first amendment to agreement and plan of reorganization and related
documents, when executed, would conform to the drafts reviewed by CSFB in all
respects material to CSFB's analysis. The primary difference between the draft
dated February 5, 2001 of the first amendment to agreement and plan of
reorganization and the final form of the first amendment to agreement and plan
of reorganization concerns the timing and manner of payment of royalties payable
by Arris Interactive to Nortel Networks and amounts owed by Arris Interactive to
Nortel Networks in connection with the purchase of goods and/or services, which
CSFB did not consider material to its analysis.
The CSFB opinion is necessarily based upon information available to
CSFB and financial, economic, market and other conditions as they existed on and
could be evaluated on the date of its opinion. CSFB did not express any opinion
as to the actual value of Broadband Parent common stock when issued as part of
the transaction or the prices at which such stock will trade at any time. The
CSFB opinion does not constitute a recommendation to any stockholder of ANTEC as
to how such stockholder should vote or act on any matter relating to the
proposed transaction.
The following is a summary of the material financial analyses presented
by CSFB to the ANTEC board of directors on February 5, 2001 in connection with
the preparation of CSFB's opinion. No company CSFB used in the analyses
described below is directly comparable to ANTEC or Arris Interactive. In
addition, mathematical analysis such as determining the mean or median is not in
itself a meaningful method of using selected company data. The analyses CSFB
performed are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by these
analyses. The information summarized in the tables which follow should be read
in conjunction with the accompanying text.
Comparable Companies Analysis. CSFB analyzed the implied enterprise
value of Arris Interactive based on market values and trading multiples of
selected publicly traded telecommunications equipment companies and how these
figures compare with respect to the value of Arris Interactive implied by the
consideration to be paid to Nortel Networks in the contemplated transaction.
CSFB reviewed and compared financial information of Arris Interactive to the
corresponding financial information for these selected companies because CSFB
believed those companies to be reasonably comparable to Arris Interactive. The
selected companies consisted of:
- ADC Telecommunications, Inc.,
- Carrier Access Corporation,
- C-COR.net Corporation,
- Harmonic, Inc.,
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- Next Level Communications, Inc., and
- Scientific-Atlanta, Inc.
In examining these comparable companies, CSFB calculated the enterprise
values of each company as a multiple of its respective:
- estimated calendar 2000 sales,
- estimated calendar 2000 earnings before interest and
taxes,
- projected calendar 2001 sales, and
- projected calendar 2001 earnings before interest and
taxes.
The enterprise value of a company is equal to the value of its fully diluted
common equity plus debt and the liquidation value of outstanding preferred
stock, if any, minus cash and the value of certain other assets, including
minority interests in other entities. All historical data were derived from
publicly available sources and all projected data were obtained from Wall Street
research reports where available. All multiples were based on closing stock
prices for each of the selected comparable companies on February 2, 2001. CSFB's
analysis of the comparable companies yielded the following multiple ranges:
SELECTED COMPANIES
---------------------------------------
AVERAGE MEDIAN HIGH LOW
------- ------ ------ -----
Enterprise value as multiple of:
estimated 2000 sales (1) .............................. 2.3x 2.2x 6.7x 0.8x
estimated 2000 earnings before interest and taxes ..... 12.5 11.5 21.3 5.6
projected 2001 sales (1) .............................. 2.1 2.0 5.8 0.8
projected 2001 earnings before interest and taxes ..... 12.0 10.2 17.6 8.1
------------------
(1) Average excludes high and low values.
Based on an analysis of these data, an assessment of the comparability
of the selected companies and Arris Interactive's projected results for
comparable periods, CSFB: (1) derived a selected range of estimated 2000 revenue
multiples of 0.9x to 1.2x and a selected range of projected 2001 revenue
multiples of 0.8x to 1.1x; and (2) derived a selected range of estimated 2000
earnings before interest and taxes multiples of 6.0x to 9.0x and a selected
range of projected 2001 earnings before interest and taxes multiples of 5.5x to
8.5x for Arris Interactive. Using Arris Interactive's base case projected
results for comparable periods, which base case projections management advised
CSFB represented management's best currently available estimates and judgments
as to the future financial performance of Arris Interactive, CSFB estimated an
enterprise value for Arris Interactive ranging from $585 million to $840
million, compared to the enterprise value of $569.2 million for Arris
Interactive implied in the contemplated transaction based on the closing price
of ANTEC common stock on February 2, 2001 of $12.50 per share.
The management of ANTEC and Arris Interactive also provided CSFB with
down side projections for Arris Interactive reflecting more conservative
projections as to Arris Interactive's future financial performance, including
lower projected sales and earnings before interest and taxes estimates for 2001
to 2003. Management advised CSFB that while the base case projections
represented management's best currently available estimates and projections as
to the future financial performance of Arris Interactive, the down side case
projections represented management's estimates of a possible down side future
financial performance of Arris Interactive assuming, among other things, less
favorable industry conditions. Upon the request of management that CSFB perform
its financial analysis with respect to management's base case projections and
its more conservative down side projections, CSFB estimated an enterprise value
for Arris Interactive, using the down side projected results for 2001, ranging
from $525 million to $750 million, compared to the enterprise value of $569.2
million for Arris Interactive implied in the contemplated transaction based on
the closing price of ANTEC common stock on February 2, 2001 of $12.50 per share.
Discounted Cash Flow Analysis. CSFB performed a discounted cash flow
analysis of the projected cash flows of Arris Interactive for calendar years
2001 through 2003, using the base case projections and assumptions provided by
the management of Arris Interactive, as modified by the management of ANTEC,
which base case projections management advised CSFB represented management's
best currently available estimates and judgments as to the
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future financial performance of Arris Interactive. CSFB estimated the discounted
cash flows for Arris Interactive using discount rates ranging from 18% to 22%,
based on estimates relating to the weighted average costs of capital of Arris
Interactive, and terminal multiples of estimated earnings before interest and
taxes for 2003 ranging from 6.5x to 8.5x.
Based on this analysis, CSFB estimated a base case enterprise value
ranging from $590 million to $830 million, compared to the enterprise value of
$569.2 million for Arris Interactive implied in the current transaction based on
the closing price of ANTEC common stock on February 2, 2001 of $12.50 per share.
The management of ANTEC and Arris Interactive also provided CSFB with down side
projections for Arris Interactive reflecting lower projected sales and earnings
before interest and taxes estimates for 2001 to 2003 with which CSFB estimated
an enterprise value ranging from $435 million to $615 million, compared to the
enterprise value of $569.2 million for Arris Interactive implied in the
contemplated transaction based on the closing price of ANTEC common stock on
February 2, 2001 of $12.50 per share.
This description is only a summary of the analysis performed by CSFB
and does not purport to be a complete description of the analyses performed by
CSFB but describes in summary form, the principal elements of the presentation
that CSFB made to the ANTEC board of directors on February 5, 2001 in connection
with the preparation of CSFB's fairness opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances. Therefore, such an opinion is not readily susceptible
to summary description. Each of the analyses conducted by CSFB was carried out
in order to provide a different perspective on the transaction and add to the
total mix of information available. CSFB did not form a conclusion as to whether
any individual analysis, considered in isolation, supported or failed to support
an opinion as to the fairness from a financial point of view. Rather, in
reaching its conclusion, CSFB considered the results of the analyses together
and did not place particular reliance or weight on any individual analysis, but
instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, CSFB believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all analyses and factors, could create an incomplete or misleading
view of the evaluation process underlying its opinions. The analyses performed
by CSFB are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Engagement Letter. In accordance with the terms of an engagement letter
dated October 10, 2000, ANTEC has agreed to pay CSFB a fee in the amount of
$750,000 in connection with the delivery of its original fairness opinion
delivered on October 17, 2000, and an additional $100,000 in connection with the
updated opinion delivered on February 5, 2001. ANTEC also agreed to pay CSFB a
transaction fee equal to $4.5 million upon completion of the transaction,
against which transaction fee the $850,000 to be paid in connection with the
fairness opinions will be credited. In addition, ANTEC agreed to reimburse CSFB,
upon CSFB's request from time to time, for all out-of-pocket expenses, including
the reasonable fees and expenses of counsel, CSFB incurred in connection with
its engagement thereunder. As of June 8, 2001, CSFB expects that its
out-of-pocket expenses will be approximately $585,000. ANTEC has also agreed to
indemnify CSFB and designated persons against liabilities in connection with its
engagement, including liabilities under U.S. federal securities laws. CSFB and
ANTEC negotiated the terms of the fee arrangement.
Other Relationships. In the ordinary course of business, CSFB and its
affiliates may own or actively trade the debt and equity securities and
obligations of ANTEC and Nortel Networks for their own accounts and for the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities. According to a Schedule 13G filed on February
8, 2001, Credit Suisse Asset Management, LLC, an affiliate of CSFB, was the
beneficial owner of 1,068,251 shares of ANTEC common stock as of December 31,
2000.
In the past, CSFB and/or its affiliate, Donaldson Lufkin & Jenrette
Securities Corporation, has provided certain financial and investment banking
services to ANTEC and Nortel Networks, for which they received usual and
customary compensation.
In addition, CSFB has agreed to act as agent and arranger for, and it
or one of its affiliates may be a participating lender under, ANTEC's new credit
facility, for which CSFB will receive additional and customary consideration.
Although the exact amount cannot be determined at this time, CSFB currently
expects that the consideration it will
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receive in connection with the credit facility will be approximately $2.5
million. See "Other Agreements -- New Credit Facility" on page 67.
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DIRECTORS AND MANAGEMENT OF BROADBAND PARENT FOLLOWING THE TRANSACTION
DIRECTORS AND EXECUTIVE OFFICERS
Upon the closing of the transaction, the directors of ANTEC will become
the directors of Broadband Parent. In addition, upon the closing of the
transaction, the amended and restated investor rights agreement provides Nortel
Networks the right to designate two additional directors. All of the directors
will serve until Broadband Parent's next annual meeting of stockholders
following the closing of the transaction. In addition, the executive officers of
ANTEC will become the executive officers of Broadband Parent.
The following is information about ANTEC's current directors and
executive officers and Nortel Networks' designees, all of whom will become the
directors and executive officers of Broadband Parent immediately following the
closing of the transaction:
NAME AGE POSITION
---- ---- --------
John M. Egan................................... 53 Chairman and Director
Robert J. Stanzione............................ 52 President, Chief Executive Officer and Director
Lawrence A. Margolis........................... 52 Executive Vice President and Chief Financial Officer
Gordon E. Halverson............................ 58 Executive Vice President and Chief Executive Officer,
TeleWire Supply
James E. Knox.................................. 63 General Counsel and Assistant Secretary
Michael Graziano............................... 40 Treasurer
John (Ian) Anderson Craig...................... 58 Director
Rod F. Dammeyer................................ 60 Director
James L. Faust................................. 59 Director
William H. Lambert............................. 64 Director
John R. Petty.................................. 70 Director
Larry Romrell.................................. 60 Director
William T. Schleyer............................ 48 Director
Samuel K. Skinner.............................. 62 Director
Bruce Van Wagner............................... 75 Director
Craig Johnson.................................. 41 Director
Vickie Yohe.................................... 47 Director
John M. Egan joined ANTEC in 1973 and has been Chairman of ANTEC's
board of directors since 1997. He was President of ANTEC and its predecessors
from 1980 through 1997 and Chief Executive Officer from 1980 through 1999. On
January 1, 2000, Mr. Egan stepped down from his role as Chief Executive Officer
of ANTEC. He remains a full-time employee. Mr. Egan is on the Board of Directors
of the National Cable Television Association, or NCTA, the Walter Kaitz
Foundation, an association seeking to help the cable industry diversify its
management workforce to include minorities, and has been actively involved with
the Society of Cable Television Engineers and Cable Labs, Inc. Mr. Egan received
the NCTA's 1990 Vanguard Award for Associates.
Robert J. Stanzione has been President and Chief Executive Officer of
ANTEC since January 1, 2000. From January 1998 through 1999, he was President
and Chief Operating Officer of ANTEC. Mr. Stanzione has been a director of ANTEC
since 1998. From October 1995 to December 1997, he was President and Chief
Executive Officer of Arris Interactive. From 1969 to 1995, he held various
positions with AT&T Corporation.
Lawrence A. Margolis has been Executive Vice President, Chief Financial
Officer and Secretary of ANTEC since 1992 and was Vice President, General
Counsel and Secretary of Anixter International, Inc., a global communications
products distribution company, from 1986 to 1992, and General Counsel and
Secretary of Anixter from 1984 to 1986. Prior to 1984, he was a partner at the
law firm of Schiff, Hardin & Waite.
Gordon E. Halverson has been Executive Vice President and Chief
Executive Officer, TeleWire Supply of ANTEC since April 1997. From 1990 to April
1997, he was Executive Vice President, Sales of ANTEC. During the period 1969 to
1990, he held various executive positions with predecessors of ANTEC. He
received the NCTA's 1993
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Vanguard Award for Associates. Mr. Halverson is a member of the NCTA, Society of
Cable Television Engineers, Illinois Cable Association, Cable Television
Administration and Marketing Society.
James E. Knox has been General Counsel and Assistant Secretary of ANTEC
since February 1996. He has been Senior Vice President and Secretary of Anixter
International, Inc. since 1986 and was a partner of the law firm of Mayer, Brown
& Platt from 1992 to 1996.
Michael Graziano has been Treasurer since June 1998 and Director of
Finance of ANTEC since 1997. From 1995 to 1997, he was the Chief Financial
Officer of DVMI, Inc., a manufacturer of retail fixtures and design elements.
During the period of 1990 to 1995 he was the Director of Finance for Keptel,
Inc., a designer, manufacturer and marketer of outside plant telecommunications
and transmission equipment for both residential and commercial use, primarily by
telephone companies, acquired by ANTEC in 1994. Prior to 1990 he was a Senior
Auditor with Ernst & Young LLP.
John (Ian) Anderson Craig has been a Director of ANTEC since 1998. Mr.
Craig was the Chief Marketing Officer of Nortel Networks from September 1998
through March 2000. From 1968 to 1998, he held numerous other senior management
positions with Nortel Networks. He is also a director of BCI, CAE Inc. and
TrizecHahn Corporation.
Rod F. Dammeyer has been a Director of ANTEC since 1993. From 1993 to
1998, he was President and Chief Executive Officer of Anixter International Inc.
In addition, Mr. Dammeyer was Managing Partner from 1998 to 2000 and Managing
Director from 1996 to 1998 of EGI Corporate Investments, a diversified
management and investment company. He is also a Director of GATX Corporation,
Stericycle, Inc., TeleTech Holdings, Inc., and Trustee of Van Kampen
Investments, Inc. closed-end funds.
James L. Faust has been a Director of ANTEC since 1995. He has been
Chief Executive Officer of Evolve Products, Inc., a developer and marketer of
two-way, interactive remote control devices, since 1998. Mr. Faust has served as
a consultant to ANTEC since 1998 and he was Executive Vice President,
International of ANTEC from 1995 to 1998. He is also a Director of Evolve
Products, Inc. and Cabletel Communications Corporation.
William H. Lambert has been a Director of ANTEC since 1997. From 1988
until 1997, he was Chairman, President and Chief Executive Officer of TSX
Corporation, now a subsidiary of ANTEC.
John R. Petty has been a Director of ANTEC since 1993. He has been
Chairman of TECSEC Incorporated, a data security company, since 1997 and
Chairman of Federal National Payables, Inc., a factoring company, since 1992.
Mr. Petty is also a Director of Anixter International, Inc.
Larry Romrell has been a Director of ANTEC since 2000. He has been a
consultant to AT&T Corporation since 1999. From 1994 until 1999, Mr. Romrell was
Executive Vice President of Tele-Communications, Inc., a subsidiary of AT&T. He
is also a Director of Guaranty Bank & Trust Company and AT&T Corp.-Liberty Media
Group.
William T. Schleyer has been a Director of ANTEC since 1998. He has
been a venture capitalist principally within the communications industry since
1997. Mr. Schleyer was President and Chief Operating Officer of MediaOne, the
broadband services arm of US West Media Group, during 1997. He was President and
Chief Operating Officer of Continental Cablevision, Inc. during 1996. Prior to
1996, Mr. Schleyer held various executive management positions within
Continental Cablevision since 1977. He is also a Director of CableLabs, Inc.,
Darwin Partners, Inc., Rogers Communications, Inc., Storage Networks, Inc. and
Wink Communications, Inc.
Samuel K. Skinner has been a Director of ANTEC since 1998. He has been
Chairman of USFreightways Corporation since January 2001 and President and Chief
Executive Officer of USFreightways since July 2000. Previously, he was a Partner
and co-Chairman of the law firm of Hopkins and Sutter from 1998 until 2000. From
1993 to 1998, Mr. Skinner was President and Director of Unicom Corp., an
electrical utility company. From 1992 to 1993, he was Chief of Staff to the
President of the United States. From 1989 to 1992, Mr. Skinner was the Secretary
of Transportation for the United States. He is also a Director of LTV
Corporation, Midwest Express Holdings, Inc., Navigant Consulting, Inc., Union
Pacific Resources, Inc. and USFreightways.
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Bruce Van Wagner has been a Director of ANTEC since 1993. He is
currently a private investor. From 1993 to 1997, Mr. Van Wagner was Chairman of
ANTEC. In 1997 the Securities and Exchange Commission filed a civil complaint
against Mr. Van Wagner alleging that he informed other defendants about ANTEC's
quarterly earnings being below analysts' expectations for a particular quarter
in 1995. Without admitting or denying the allegations of the complaint, in 2000
Mr. Van Wagner consented to the entry of a permanent injunction in connection
with the settlement of the civil action by the Securities and Exchange
Commission that enjoins him from engaging in conduct in connection with the
offer, sale or purchase of securities that would violate Section 17(a) of the
Securities Act of 1933 or Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 issued thereunder.
Craig A. Johnson has been designated by Nortel Networks as one of its
representatives to serve as a Director of Broadband Parent following the
transaction. Mr. Johnson has been Vice President and Department Head, Global
Mergers and Acquisitions for Nortel Networks since July 2000. From September
1998 to July 2000, Mr. Johnson served as Nortel Networks' Vice President,
Mergers and Acquisitions and from August 1996 to August 1998, he served as
Director of Customer Finance. From November 1995 to July 1996, Mr. Johnson was
Vice President for Corporate Development for Etan Industries in Dallas, Texas, a
private company involved in the cable television and collection industries. Mr.
Johnson also served as President of Cross Country Capital, Inc., a financial
consulting and real estate development firm, from January 1991 to October 1995.
Vickie L. Yohe has been designated by Nortel Networks as one of its
representatives to serve as a Director of Broadband Parent following the
transaction. Ms. Yohe has served as President Established Carrier Businesses at
Nortel Networks since March 2001. Ms. Yohe served as President North America
Region from 1999 to 2001. After returning to the United States in 1993 from a
two-year assignment as Director of Marketing for the Netherlands and Germany,
she served as Vice President and General Manager of Carrier Networks until 1999.
Ms. Yohe has held diverse management positions at Nortel Networks including
roles in Engineering, Product Line Management, OEM Vendor Management and
Domestic and International Marketing since 1978.
COMMITTEES OF THE BOARD OF DIRECTORS
Following the transaction, the board of directors of Broadband Parent
will have the same standing committees that ANTEC currently has: the audit
committee, the compensation committee and the executive committee. The current
composition and functions of the ANTEC committees are as follows:
- The Audit Committee, currently consisting of Messrs.
Petty (Chairperson), Schleyer and Skinner, provides
general review of ANTEC's accounting and auditing
procedures, meets with ANTEC's independent auditors
to review their recommendations and reviews related
party transactions.
- The Compensation Committee, currently consisting of
Messrs. Dammeyer (Chairperson) and Skinner, exercises
all powers of the board of directors in connection
with compensation matters, including incentive
compensation, benefit plans and stock grants.
- The Executive Committee, currently consisting of
Messrs. Dammeyer, Egan and Van Wagner (Chairperson),
exercises the full powers of the board of directors
to the extent permitted by law in the intervals
between board meetings, and to the extent desired,
serves as the nominating committee for the board of
directors.
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INTERESTS OF ANTEC EXECUTIVE OFFICERS
AND DIRECTORS IN THE TRANSACTION
In considering the recommendation of the ANTEC board of directors with
respect to the transaction, you should be aware that officers of ANTEC,
including two officers who are also directors, and directors of ANTEC have
interests in the transaction that are different from or in addition to your
interests. The ANTEC board of directors was aware of these interests and
considered them, among other matters, in approving the transaction.
ANTEC's three senior officers, John M. Egan, Robert J. Stanzione and
Lawrence A. Margolis, all have employment agreements that enable them to resign
following a "change in control" and receive severance benefits. Each of these
officers has agreed to waive his right to terminate his employment, and his
right to receive severance benefits in connection with the transaction. In
addition, Gordon Halverson and three non-officer executives have employment
agreements that, in general, provide that they will be entitled to severance
benefits only in the event that their employment is terminated without "cause"
or they resign for "good reason" within one year following a change of control
like that resulting from the transaction. A description of these employment
agreements is included in ANTEC's Form 10-K for the year ended December 31,
2000, which is incorporated by reference into this document.
One of ANTEC's directors, Mr. Craig, retired as the Chief Marketing
Officer of Nortel Networks, and continues to receive retirement and other
benefits from Nortel Networks. As a result, Mr. Craig abstained from voting with
respect to the transaction.
The plan of reorganization requires Broadband Parent to provide
indemnification for officers and directors of ANTEC and its subsidiaries for
claims arising out of actions or omissions occurring at or prior to the
effective time of the transaction to the fullest extent that ANTEC is permitted
under Delaware law and its certificate of incorporation and bylaws. These
indemnification obligations are substantially identical to those currently in
place for ANTEC.
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THE PLAN OF REORGANIZATION
The following summarizes the material terms of the plan of
reorganization, as amended, a copy of which we have attached as Appendix I to
this document and is incorporated into this document by reference. We urge you
to read the plan of reorganization in its entirety for a more complete
description of the terms and conditions of the transaction.
THE MERGER
In the merger, Broadband Transition Corporation, which is a
wholly-owned subsidiary of Broadband Parent, will merge with and into ANTEC, and
ANTEC will be the surviving corporation in the merger. As a result of the
merger, ANTEC will become a subsidiary of Broadband Parent. The merger will
become effective when ANTEC files the certificate of merger with the Secretary
of State of the State of Delaware, which will occur three business days after
the last of the conditions to the merger have been satisfied or waived, unless
otherwise agreed to by the parties in writing. In the merger, all ANTEC
stockholders will receive shares of Broadband Parent common stock.
CONVERSION OF SHARES
In the merger, each share of ANTEC common stock will be converted into
one share of Broadband Parent common stock.
EXCHANGE OF STOCK CERTIFICATES
Soon after the effective date of the merger, either Broadband Parent or
an exchange agent will mail you a letter of transmittal and instructions for
exchanging your ANTEC stock certificates for shares of Broadband Parent common
stock. After you surrender the stock certificate to Broadband Parent or the
exchange agent, together with the executed letter of transmittal, you will be
entitled to receive shares of Broadband Parent common stock. The exchange agent
is The Bank of New York.
No Further Ownership Rights in ANTEC Stock. All shares of Broadband
Parent stock paid in exchange for certificates of ANTEC stock will be considered
to have been exchanged in full payment for your shares. Any ANTEC stockholder
who has not complied with the stock certificate exchange procedure within three
months after the effective time of the merger will have to look to Broadband
Parent for delivery to that stockholder of the shares of Broadband Parent common
stock.
Dividends and Distributions. Broadband Parent will not pay to a
stockholder any dividends or other distributions to the stockholder until the
stockholder has exchanged the ANTEC stock certificates for shares of Broadband
Parent. Following the surrender of any ANTEC certificates you may hold,
Broadband Parent will pay you, without interest, the amount of dividends or
other distributions declared by Broadband Parent, if any, to which you are
entitled.
Lost Certificates. If your ANTEC stock certificates are lost, stolen,
or destroyed before the closing of the merger, you must submit an affidavit of
that fact to the board of directors of Broadband Parent and, if required by
Broadband Parent, you must post a bond in a reasonable amount as determined by
Broadband Parent as indemnity against any potential claim regarding the lost
certificates. In exchange for lost, stolen or destroyed stock certificates,
after you have made the affidavit and posted the bond, Broadband Parent or the
exchange agent will issue to you shares of Broadband Parent common stock.
STOCK OPTIONS AND STOCK UNITS
After the closing of the merger, each outstanding option or stock unit
granted under the ANTEC stock incentive plans to purchase or acquire ANTEC
common stock will become an option or right to acquire Broadband Parent common
stock. The terms and conditions of the replacement Broadband Parent option or
stock unit will be substantially the same as the ANTEC option or stock unit it
replaces. The option or stock unit will be for the number of shares of Broadband
Parent common stock equal to the number of shares of ANTEC common stock
remaining unexercised or unconverted immediately before the merger.
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In addition, AT&T Corp. currently holds options to acquire 854,341
shares of ANTEC common stock. Following the completion of the transaction, these
options will be exercisable for the same number of shares of Broadband Parent
common stock and with the same general terms as the ANTEC options they replace.
The exercise price per share of each Broadband Parent option that
replaces an ANTEC option will be equal to the exercise price per share prior to
the merger.
As of May 31, 2001, the record date for the stockholders' meeting,
options to acquire approximately 6,102,174 shares of ANTEC common stock and
78,717 stock units convertible to shares of ANTEC common stock were outstanding.
Broadband Parent will reserve for issuance a sufficient number of
shares of Broadband Parent common stock for delivery under the ANTEC stock
plans. As soon as practicable after the closing of the transaction, Broadband
Parent will file one or more registration statements on Form S-8 with the
Securities and Exchange Commission for the registration of the shares of
Broadband Parent common stock subject to the options and will use reasonable
efforts to maintain the effectiveness of the registration statements for as long
as the options remain outstanding.
ACQUISITION OF NORTEL NETWORKS' INTEREST IN ARRIS INTERACTIVE
At the times indicated below, the following events will occur:
- At the closing, each of Nortel Networks LLC and ANTEC
will contribute to the capital of Arris Interactive
all of the indebtedness remaining outstanding under
the Arris Interactive loan agreement at December 31,
2000, which was approximately $124 million.
- At the closing and after the events described above,
Broadband Parent will acquire from Nortel Networks
all of the membership interests in Arris Interactive
that ANTEC does not currently own in exchange for 37
million shares of Broadband Parent common stock.
- At closing, Nortel Networks will convert the
following amounts into a new membership interest in
Arris Interactive:
- amounts owed to Nortel Networks due to
purchases of goods and/or services by Arris
Interactive on or prior to the closing;
- royalties payable by Arris Interactive to
Nortel Networks prior to the closing;
- all of the indebtedness incurred by Arris
Interactive under the Arris Interactive loan
agreement from January 1, 2001 until the
closing; and
- less amounts owed by Nortel Networks to
Arris Interactive generally for the purchase
of finished goods.
Although the exact amount of the new membership interest will not be
known until closing because these items will fluctuate until then, it currently
is estimated at $90 million. The new membership interest that Arris Interactive
will issue to Nortel Networks will have a distribution preference in the event
of Arris Interactive's bankruptcy and will earn a return of 10% per annum,
compounded annually, payable in kind. Subject to conditions regarding
availability under the bank facility and the borrowers' compliance with
specified terms of the credit agreement, the new membership interest will be
redeemed by Arris Interactive for cash commencing six months after the closing,
at the rate of up to $33,000,000 per fiscal quarter and under certain other
circumstances including a change of control of Broadband Parent. The redemption
and other payments with respect to the membership interest will be guaranteed by
Broadband Parent and in the event of a default (or various other circumstances)
may be exchanged for common stock, convertible preferred stock, or convertible
notes of Broadband Parent. The exchange for, and conversion into, Broadband
Parent common stock would occur at the then prevailing market value of the
common stock. All amounts payable with respect to the membership interest are
subordinate to the obligations under the bank facility up to $175 million in
aggregate principal amount (which may be increased to $200 million in the
future).
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REPURCHASE OF INVENTORY
The plan of reorganization provides that Arris Interactive will
repurchase approximately $20 million of inventory from Nortel Networks at the
closing. Arris Interactive will pay for the inventory when it is resold or
twelve months following the closing if not resold prior to then.
REPRESENTATIONS AND WARRANTIES; PRE-CLOSING COVENANTS
In the plan of reorganization, ANTEC makes customary representations
and warranties relating to various aspects of the respective businesses and
financial statements of ANTEC, Broadband Parent and Broadband Transition and
other matters, including, among other things:
- corporate organization,
- capitalization,
- absence of certain changes or events,
- employee benefit matters,
- tax matters,
- intellectual property,
- financial statements,
- SEC filings,
- fairness opinion regarding the shares of Broadband
Parent payable in the merger, and
- authorization of the transactions.
Nortel Networks makes representations and warranties relating to
various aspects of the businesses of Nortel Networks, including corporate
organization, title to the Arris Interactive ownership interest and
authorization to enter into the plan of reorganization. Nortel Networks also
makes customary representations and warranties regarding Arris Interactive
employee benefits, and Arris Interactive makes representations and warranties
relating to various aspects of its financial statements and compliance with
laws.
The representations and warranties survive the effective time of the
plan of reorganization and the transactions described in it.
The pre-closing covenants in the plan of reorganization that we
consider to be the most important are summarized below:
Conduct of Business. From the date of the plan of reorganization until
the closing of the transaction, ANTEC and its current subsidiaries, including
Broadband Parent, have agreed to continue to operate their respective businesses
according to their ordinary and usual course of business, with limited
exceptions.
Financing. ANTEC and Broadband Parent agreed to use their reasonable
best efforts to close the financing described in the commitment letter attached
to the plan of reorganization and, if they are not able to close the financing,
then they agreed to use their reasonable best efforts to obtain other financing
that would provide working capital sufficient to fund their operations from the
closing date of the transaction until December 31, 2002.
Additional Covenants. From the date of the plan of reorganization until
the effective time of the transaction, each of ANTEC, Broadband Parent and
Broadband Transition will not, without the consent of Nortel Networks:
- amend its certificate of incorporation or bylaws
except that Broadband Parent may (1) amend its
certificate of incorporation to be similar to ANTEC's
certificate of incorporation, (2) change Broadband
Parent's name, and (3) increase the number of
authorized shares of its stock to 325,000,000;
- declare, set aside or pay dividends on or make other
distributions on any of its stock, except for
intercompany dividends from subsidiaries;
- repurchase, redeem or otherwise acquire any shares of
its stock or other securities of ANTEC or its
subsidiaries;
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- merge or consolidate with any other entity or make
any new transactions of assets in excess of
$25,000,000 in the aggregate;
- sell all or substantially all of its assets, business
or properties, other than sales of goods and services
to distributors and customers in the ordinary and
usual course of business;
- take any action knowing that it would prevent the
transaction from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal
Revenue Code and as an exchange under Section 351 of
the Internal Revenue Code;
- issue any stock, with some exceptions;
- incur indebtedness outside the ordinary and usual
course of business, consistent with past practice;
- enter into any exclusive agreement or arrangement
with respect to the licensing or distribution of any
of its intellectual property or products other than
in the ordinary and usual course of business; or
- pay any special bonus or special remuneration to any
of its directors or officers.
The plan of reorganization also provides that, from the date of the
plan of reorganization until the effective time of the transaction, Nortel
Networks will not permit Arris Interactive to, without the consent of ANTEC:
- take any action that would prevent the transaction
from qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue
Code and as an exchange under Section 351 of the
Internal Revenue Code;
- make any distribution to its members, with some
exceptions;
- incur indebtedness outside the ordinary and usual
course of business, consistent with past practice;
- enter into any exclusive agreement or arrangement
with respect to the licensing or distribution of any
of its intellectual property or products other than
in the ordinary and usual course of business; or
- pay any special bonus or special remuneration to any
of its directors or officers.
The plan of reorganization further provides that, from the date of the
plan of reorganization until the effective time of the transaction, Nortel
Networks will not, without the consent of ANTEC, take any action while knowing
that it would prevent the transaction from qualifying as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code and as an exchange
under Section 351 of the Internal Revenue Code.
DIRECTOR AND OFFICER INDEMNIFICATION
Broadband Parent will indemnify the present and former directors and
officers of ANTEC and its current subsidiaries and Arris Interactive against all
losses, damages, costs or expenses, including attorneys' fees, judgments, fines
or liabilities arising out of actual or alleged actions or omissions existing at
or before the effective date of the merger. The indemnification will be to the
fullest extent permitted under Delaware law or ANTEC's certificate of
incorporation and bylaws in effect on the date of the plan of reorganization.
Broadband Parent also will be obligated to advance expenses as incurred to the
fullest extent permitted by law.
EMPLOYEE MATTERS; BENEFIT PLANS
Broadband Parent will employ the employees of Arris Interactive after
the transaction on substantially the same terms and conditions under which they
were employed prior to the transaction. Broadband Parent will initially provide
these employees with, at a minimum, the same base salary that they were
receiving before the transaction, except that certain increases may be made for
additional contributions that will be required under the employee benefit
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plans maintained by ANTEC. The employees of Arris Interactive participate in
employee benefit plans maintained by Nortel Networks. Generally, the benefits
under the plans maintained by Nortel Networks are more generous than those
currently provided under the plans maintained by ANTEC. Under the plan of
reorganization, Broadband Parent has agreed to provide benefits after the
transaction to the employees of Arris Interactive that are comparable to the
benefits they received before the transaction (except with respect to retirement
benefits provided under Nortel Networks' pension plans). Broadband Parent
intends to provide these benefits by permitting the employees of Arris
Interactive to participate in the employee benefit plans maintained by ANTEC and
by enhancing the benefits provided under those plans. In addition, in order to
provide similar benefits to all its employees, Broadband Parent intends for the
employees of ANTEC also to receive the enhanced benefits that will be provided
under these plans. Nortel Networks also has agreed not to directly solicit for
employment or hire any employees of Arris Interactive for a twelve-month period
following the effective time of the merger.
Under the plan of reorganization, interests held by Arris Interactive
employees under its incentive compensation plans will be converted according to
various formulas into grants of options to purchase Broadband Parent common
stock. Further, under the plan of reorganization, Arris Interactive employees
that were promised ANTEC stock options prior to the effective date of the merger
will be entitled to Broadband Parent stock options. In addition, Arris
Interactive employees that hold unvested Nortel Networks stock options will be
entitled to receive Broadband Parent stock options according to various
formulas. It is anticipated that the new stock options to be issued by Broadband
Parent will be issued under the proposed 2001 Stock Incentive Plan which is
subject to approval by ANTEC's stockholders. In the event that ANTEC's
stockholders do not approve the 2001 Stock Incentive Plan, ANTEC and Broadband
Parent will devise other means to provide substantially similar rights,
including a different stock option plan or other device.
CONDITIONS TO OBLIGATIONS TO EFFECT THE TRANSACTION
The obligations of ANTEC, Broadband Parent, Broadband Transition and
Nortel Networks to complete the transaction are subject to satisfaction or
waiver of the following conditions:
- approval of the plan of reorganization by the
requisite vote of ANTEC stockholders;
- the absence of any law, order or other legal
restraint prohibiting completion of the transaction;
- the receipt of any required approvals from government
entities or regulatory bodies and the expiration of
all related statutory waiting periods;
- the conditional approval for listing on the Nasdaq
National Market System of the shares of Broadband
Parent common stock to be issued in the transaction
and upon exercise of ANTEC options, subject to
official notice of issuance;
- the declaration of the "effectiveness" of the
registration statement on Form S-4, of which this
document forms a part, by the Securities and Exchange
Commission, and the absence of any stop order
suspending the effectiveness; and
- the agreement between ANTEC and Nortel Networks LLC
on the form and substance of the new Arris
Interactive limited liability company operating
agreement and the guaranty by Broadband Parent of the
redemption of Nortel Networks' new membership
interest in Arris Interactive.
In addition to the above, the obligation of ANTEC to complete the
transaction is subject to the satisfaction or waiver of the following
conditions:
- material performance by Nortel Networks of all
obligations required to be performed by it under the
plan of reorganization at or prior to the effective
time of the transaction;
- the accuracy of the representations and warranties of
Nortel Networks and Arris Interactive in the plan of
reorganization both as of the date of the plan of
reorganization and on the effective date of the
transaction, except as would not have a materially
adverse effect on Nortel Networks or Arris
Interactive
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or would arise from actions or omissions by Arris
Interactive approved by its members committee as
contemplated by the plan of reorganization;
- the receipt by ANTEC of an opinion of Troutman
Sanders LLP dated the effective date of the merger of
ANTEC and Broadband Transition to the effect that, on
the basis of facts, representations and assumptions
set forth in the opinion, the merger of ANTEC and
Broadband Transition will be treated as a
reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, and taken together with
the contribution of Nortel Networks LLC's interest in
Arris Interactive to Broadband Parent will constitute
an exchange under Section 351 of the Internal Revenue
Code and, accordingly without taking into
consideration any aspects of the transaction other
than those set forth in the plan of reorganization
(and not the ancillary agreements) (1) no gain or
loss will be recognized by ANTEC, Broadband Parent or
Broadband Transition as a result of the transaction
and (2) no gain or loss will be recognized by a
stockholder of ANTEC who receives shares of Broadband
Parent stock in the merger;
- the absence of an action by a governmental authority
that is reasonably likely to succeed in seeking to
prohibit completion of the transaction or to impose
substantial penalties as a result of the transaction;
- the receipt by ANTEC of an opinion of Nortel
Networks' Secretary or Assistant Secretary with
respect to each of Nortel Networks Inc.'s and Nortel
Networks LLC's being in good standing, with the
requisite corporate authority to perform the plan of
reorganization and the ancillary agreements, the
sufficiency of the form of instrument of assignment
and assumption and the valid authorization of the
plan of reorganization and ancillary agreements; and
- the receipt by ANTEC, Broadband Parent and Arris
Interactive of financing on terms no less favorable
to Broadband Parent and ANTEC than those described in
the financing commitment letter attached to the plan
of reorganization, or the holding by ANTEC, Broadband
Parent and Arris Interactive of sufficient working
capital and cash availability to fund their
operations following the closing date of the
transaction until December 31, 2002.
The obligations of Nortel Networks Inc. and Nortel Networks LLC to
complete the transaction are subject to the satisfaction or waiver of the
following conditions:
- the material performance by ANTEC, Broadband Parent
and Broadband Transition of all obligations required
to be performed by them under the plan of
reorganization at or prior to the effective time of
the transaction;
- the accuracy of the representations and warranties of
ANTEC, Broadband Parent and Broadband Transition in
the plan of reorganization, both as of the date of
the plan of reorganization and on the effective date
of the transaction, except as would not have a
materially adverse effect on ANTEC, Broadband Parent
or Broadband Transition;
- the receipt by Nortel Networks of an opinion of Hale
and Dorr LLP dated the effective date of the
transaction to the effect that, on the basis of
facts, representations and assumptions set forth in
the opinion, the contribution of Nortel Networks
LLC's interest in Arris Interactive to Broadband
Parent will constitute an exchange under Section 351
of the Internal Revenue Code;
- the absence of an action by a governmental authority
that is reasonably likely to succeed seeking to
prohibit consummation of the transaction or to impose
substantial penalties as a result of the transaction;
- the receipt by Nortel Networks of an opinion of
Troutman Sanders LLP with respect to:
- each of ANTEC's, Broadband Parent's and
Broadband Transition's being in good
standing, with the requisite corporate
authority to perform the plan of
reorganization and the ancillary agreements,
the valid issuance of the shares of
Broadband Parent common stock in the sale of
Nortel Networks' interest in Arris
Interactive to Broadband Parent and the
valid authorization of the plan of
reorganization and ancillary agreements;
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- the non-contravention of ANTEC's, Broadband
Parent's and Broadband Transition's
certificates of incorporation and bylaws as
a result of the plan of reorganization and
the ancillary agreements; and
- the merger's effectiveness;
- the receipt by ANTEC, Broadband Parent and Arris
Interactive of financing on terms no less favorable
to Broadband Parent and ANTEC than those described in
the financing commitment letter attached to the plan
of reorganization;
- the receipt by Nortel Networks of definitive
documentation for the financing;
- the absence of specified material
differences in the terms of the financing
from the terms set forth in the financing
commitment letter, the terms of the new
membership interest from the membership
interest term sheet, and in the terms of the
guaranty provided by Broadband Parent to
Nortel Networks for the redemption of the
new membership interest from the guaranty
term sheet, as each of these term sheets is
attached to the plan of reorganization; and
- the amount of the new membership interest in
Arris Interactive does not exceed $100
million.
TERMINATION OF THE PLAN OF REORGANIZATION
Rights to Terminate. At any time before the effective time of the
merger, either ANTEC or Nortel Networks may terminate the plan of reorganization
and abandon the transaction as follows:
- by the mutual written consent of ANTEC and Nortel
Networks;
- by either ANTEC or Nortel Networks if:
- the parties have not completed the
transaction by July 31, 2001 unless the
failure to close the transaction by that
time has been caused by the knowing action
or inaction of the party seeking to
terminate the plan of reorganization;
- any court or other governmental authority
has denied required approval for completion
of the transaction by final non-appealable
action;
- any court or other governmental authority
has issued a required approval that contains
a final non-appealable condition,
restriction or requirement that would
reasonably be expected to have a materially
adverse effect on Broadband Parent; or
- the ANTEC stockholders' vote on the
transaction contemplated in the plan of
reorganization at a meeting duly convened is
not sufficient to approve the plan of
reorganization;
- by ANTEC, if there has been a material breach by
Nortel Networks or Arris Interactive of any
representation, warranty or covenant listed in the
plan of reorganization, which Nortel Networks or
Arris Interactive does not cure within ten business
days following receipt, by the breaching party, of
notice of such breach; and
- by Nortel Networks, if (a) there has been a material
breach by ANTEC, Broadband Parent or Broadband
Transition of any representation, warranty or
covenant listed in the plan of reorganization, which
ANTEC, Broadband Parent or Broadband Transition does
not cure within ten business days following receipt,
by the breaching party, of notice of such breach or
(b) any court or other governmental authority has
issued a required approval that contains a final
non-appealable condition, restriction or requirement
that would reasonably be expected to have a
materially adverse effect on Nortel Networks.
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Effect of Termination. If the parties terminate the plan of
reorganization and fail to complete the transaction, the plan of reorganization
will become void and have no effect, without any liability on the part of any of
the parties to the plan of reorganization or their directors, officers or
agents, except that termination of the plan of reorganization will not relieve a
party from liability for any willful breach of the plan of reorganization.
Termination Fees and Expenses. The plan of reorganization does not
provide for a termination fee. Whether or not the parties complete the
transaction, each party will pay its own costs and expenses incurred in
connection with the plan of reorganization. However, the Securities and Exchange
Commission filing fees and the first $75,000 of the printing and mailing costs
incurred in connection with the transaction, including this document, shall be
shared equally between ANTEC and Nortel Networks.
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AMENDMENT
The plan of reorganization may be further amended or supplemented in
writing before or after the effective date of the transaction by ANTEC,
Broadband Parent, Broadband Transition, Nortel Networks and Arris Interactive,
except as otherwise provided by law. However, after the ANTEC stockholders
approve the transaction, there may not be any change that, by law, requires
further approval of the ANTEC stockholders.
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OTHER AGREEMENTS
The transaction provides for the parties to enter into several
ancillary agreements. The principal terms of these agreements are described
below.
TERMINATION AGREEMENT
ANTEC, Nortel Networks, Nortel Networks LLC, Nortel Networks Limited
and Arris Interactive have entered into a termination agreement in which they
agree that existing agreements and arrangements among Nortel Networks, ANTEC
and/or Arris Interactive that relate to Arris Interactive or a second, now
inactive joint venture, will be terminated. Although the parties agreed to
terminate most of the agreements upon the closing of the transaction, the
parties agreed to terminate the non-competition provisions, including terms that
prevent ANTEC and Nortel Networks from the distribution, sale, development or
manufacture of products for use in a hybrid fiber-coaxial cable network that are
directly competitive with Arris Interactive products, as of April 9, 2001.
INTELLECTUAL PROPERTY RIGHTS AGREEMENT
At the closing of the transaction, Nortel Networks Limited and Arris
Interactive will enter into an intellectual property rights agreement which will
modify the intellectual property rights Arris Interactive currently licenses
from Nortel Networks Limited and Nortel Networks Inc. Under the agreement,
Nortel Networks Limited will transfer its title to these intellectual property
rights, which include some of the trademarks, trade secrets and confidential
information relating to the following products, which are currently sold and
marketed by Arris Interactive:
- Cornerstone Voice HDT circuit pack equipment;
- Cornerstone Voice customer premise equipment;
- Cornerstone Voice software;
- Cornerstone Voice HDT piece parts;
- DOCSIS cable modems;
- DOCSIS network equipment;
- Cornerstone Data software;
- certain proprietary data products including
proprietary software for cable modems;
- CMTS 1500;
- Carrier grade CMTS;
- mFNA version of distributed CMTS;
- CsV HDT and CsV CHT;
- total access next generation head-end; and
- CsV CPE.
In addition, Nortel Networks will grant to Arris Interactive the right
to grant sublicenses under CMTS patent rights to third parties with some
restrictions on the right to sublicense for use in the delivery of narrowband or
broadband services over hybrid fiber-coaxial cable networks. Arris Interactive
will not have the right to sublicense CMTS patents for non-hybrid fiber-coaxial
cable networks applications if such applications are then available from Nortel
Networks.
Nortel Networks Limited will also grant to Arris Interactive, ANTEC and
Broadband Parent, a personal, non-assignable (with some exceptions)
royalty-free, fully paid, non-exclusive, worldwide license under non-transferred
intellectual property rights to design, develop, manufacture, use, reproduce,
modify, perform, lease, sell, offer for sale, and import the following products:
- Cornerstone Voice customer premise equipment;
- Cornerstone Data software relating to the CPS 2000;
- CsV CHT including the Nortel succession support;
- CSTA CPE relating to Packetport; and
- the natural improvements to these products in the
delivery of narrowband and the broadband services
over hybrid fiber-coaxial cable networks.
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Arris Interactive will be entitled to use the technology in a non-hybrid
fiber-coaxial cable network environment on a royalty basis. Arris Interactive,
ANTEC and Broadband Parent also have the right to grant sublicenses under the
agreement, in limited circumstances.
Nortel Networks Limited also will grant to Arris Interactive, ANTEC and
Broadband Parent, a personal, non-assignable, royalty-free, paid, non-exclusive
world-wide license in technology embodied in the Packetport product, for a
period of 12 months from the execution of the intellectual property rights
agreement. At the end of 12 months, all intellectual property rights, excluding
patents, owned by Nortel Networks Limited and used exclusively in the
development, manufacture, sale or exclusively embodied in the Packetport product
will be transferred to Broadband Parent. Any royalty rights received by Nortel
Networks Limited from sublicensing the Packetport intellectual property for use
in the delivery of narrowband or broadband services over hybrid fiber-coaxial
cable networks will be assigned to Broadband Parent.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
Nortel Networks has entered into an amended and restated investor
rights agreement with Broadband Parent, governing certain aspects of the
relationship of Nortel Networks and Broadband Parent both before and after the
transaction.
Under the amended and restated investor rights agreement, immediately
following the closing of the transaction, Nortel Networks may appoint two
members to the Broadband Parent board of directors. Broadband Parent must
include the two Nortel Networks nominees in the slate of nominees recommended by
the board to Broadband Parent stockholders for any future election of directors.
However, if and when Nortel Networks and its affiliates own shares representing
less than 20 percent but greater than 10 percent of the outstanding common stock
of Broadband Parent, then Nortel Networks will be entitled to only one nominee
on the board of directors and, if necessary, it will cause one nominee then
serving on the board to resign. Further, if Nortel Networks and its affiliates
cease to own shares representing at least 10 percent of the outstanding common
stock of Broadband Parent, then it is not entitled to any nominees on the board
and it will cause the resignation of all of its nominees then serving on the
board. Nortel Networks has agreed to vote its shares of Broadband Parent common
stock for the election of the slate of nominees proposed by Broadband Parent for
election to its board of directors so long as Nortel Networks' nominees are
included in such slate. Nortel Networks is otherwise free to vote such shares as
it elects.
Broadband Parent is obligated to ensure that at least 60 percent of the
members of its board of directors are unaffiliated with either Broadband Parent
or Nortel Networks and that the size of Broadband Parent's board of directors
does not exceed 15 members.
The amended and restated investor rights agreement also contains rights
relating to and limitations on transactions of Broadband Parent common stock by
Nortel Networks. Nortel Networks has agreed that it generally will not acquire
additional shares of Broadband Parent common stock, make any proposals seeking a
business combination involving Broadband Parent, deposit Broadband Parent voting
securities into a voting trust, except as provided in the investor rights
agreement, or make any similar arrangements regarding Broadband Parent voting
securities, engage in a proxy contest or solicitation, call a meeting of
stockholders or seek stockholder approval of any action or participate in a
group with other holders of Broadband Parent voting securities. However, Nortel
Networks may participate in discussions or negotiations regarding the
acquisition of Broadband Parent by an unaffiliated third party. The third-party
offer must be for at least 90% of the outstanding shares of Broadband Parent
common stock held by stockholders other than Nortel Networks, its affiliates or
the third party. In addition, at least a majority of the shares of Broadband
Parent common stock held by these stockholders must be tendered in the
third-party offer. The per share consideration offered to Nortel Networks and
its affiliates in the third-party offer may be below the consideration offered
to stockholders unaffiliated with Nortel Networks or the third party.
If at any time Nortel Networks owns more than 49.9 percent of the
outstanding common stock of Broadband Parent as a result of an acquisition of an
unaffiliated business entity, Broadband Parent may require Nortel Networks to
dispose of shares held by it or its affiliates in excess of 49.9 percent of the
outstanding common stock. In general, any such disposition must be completed
within 12 months after Broadband Parent issues a request.
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If Nortel Networks wishes to acquire more than 49.9 percent of the
Broadband Parent common stock, it must make an offer to acquire at least 90
percent of the outstanding common stock of Broadband Parent. In the event that
Broadband Parent does not accept Nortel Networks' offer, Broadband Parent is
required to initiate an auction process for the sale of Broadband Parent. The
investor rights agreement contains detailed provisions governing the auction
but, in general, any auction will be conducted by a nationally recognized
investment banking firm selected by Broadband Parent and reasonably acceptable
to Nortel Networks. If Nortel Networks is not the successful bidder in the
auction or does not elect to participate in the auction and Broadband Parent has
received a fairness opinion from a nationally recognized investment banking firm
that the successful bidder's transaction provides the highest value to Broadband
Parent or its stockholders of all of the bids in the auction, then Nortel
Networks is obligated to vote in favor of the winning transaction in the auction
and to tender its Broadband Parent shares. Except in conjunction with a
permitted offer, Nortel Networks may not become a participant in the
solicitation of proxies concerning any transaction of voting securities of
Broadband Parent.
The amended and restated investor rights agreement places limitations
on Nortel Networks' ability to sell or transfer any shares of common stock,
except a transfer to an affiliate of Nortel Networks. Generally, Nortel Networks
may sell or transfer shares common stock only in the following transactions:
- in a bona fide public offering effected in accordance
with the registration rights agreement;
- in a bona fide open market transaction as permitted
by the provisions of Rule 144 under the Securities
Act; or
- in a privately-negotiated transaction to either an
institutional investor or any other person, provided
that:
- Nortel Networks may not sell or transfer
shares to any institutional investor if,
after giving effect to the sale or transfer,
such investor would own shares representing
more than 10 percent of the outstanding
voting power of Broadband Parent; and
- Nortel Networks may not sell or transfer
shares to any other person, other than an
institutional investor, unless such person
agrees to be bound by the provisions of the
investor rights agreement which limit
transactions and dispositions of Broadband
Parent capital stock.
The amended and restated investor rights agreement may be terminated by either
Broadband Parent or Nortel Networks if:
- the plan of reorganization is terminated,
- a transaction as a result of a third-party offer is
consummated,
- the parties mutually agree in writing, or
- at any time after Nortel Networks and its affiliates
cease to own shares representing at least 10 percent
of the total voting power of Broadband Parent.
As part of the transaction Nortel Networks is converting payables and
royalties due from, and advances made to, Arris Interactive into a new
membership interest in Arris Interactive. The terms of the new membership
interest require Nortel Networks to exchange the membership interest for common
stock, convertible preferred stock, or convertible notes of Broadband Parent
under limited circumstances. Shares of Broadband Parent common stock received by
Nortel Networks upon the exchange of the membership interest will be excluded
from the provisions of the investor rights agreement triggered upon Nortel
Networks' ownership of more than 49.9 percent of the outstanding common stock of
Broadband Parent. All other provisions of the investor rights agreement will
apply to any shares of Broadband Parent common stock received by Nortel Networks
upon the exchange of the membership interest.
NORTEL NETWORKS REGISTRATION RIGHTS AGREEMENT
At the closing of the transaction, Broadband Parent and Nortel Networks
will enter into a registration rights agreement. Under this agreement, Broadband
Parent has granted Nortel Networks registration rights for the common stock to
be held by Nortel Networks following the transaction. Nortel Networks has the
right to require Broadband Parent to initiate a public offering for any shares
requested to be sold by Nortel Networks, provided that the number of shares
requested to be sold by Nortel Networks is equal to at least five percent of the
then outstanding shares of Broadband Parent common stock. Nortel Networks may
exercise its rights to request a registration once during any 150-day period.
Additionally, Nortel Networks has the right to participate in and sell shares of
stock held by it during
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any public offering of Broadband Parent stock, whether offered by Broadband
Parent or any other stockholder. Broadband Parent has agreed to pay for Nortel
Networks' expenses relating to its participation in a public offering, whether
or not the offering is initiated by Nortel Networks. Broadband Parent may not
grant registration rights to other stockholders superior to those granted to
Nortel Networks without also offering such superior registration rights to
Nortel Networks.
SALES REPRESENTATION AGREEMENT
At the closing of the transaction, Arris Interactive and Nortel
Networks will enter into a sales representation agreement. This agreement will
replace the current exclusive distributor relationship between Nortel Networks
and Arris Interactive with a sales agency relationship in which Nortel Networks
will act as a sales agent of Arris Interactive for international sales from the
closing until December 31, 2003 and for U.S. sales from the closing until
December 31, 2001. Arris Interactive will pay to Nortel Networks a commission on
sales of Arris Interactive products arising from Nortel Networks sales agency
activities, including any sales to pre-existing customers of Nortel Networks.
Nortel Networks will continue to distribute Arris Interactive products to one
customer in Spain and one customer in Chile.
TRANSITIONAL SERVICES AGREEMENT
At the closing of the transaction, Arris Interactive and Nortel
Networks will enter into a transitional services agreement. Under this
agreement, Nortel Networks, subject to its right to do so, will provide Arris
Interactive with a number of services, including:
- access to Nortel Networks' network,
- access to various development and testing tools and
desktop software licenses, and
- post-sales support services.
Nortel Networks will provide these services and other items for different
periods of time, from 90 days to the product life of the Cornerstone voice
product, depending on the type of service or item. The cost to Arris Interactive
will be consistent with Nortel Networks' charges to Arris Interactive in effect
at the closing of the transaction. If no charge is then in effect, the costs
will be consistent with the amounts Nortel Networks charges similarly situated
parties, who have recently acquired a Nortel Networks business, for similar
services.
LOANED EMPLOYEE AGREEMENT
At the closing of the transaction, Arris Interactive and Nortel
Networks will enter into a loaned employee agreement. Under this agreement,
Nortel Networks will provide Arris Interactive with the services of technical
employees for a twelve-month period beginning on the closing date of the
transaction. The number of employees that will provide services under the
agreement is currently estimated to be 180. Arris Interactive may extend the
services of the employees for an additional three-month period by giving Nortel
Networks sixty days prior notice. Nortel Networks will be responsible for paying
compensation and other incentive and retention payments to the employees, as
well as providing fringe and other benefits. Nortel Networks also will be
responsible for the applicable withholding requirements. As consideration for
receiving such services, Arris Interactive will reimburse Nortel Networks for
all costs associated with Nortel Networks' employment of the employees. Arris
Interactive may terminate the services of any employee by giving Nortel Networks
sixty days prior notice, except that such termination may be immediate if due to
the employee's gross misconduct. Nortel Networks agreed to not target groups of
employees supplying services for recruitment. An employee may, however, accept
another position with Nortel Networks through its usual and customary
recruitment methods, although Nortel Networks must provide Broadband Parent with
sixty days notice prior to the employee beginning such other position. The
loaned employee agreement also contains provisions to prevent disclosure of
confidential information and to protect intellectual property rights.
COMPONENT SUPPLY AGREEMENT
At the closing of the transaction, Arris Interactive and Nortel
Networks will enter into a purchase and sale agreement relating to supply of
headend components used in the Cornerstone voice products. Under this agreement,
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Arris Interactive will have the non-exclusive worldwide right to purchase
identified Nortel Networks components for distribution once incorporated into
identified existing Arris Interactive products until Arris Interactive
discontinues the manufacture of those products. Nortel Networks will also permit
Arris Interactive to purchase specified third-party manufactured components
directly from Nortel Networks' suppliers of such components for incorporation
into identified Arris Interactive products for two years after the closing.
Nortel Networks may outsource the manufacture of the Nortel Networks components.
Until December 31, 2001, the Nortel Networks components will be sold to Arris
Interactive at cost plus five (5%) percent. Thereafter, the prices of those
components will be at a market price as established by Nortel Networks (or the
outsource manufacturer, if applicable). Nortel Networks will use commercially
reasonable efforts to assist Arris Interactive in obtaining the same terms and
conditions from any outsource manufacturer as Nortel Networks has agreed to with
that outsource manufacturer or as in the agreement between Nortel Networks and
Arris Interactive. Under the agreement, Nortel Networks will grant to Arris
Interactive a non-exclusive worldwide right to manufacture any of the Nortel
Networks components if Nortel Networks elects to terminate the agreement before
the discontinuation of the manufacture of such existing Arris Interactive
products in which the Nortel Networks components are used.
DEVELOPMENT AGREEMENT
At the closing of the transaction, Arris Interactive and Nortel
Networks will enter into a development agreement. Under this agreement, Nortel
Networks will complete two existing development projects for Arris Interactive,
one relating to the European Indoor Packetport product and the other relating to
the CPS 2000 cable modem provisioning system. The intellectual property rights
arising with respect to the work product and deliverables resulting from these
development projects will be assigned or licensed, as applicable, to Arris
Interactive under the terms of the intellectual property agreement entered into
between Arris Interactive and Nortel Networks, which is described above. The
development agreement provides that the services rendered by Nortel Networks in
connection with the development projects will be paid for by Arris Interactive
on a time and materials basis.
NEW CREDIT FACILITY
ANTEC has entered into a commitment letter with Credit Suisse First
Boston for a secured revolving line of credit for ANTEC, Arris Interactive and
some of ANTEC's subsidiaries to replace ANTEC's existing senior credit facility.
ANTEC anticipates using approximately $81.5 million of the new revolving credit
facility at the closing of the transaction to refinance ANTEC's existing senior
credit facility and to pay fees and expenses associated with the transaction. As
of March 31, 2001, ANTEC had approximately $79.0 million outstanding under its
existing senior credit facility.
The commitment letter provides for a $175 million revolving credit
facility, the availability of which will be subject to a borrowing base, that
will mature three years after the closing of the transaction; provided, that the
maturity date of the credit facility will be December 31, 2002 in the event that
ANTEC's 4.5% convertible subordinated notes due May 15, 2003 are not either
fully converted to common stock of Broadband Parent or refinanced in full prior
to that date, on terms and conditions satisfactory to the lenders under the
credit facility. The availability under the credit facility may be increased to
$200 million at a later date.
The interest rates paid with respect to borrowings under the new credit
facility will vary based upon borrowing base availability, but in general will
be between 1.50% and 2.25% above Credit Suisse First Boston's "prime rate" or
between 2.75% and 3.50% above LIBOR, depending upon which benchmark is selected
for pricing. The credit facility will be guaranteed by Broadband Parent, Arris
Interactive, ANTEC and the other direct and indirect subsidiaries of ANTEC and
will secured by substantially all of the assets of ANTEC, Arris Interactive,
Broadband Parent and the other domestic and foreign subsidiaries of Broadband
Parent; provided, that such foreign subsidiaries will only guaranty and secure
the credit facility to the extent it will not create tax liabilities for ANTEC,
Arris Interactive and ANTEC's subsidiaries.
By its nature, a commitment letter is subject to numerous terms and
conditions, including, among other things,
- the negotiation of definitive loan agreements;
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- the absence of any material adverse changes in the
business, tangible and intangible property, condition
(financial or otherwise), results of operations,
projections, liabilities, regulatory status or
prospects of Broadband Parent, ANTEC and Arris
Interactive and their subsidiaries;
- the absence of any material disruption or material
adverse change in the financial or capital markets
generally or for the borrowers in particular or in
the market for syndicated bank credit facilities;
- the closing of the transaction;
- the completion of due diligence; and
- the amount of the new membership interest in Arris
Interactive received by Nortel Networks does not
exceed $100 million.
The definitive loan agreements will contain customary closing
conditions and affirmative and negative covenants, including restrictions on the
incurrence of debt, sales of assets, acquisitions, liens, mergers and
consolidations, the payment of dividends by Broadband Parent, Arris Interactive
and ANTEC, sale/leaseback transactions and transactions with affiliates. In
addition, the new credit facility will contain financial covenants that will
require Broadband Parent, ANTEC and Arris Interactive and their subsidiaries on
a consolidated basis taken as a whole to maintain specified financial ratios.
The new credit facility will also limit Arris Interactive's ability to
redeem or make other payments on the Arris Interactive new membership interest
to be issued to Nortel Networks as part of the transaction. In general, the new
credit facility will provide as follows:
- Arris Interactive may not make any redemption or
other payments to Nortel Networks under the terms of
the Arris Interactive new membership interest during
the first six months after the closing of the
transaction.
- After such six-month period, Arris Interactive may
make cash redemption payments to Nortel Networks of
up to $33 million per fiscal quarter provided that:
- the borrowers are then in compliance with
all covenants under the new credit facility;
and
- after giving pro forma effect to such cash
redemption, no default or event of default
will have occurred under the new credit
facility; and
- after giving pro forma effect to such cash
redemption, the borrowers would have at
least $75 million in excess borrowing
availability under the new credit facility.
- Arris Interactive may make a cash redemption payment
to Nortel Networks of up to $10 million immediately
after the closing of the transaction if:
- after giving pro forma effect to such cash
redemption, no default or event of default
will have occurred under the new credit
facility; and
- after giving pro forma effect to such cash
redemption, the borrowers would have at
least $85 million in borrowing base
availability under the new credit facility.
The $33 million maximum future quarterly redemption amount described
above will be reduced by one-third of the amount of any cash redemption payment
made to Nortel Networks immediately after the closing of the transaction.
Availability under the new revolving credit facility will be subject to
receivable and inventory borrowing base requirements, maintenance of all
financial covenants included in the definitive credit agreement and customary
borrowing conditions. Because the terms, conditions and covenants of the new
credit facility are subject to the negotiation, execution and delivery of
definitive documentation, the actual terms, conditions and covenants may differ
from those described above.
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STOCK OWNERSHIP OF ANTEC AND BROADBAND PARENT
The following table contains information about the beneficial ownership
of Broadband Parent common stock, on a pro forma basis as if the transaction has
been completed, by the persons listed based on their ownership of ANTEC common
stock as of June 26, 2001. With respect to the persons listed in the table, the
pro forma beneficial ownership of Broadband Parent common stock listed for each
person includes only shares of common stock of Broadband Parent issued in
exchange for the shares of ANTEC common stock held by such person. Unless
otherwise indicated, to our knowledge, each person listed below has sole voting
and investment power over their shares of common stock, unless each person
shares ownership with his spouse.
The following table also contains information about the beneficial
ownership of ANTEC common stock of:
- Each person known to us to own beneficially more than 5% of
the outstanding shares of ANTEC common stock, based upon such
person's most recently filed Schedule 13D or 13G;
- The chief executive officer and four other most highly
compensated executive officers of ANTEC;
- Each director of ANTEC and director nominee of Nortel
Networks; and
- All directors and executive officers of ANTEC as a group.
As of June 26, 2001, the number of record holders of ANTEC common stock
was 310.
ANTEC Pro forma Beneficial Ownership
Beneficial Ownership of Broadband Parent
----------------------------------------------------------------
Common Common
Name of Beneficial Owner Stock Percent Stock Percent
------------------------------------------------------------------------------------------------------------------------
Nortel Networks LLC............................. -- * 37,000,000 49.2%
200 Athens Way
Nashville, Tennessee 37228
Liberty Media Corporation, a subsidiary of AT&T
Corp. - Liberty Media, an independent profit
center of AT&T Corp. (1)....................... 7,681,341 20.2% 7,681,341 10.2%
Terrace Tower II
5619 DTC Parkway
Englewood, Colorado 80111
John Hancock Financial Services, Inc.(2)........ 3,109,420 8.2% 3,109,420 4.1%
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Mellon Financial Corporation (3)................. 4,184,399 11.0% 4,184,399 5.5%
One Mellon Center
Pittsburgh, Pennsylvania 15258
The Boston Company (3)........................... 3,539,919 9.3% 3,539,919 4.7%
c/o Mellon Financial Corporation
One Mellon Center
Pittsburgh, Pennsylvania 15258
Merrill Lynch & Co., Inc. (4).................... 2,255,624 5.9% 2,255,624 3.0%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10381
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ANTEC Pro forma Beneficial Ownership
Beneficial Ownership of Broadband Parent
----------------------------------------------------------------
Common Common
Name of Beneficial Owner Stock Percent Stock Percent
------------------------------------------------------------------------------------------------------------------------
Lazard Freres & Co., LLC (5)..................... 2,168,910 5.7% 2,168,910 2.9%
30 Rockefeller Plaza
New York, New York 10020
John (Ian) Anderson Craig (6).................... 5,000 * 5,000 *
Rod F. Dammeyer (6).............................. 9,100 * 9,100 *
John M. Egan (7)(11)............................. 684,777 1.8% 684,777 *
James L. Faust (8)............................... 62,949 * 62,949 *
Michael Graziano(9).............................. 6,068 * 6,068 *
Gordon E. Halverson (10)(11)(12)................. 217,458 * 217,458 *
Craig Johnson.................................... -- * -- *
William H. Lambert (6)(13)....................... 30,050 * 30,050 *
Lawrence A. Margolis (10)(11)(14)................ 419,776 1.1% 419,776 *
John R. Petty (6)(15)............................ 16,600 * 16,600 *
Larry Romrell (6)(16)............................ 17,400 * 17,400 *
William T. Schleyer (6).......................... 5,000 * 5,000 *
Samuel K. Skinner (6)(17)........................ 14,100 * 14,100 *
Robert J. Stanzione (10)(11)(18)................. 761,066 2.0% 761,066 1.0%
Bruce Van Wagner (6)(19)......................... 96,600 * 96,600 *
Vickie Yohe...................................... -- * -- *
All directors, nominees and executive officers as
a group, including the above-named persons
(16 persons) (20)............................ 2,426,444 6.4% 2,426,444 3.2%
-------------
*Less than 1%.
(1) According to a Schedule 13D, filed March 30, 1999. Includes 854,341
shares issuable upon exercise of stock options which are freely
exercisable.
(2) According to a Schedule 13G, filed February 12, 2001. All of the shares
are held by its indirect wholly-owned subsidiary, John Hancock
Advisers, Inc.
(3) According to a Schedule 13G/A, filed May 8, 2001.
(4) According to a Schedule 13G, filed February 5, 2001.
(5) According to a Schedule 13G, filed February 13, 2001.
(6) Includes 37,950 stock units awarded to directors that convert on a
one-for-one basis into shares of ANTEC common stock at a time
predetermined at the time of issuance.
(7) Includes 630,500 shares that may be acquired within 60 days after June
26, 2001.
(8) Includes 50,000 shares that may be acquired within 60 days after June
26, 2001.
(9) Includes 5,958 shares that may be acquired within 60 days after June
26, 2001.
(10) Includes stock units that convert on a one for one basis into shares of
ANTEC common stock at the time predetermined at issuance for Messrs.
Halverson (640 stock units), Margolis (5,700 stock units) and Stanzione
(6,000 stock units). Twenty percent of these units will be forfeited if
the holder leaves ANTEC without good reason before December 31, 2002.
Also includes 24,077 stock units for Mr. Stanzione. These units will be
forfeited if Mr. Stanzione leaves ANTEC without good reason prior to
June 30, 2001 and 20% of these units will be forfeited if he so leaves
ANTEC prior to June 30, 2004.
(11) Includes restricted common stock granted on February 21, 2001, for
Messrs. Stanzione, Egan, Margolis and Halverson. The restricted common
stock vests in thirds beginning on the date of grant and then on each
anniversary of the date of grant.
(12) Includes 210,000 shares that may be acquired within 60 days after June
26, 2001.
(13) Includes 20,000 shares that may be acquired within 60 days after June
26, 2001.
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(14) Includes 385,000 shares that may be acquired within 60 days after June
26, 2001.
(15) Includes 7,500 shares that may be acquired within 60 days after June
26, 2001.
(16) Includes 16,200 shares that may be acquired within 60 days after June
26, 2001.
(17) Includes 5,000 shares that may be acquired within 60 days after June
26, 2001.
(18) Includes 685,000 shares that may be acquired within 60 days after June
26, 2001.
(19) Includes 35,000 shares that may be acquired within 60 days after June
26, 2001.
(20) Includes 2,112,658 shares that may be acquired within 60 days after
June 26, 2001.
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DESCRIPTION OF BROADBAND PARENT CAPITAL STOCK FOLLOWING THE TRANSACTION
The following summarizes the terms of the capital stock of Broadband
Parent immediately following the transaction.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Broadband Parent is 325,000,000 shares
consisting of 320,000,000 shares of common stock, par value $0.01 per share, and
5,000,000 shares of preferred stock, par value $1.00 per share, in such series
and with such voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as may be fixed from time to time by the board of
directors for each series.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the board of directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
Broadband Parent, the holders of common stock are entitled to receive ratably
the net assets of Broadband Parent available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding preferred
stock. Holders of common stock have no preemptive, subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which Broadband Parent may
designate and issue in the future.
PREFERRED STOCK
Broadband Parent has authorized 5,000,000 shares of preferred stock
that may be issued with such preferences and voting rights as the board of
directors, without further approval by the stockholders, may determine by duly
adopted resolution. No shares of Broadband Parent preferred stock are currently
issued and outstanding.
CHARTER AND BYLAW PROVISIONS
In accordance with the provisions of the Delaware General Corporation
Law, or DGCL, Broadband Parent has adopted provisions in its certificate of
incorporation and bylaws which require Broadband Parent to indemnify its
officers and directors to the fullest extent permitted by law, and eliminate the
personal liability of its directors to Broadband Parent or its stockholders for
monetary damages for breach of their duty of due care except (a) for any breach
of the duty of loyalty; (b) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law; (c) for liability
under Section 174 of the DGCL, which relates to certain unlawful dividends,
stock repurchases or stock redemptions; or (d) for any transaction from which
the director derived any improper personal benefit. These provisions do not
eliminate a director's duty of care. Moreover, the provisions do not apply to
claims against a director for violation of laws, such as federal securities
laws. Broadband Parent believes that these provisions will assist Broadband
Parent in attracting or retaining qualified individuals to serve as directors
and officers. Broadband Parent's certificate of incorporation includes a
provision that allows the board of directors, without stockholder approval, to
issue up to 5,000,000 shares of preferred stock with voting, liquidation and
conversion rights that could be superior to and adversely affect the voting
power of holders of common stock. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change in control of Broadband
Parent. Broadband Parent has no present plans to issue any shares of preferred
stock.
DELAWARE ANTI-TAKEOVER LAW
Broadband Parent is a Delaware corporation that is subject to Section
203 of the DGCL. Under Section 203 certain "business combinations" between a
Delaware corporation, whose stock generally is publicly traded or held of
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record by more than 2,000 stockholders, and an interested stockholder are
prohibited for a three-year period following the date that such stockholder
became an interested stockholder, unless:
- the corporation has elected in its certificate of
incorporation not to be governed by Section 203 (Broadband
Parent has not made such election);
- the business combination was approved by the board of
directors of the corporation before the other party to the
business combination became an interested stockholder;
- upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding
at the commencement of the transaction, excluding voting stock
owned by directors who are also officers or held in employee
benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan;
or
- the business combination is approved by the board of directors
of the corporation and ratified by two-thirds of the voting
stock, which the interested stockholder did not own.
The three-year prohibition also does not apply to business combinations proposed
by an interested stockholder following the announcement or notification of
specified extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors. The term "business combination" is defined generally to
include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries, and
transactions, which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally as those
stockholders who become beneficial owners of 15% or more of a Delaware
corporation's voting stock, together with the affiliates or associates of that
stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar with respect to the Broadband Parent
common stock will be The Bank of New York.
NASDAQ NATIONAL MARKET SYSTEM LISTING; DELISTING AND ANTEC COMMON STOCK
It is a condition to the transaction that the shares of Broadband
Parent common stock issuable in connection with the transaction be approved for
listing on the Nasdaq National Market System. The shares of Broadband Parent
common stock will be listed on the Nasdaq National Market System under the
symbol "ARRS". Upon the closing of the transaction, the ANTEC common stock will
cease to be listed on the Nasdaq National Market System.
FEDERAL SECURITIES LAWS CONSEQUENCES
Unless you are an affiliate, the shares of Broadband Parent common
stock you receive in the transaction will be freely transferable. The definition
of affiliate is complex and depends on the specific facts, but generally
encompasses directors, senior officers, 10% stockholders and any other person
with the power to direct the management and policies of Broadband Parent as well
as those entities that are controlled by Broadband Parent and its subsidiaries,
including, after the merger, ANTEC. The Securities Act of 1933 and Securities
Act Rules 144 and 145 restrict the ability of affiliates to resell their shares
of Broadband Parent common stock. The plan of reorganization requires us to use
reasonable efforts to obtain written agreements with our affiliates to the
effect that they will not sell or otherwise dispose of their shares in violation
of the Securities Act or the rules.
Stockholders who are affiliates of ANTEC or Broadband Parent may not
sell shares of Broadband Parent common stock received in the merger except:
- under an effective registration statement under the Securities
Act,
- in compliance with an exemption from the registration
requirements of the Securities Act, or
- in compliance with Rule 144 and Rule 145 of the Securities
Act.
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Generally, those rules permit resales of stock received in a registered offering
by an affiliate of ANTEC or Broadband Parent as long as Broadband Parent has
complied with certain reporting requirements and the selling stockholder
complies with certain volume and manner of sale restrictions set forth in Rule
144 and Rule 145.
Nortel Networks will have registration rights to cover sales by it of
shares of Broadband Parent common stock received by it under the plan of
reorganization. See "Other Agreements - Nortel Networks Registration Rights
Agreement," on page 65. In addition, AT&T currently has a registration rights
agreement with ANTEC to cover sales by it of ANTEC common stock. Upon the
completion of the transaction, Broadband Parent will assume ANTEC's obligations
under this agreement.
COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of ANTEC stockholders are currently governed by Delaware law
and ANTEC's certificate of incorporation and bylaws. The plan of reorganization
provides that, at the closing of the transaction, the stockholders of ANTEC will
become stockholders of Broadband Parent. Accordingly, after the transaction,
your rights will be governed by the certificate of incorporation and bylaws of
Broadband Parent and will continue to be governed by Delaware law. With the
exception of the number of shares that Broadband Parent is authorized to issue,
the certificate of incorporation and bylaws of Broadband Parent are
substantially identical to ANTEC's certificate of incorporation and bylaws.
Therefore, your rights as stockholders of Broadband Parent will not differ from
your current rights as stockholders of ANTEC.
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DESCRIPTION OF ARRIS INTERACTIVE
ARRIS INTERACTIVE'S BUSINESS
BACKGROUND
Arris Interactive L.L.C. is a developer and manufacturer of voice,
video and data delivery products that operate over hybrid fiber-coax networks.
Since its inception on November 9, 1995 as a joint venture between Nortel
Networks and ANTEC, Arris Interactive's products have been targeted towards
cable operators worldwide. Through the joint venture, ANTEC became the exclusive
channel for Arris Interactive's products to select top U.S. multiple system
operators while Nortel Networks became the exclusive channel to telephone
companies and other operators of hybrid fiber-coax cable systems in North
America and internationally.
Arris Interactive's business has centered around the development,
manufacture and distribution of two principal products and applications, its
Cornerstone and Digital Video products. The Digital Video product line was
discontinued in August 1997. Arris Interactive's Cornerstone line of products
provides the means to deliver carrier-grade telephone services and high-speed
data services over a broadband hybrid fiber-coax cable network. Carrier-grade
telephone services are services that are substantially equivalent in quality to
those provided by the incumbent local exchange carrier. High-speed data services
are services substantially higher in quality than those provided by typical
wire-line modems. Arris Interactive's Cornerstone products consist of network
elements for headend and premises deployment.
Prior to the formation of Arris Interactive, the Cornerstone products
were part of Nortel Networks' product portfolio while the Digital Video products
were part of the ANTEC product portfolio. Along with the rights to develop and
manufacture the Cornerstone and Digital Video product portfolio, ANTEC and
Nortel Networks allowed Arris Interactive to hire the engineering, marketing and
administrative personnel who had worked on these respective product lines. Arris
Interactive became the beneficiary of Nortel Networks' and ANTEC's extensive
industry experience and their long standing relationships with their respective
customers.
Arris Interactive's first trials of the Cornerstone system began in
late 1995. The first commercial deployments started in 1996. Initial marketplace
acceptance of hybrid fiber-coax telephony was tentative. Arris Interactive and
other companies offering similar products faced numerous obstacles, including
difficulty convincing potential customers of the technological viability of
delivering lifeline telephone service over the hybrid fiber-coax network.
Additionally, many of Arris Interactive's potential customers had not yet
upgraded their networks to permit two-way signal transfer while builders of new
systems in areas where there were existing systems were just beginning to obtain
funding to provide these improvements. Once the technology had been proven,
customers realized that managing and operating a two-way network was far more
complex than supporting a simple one-way downstream system. As Arris
Interactive's customers focused on the back office infrastructure and became
confident in both the technology and their ability to deliver carrier-grade
telephone service to the consumer, Arris Interactive experienced substantial
growth, resulting in a compounded annual growth rate of 122% over the years of
1996 through 2000.
In early 1997, Arris Interactive determined that the Digital Video
product portfolio would not provide the anticipated synergies originally
contemplated in the joint venture agreement and sought offers for the product
portfolio. On August 1, 1997, Arris Interactive sold substantially all of the
assets used to produce the Digital Video product to an unrelated third party.
The management of Arris Interactive believed that, to become a global leader in
the hybrid fiber-coax market, Arris Interactive should focus on its core
competencies, which at that time were in the research and development of
equipment for the delivery of carrier-grade telephone service.
During 1997 and 1998, Arris Interactive focused its research and
development efforts and funds on circuit-switched voice products and services
that used a constant bit rate. In 1999, management determined that, to remain
successful, Arris Interactive would also have to invest in voice over internet
protocol, a then emerging transport protocol. Since early 1999, Arris
Interactive has continued to invest in development of technology using a
constant bit-rate while using its voice expertise in the voice over internet
protocol area.
On March 31, 1999, Nortel Networks contributed substantially all of the
assets of LANcity, its broadband transmission division, to Arris Interactive in
exchange for an increase in Nortel Networks' membership interest in
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Arris Interactive. This transaction increased Nortel Networks' membership in
Arris Interactive from 75% to 81.25%. Nortel Networks had originally acquired
LANcity as part of its acquisition of Bay Networks on August 31, 1998. LANcity,
which had been purchased by Bay Networks in September 1996, was a pioneer in
providing internet protocol-based high-speed data over hybrid fiber-coax
networks. In 1995, while the Internet was still in its infancy, a team of
engineers working for LANcity introduced the first cable modem for residential
use. During the period from 1995 to 1998, LANcity developed into one of the
largest providers of proprietary high-speed data systems for cable. The
principal reason Arris Interactive acquired the assets of LANcity was to obtain
access to the internet protocol technology it needed to develop voice over
internet protocol products.
As part of the purchase of the LANcity assets, Arris Interactive
obtained the intellectual property rights to the LCe cable modem headend system,
which is installed at the service provider's headend, and the LCp cable modem,
which is installed in the subscriber's home. These products work together to
provide high-speed data access over cable networks. The LCe transmits and
receives radio frequency modulated signals to and from the hybrid fiber-coax
network owned by the cable operator and converts these signals to Internet
protocol high-speed data signals for communication via the Internet. The LCp
cable modem installed in the subscriber's home converts the radio frequency
signals sent from/to the LCe into Internet protocol signals which are connected
to a personal computer for high speed access to the Internet. The LCe and LCp
are based on proprietary technology developed by LANcity.
During early 1999, Arris Interactive's management recognized that the
market had begun to embrace an emerging standards-based technology known as the
Data Over Cable Standards Interface System (DOCSIS) and was moving away from
proprietary technology such as the LCe and LCp. Market prices began to decline
as new vendors began to offer standards-based products. Arris Interactive's
management decided to phase out the proprietary LCp and LCe products in favor of
DOCSIS-based products. During 1999, Arris Interactive continued to sell its
proprietary products and also introduced DOCSIS-based products. However, the
margins for both proprietary and DOCSIS-based cable modems reflected the
commoditization of the product and, with the entry of multiple consumer
electronics manufacturers, price competition for cable modems became fierce.
Accordingly, Arris Interactive's management opted to discontinue LANcity's cable
modem development and manufacturing and focus its research and development on
voice over internet protocol, hybrid fiber-coax network devices and advanced,
carrier-grade DOCSIS-based cable modem termination systems (CMTS). These
products are more sophisticated than cable modems and therefore more resistant
to commoditization and price competition. Arris Interactive has continued to
manufacture and sell, on a very limited basis, the proprietary cable modem in
order to fulfill certain contractual obligations.
As part of its move to DOCSIS-based products, Arris Interactive entered
into an original equipment manufacturing agreement with Thompson multimedia.
Through this agreement, Arris Interactive's customers are able to purchase cable
modems directly from Thompson multimedia. As a result, Arris Interactive is
better able to ensure that its customers have a supply source for the
DOCSIS-based cable modem originally developed by Arris Interactive.
Since Arris Interactive and LANcity combined, they have worked towards
capitalizing on the strengths of their respective research and development
teams. Arris Interactive has benefited from the combination of these two
innovative and creative development teams. The primary objective of the
developmental team has been to combine the DOCSIS-based CMTS technology, with
the voice capabilities of the Cornerstone products. Arris Interactive's stated
goal is to create a world class leader in voice over Internet protocol
technology.
INDUSTRY
The deregulation of the telecommunications industry, both domestically
and internationally, has fueled the demand for Arris Interactive products. That
demand has allowed Arris Interactive to grow from $23.1 million in revenues in
1996, Arris Interactive's first full year of operations, to $561.5 million in
revenues for the year ended December 31, 2000. Deregulation has allowed cable
companies to compete directly with local telephone companies to provide
consumers with both telephone and high-speed data services. Competition from
direct broadcast satellite service providers such as DirecTV and others has
forced many cable system operators to update their equipment to offer more
channels and additional services such as high-speed data and telephone. In many
parts of the world, due in large part to World Trade Organization mandates,
public telephone companies have been privatized and forced to divest their cable
assets. New private companies have acquired these assets and have commenced
offering high-speed data and telephone services in competition with the
telephone companies. There is also a growing trend for municipalities,
principally in the United States, to grant second cable service franchises to
create local competition,
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thereby increasing services and reducing prices. The companies obtaining these
second franchises are becoming an increasingly important component of the
market. In response to these changes in the telephony, high-speed data and
television services markets, traditional cable operators have sought to upgrade
their systems for two-way communications in order to offer multiple services -
video, voice and data - that can effectively compete with the new market
entrants. Arris Interactive markets its products to traditional cable service
providers and builders of new systems where there are existing systems
worldwide.
Rapid growth in the number of Internet users and the demand for
higher-speed, high-volume interactive services is beyond the capabilities of
traditional local telephone networks. Increasingly, the high-speed Internet
access experienced at work is being demanded by consumers accessing the Internet
from home. Two-way cable systems offer a means to provide this high-speed access
through the implementation of DOCSIS-based CMTS and cable modems. Employing the
combination of fiber optic and coaxial cable, modern two-way cable systems
provide higher bandwidth than traditional telephone networks, which have been
designed to carry only voice and low-speed data signals. Since 1998, the
telephone companies and third-party service providers have been deploying a
technology known as asynchronous digital subscriber line (ADSL) service. ADSL
allows the telephone company to provide high-speed data services to the consumer
and is a direct competitor to the cable operators offering DOCSIS-based cable
modems. Arris Interactive's CMTS products are sold to cable service providers to
enable them to provide DOCSIS-based high-speed data services for Internet access
from the subscriber's home.
Traditional telephone companies, competitive local exchange carriers
and cable operators that offer telephone services have employed a circuit
switched at constant bit rate. Constant bit rate refers to the method allocating
the channels carrying voice signals across the telephone network. This method
called "time division multiplexing" allocates a constant full time channel to
each voice call for the duration of the call. While this method provides a good
quality of voice signal, it is inefficient in its utilization of the networks
resources and, consequently, relatively expensive. Newer technology, called
"internet protocol" or "packet-switched" employs a device in which voice or data
signals are digitally encoded and encapsulated in small packets that transit the
network efficiently. Because voice and data traffic are handled in much the same
manner and share the network's resources, the internet protocol method is more
efficient and less costly to operate than constant bit-rate technology.
Emerging standards from CableLabs(R), the U.S. cable industry's
standard-setting body, are aimed at enabling voice to be carried over internet
protocol along with the high-speed data traffic currently being carried
utilizing CMTS and cable modems. To keep pace with technological evolution,
these new standards are a newer version of the DOCSIS-standard called "Version
1.1" or "DOCSIS 1.1". A second standard, called "Packet Cable" establishes the
protocol between the voice terminal located at the subscriber's premises and a
"Call Server" located at the cable service provider's headend. The call server
is the device that resolves the originating caller's dialed number and connects
the caller to the desired called party.
Arris Interactive is making the transition from constant bit-rate to
voice over internet protocol telephony. Arris Interactive's products that enable
service providers to offer constant bit-rate telephony are proprietary rather
than standards-based, while the products that enable and support voice over
internet protocol are standards-based. As with any standards-based technology,
as competition accelerates, margins may decline. Arris Interactive believes that
the technological and standardization issues surrounding voice over internet
protocol will have the short-term effect of limiting the wide-scale adoption of
this protocol. However, Arris Interactive continues to develop and introduce a
line of internet protocol products, including advanced carrier-grade CMTS and
carrier-grade voice over internet protocol equipment, to secure its market
position and preserve its margins. Arris Interactive believes it can sell its
voice over internet protocol products to its current constant bit-rate customers
as they move to voice over internet protocol technology over the next several
years. In addition, Arris Interactive believes it can sell these products to new
customers who have delayed deploying voice services in anticipation of voice
over internet protocol technology becoming more available.
PRINCIPAL PRODUCTS
Arris Interactive supplies products for the cable telephony and
high-speed data access business under the brand name Cornerstone. Arris
Interactive designs and manufactures these products for sale to
telecommunications operators through ANTEC and Nortel Networks, which act as its
distributors. The Cornerstone products include host digital
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terminals and CMTS devices for the headend, as well as network interface units
at the home. Arris Interactive designs its equipment to meet strict performance
reliability specifications and demanding environmental requirements.
Constant Bit-rate Voice Products and Services. The Cornerstone voice
system allows operators to provide telephone services, including all of the
custom calling features, such as call-waiting and three-party conferencing, to a
subscriber's home or office over a hybrid fiber-coax network. The Cornerstone
voice system consists of a headend or central office-located host digital
terminals connected to a network interface unit at the customer's premises. The
network interface units portfolio includes a two-line single family residence
voice port, a two-line integrated indoor voice port, a four-line voice port, a
twelve-line multi-line voice port and a multi-personality universal access port.
Because the Cornerstone voice system is easy to implement, economical and
scalable, hybrid fiber-coax network operators can offer telephony at a low
penetration level and expand along with customer demand.
Internet Protocol Data Products and Services. The Cornerstone data
system is a standards-based system for cable operators offering high-speed data
services over a hybrid fiber-coax network. The system consists of headend or
central office-located CMTS connected to a network interface unit at the
customer's premises. Arris Interactive develops and markets CableLabs(R)
Qualified(TM) headend equipment that supports CableLabs(R) Certified(TM) brand
cable modems. The standards-based system enables operators to implement
multi-vendor networks.
Converged Products. The Cornerstone converged family of products allows
the network operator to deliver both constant bit-rate and internet protocol
voice over cable and data solutions for high-speed internet applications or
other bandwidth intensive applications. When combined with Cornerstone Voice
Port and Packet Port brand, network operators can deploy a complete end-to-end
access network. The Cornerstone converged product portfolio is composed of the
converged host terminal and the internet protocol access system. The converged
host terminal enables operators to develop their current subscriber base
initially using carrier grade constant bit-rate telephony and then migrating
their subscribers to internet protocol telephony as it becomes available.
Additionally, it provides the operator with the option to deploy both
technologies simultaneously, which Arris Interactive believes reduces the
complexity in transitioning operator networks to new services.
The internet protocol access system is designed to meet the needs of
network hubs with medium density subscriber bases by utilizing the same carrier
grade CMTS headend system for both DOCSIS-based high-speed data and
carrier-grade line voice services. The Cornerstone CPS-2000 cable modem
provisioning software, which functions as an integrated voice solution, easily
integrates with numerous billing software products providing an integrated
solution for provisioning-to-billing operations.
DEVELOPMENTAL PRODUCTS
Arris Interactive is committed to being a technology leader and product
development specialist in the evolving broadband communications market. Arris
Interactive strives to develop new products and technology applications, both
through its own engineering resources and by forging strategic alliances with
other companies. Arris Interactive is currently involved in the development of
several new products. Among these are the following:
- the Cable Port, a low cost voice-enabled cable modem
targeted at second-line and emerging country
telephone and data applications,
- the Packet Port, an outside plant voice over internet
protocol terminal targeted at the carrier-grade
telephone market, and
- the Multiservice Access System (MSAS), a high-density
multiple stream CMTS providing carrier-grade
availability and high-speed routing technology on the
same headend targeted at the carrier-grade telephone
and high-speed data market.
There can be no assurance that the technology applications currently
under development by Arris Interactive will be successfully developed or, if
successfully developed, that they will be widely used or, that Arris Interactive
will otherwise be able to successfully exploit these technology applications.
Furthermore, Arris Interactive's competitors may develop similar or alternative
new technology applications that, if successful, could have a material adverse
effect on Arris Interactive's business.
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SALES AND MARKETING
Arris Interactive does not have a direct sales force, but rather
distributes its products through ANTEC and Nortel Networks. However, because of
the technological complexity of its products, Arris Interactive has
traditionally played the role of product expert and solutions provider with
respect to the end-customers. Arris Interactive's targeted customers are cable
operators and telephone companies. As provided in the joint venture agreement,
ANTEC is the exclusive channel for Arris Interactive's products to select top
U.S. cable operators while Nortel Networks is the exclusive channel to telephone
companies and other operators in North America and the rest of the world.
To preserve and maintain Arris Interactive's relationship with its
distribution channels and the end-customer, Arris Interactive instituted a
formal program it calls customer relationship management. Arris Interactive has
organized its marketing and post-sales technical support teams, called
"strategic business units" to mirror the distribution channels it employs. These
include ANTEC's accounts and Nortel Networks' North American, European, Asian
and Latin American accounts. These strategic business units provide close pre-
and post-sales support to the various distribution channels that Arris
Interactive employs.
Another tool in Arris Interactive's customer relationship management
program is the Cornerstone users' group, which began meeting in May 1997. This
group provides a forum for Arris Interactive's end-customers where they share
their experiences and offer suggestions for improving the performance of the
other customers as well as that of Arris Interactive. Arris Interactive uses the
feedback received from actual users and the users are afforded the opportunity
to talk with and ask questions of Arris Interactive's marketing and engineering
professionals. In addition, Arris Interactive is able to review the evolution of
its product portfolio directly with the users, helping Arris Interactive
determine future product direction with a high degree of precision. The
Cornerstone users' group meetings are held semi-annually, in conjunction with
major industry trade shows.
RESEARCH AND DEVELOPMENT
From its inception to the present, Arris Interactive focused its
product development on hybrid fiber-coax networks, spending its resources in
research and development on applications and products that deliver cable
telephony and high-speed Internet access. Arris Interactive strives to develop
new products and technology applications, both through its own engineering
resources and by forging strategic alliances with other companies. Since its
formation in November 1995 through December 31, 2000, Arris Interactive has
invested $208.6 million in research and development. For the twelve months ended
December 31, 2000, 1999 and 1998, Arris Interactive incurred research and
development expenditures of $76.7 million, $52.3 million and $28.2 million.
Arris Interactive's research and development has led to innovations in
a variety of areas relating to the provision of carrier-grade telephone and
high-speed data services to a subscriber's home through hybrid fiber-coax
networks. For example, Arris Interactive has developed a specialized design for
its Cornerstone voice products that consists of environmentally hardened,
low-power devices that operate in an outdoor environment and require very little
power. These attributes enable the service provider to provide a carrier-grade
telephone service that will compete favorably against the local telephone
company's service at a favorable operating cost. The Cornerstone voice systems
currently installed exhibit reliability rates that typically exceed 99.99% while
offering all of the features normally offered to residential subscribers.
Another key area of research is the system architecture and software
necessary to provide the 99.999% reliability rate required for carrier-grade
services. Arris Interactive has developed systems with such features as full
redundancy, automatic switch-over and recovery and hot replacement of failed
components. Arris Interactive utilizes ISO 9001 processes in its product
development to ensure verification and backward compatibility of its new
products.
Arris Interactive has also developed software products for the
automated provisioning and surveillance of the networks its customers deploy.
This software enables Arris Interactive's customers to install subscribers
rapidly and manage their networks efficiently.
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INTELLECTUAL PROPERTY
Arris Interactive does not, prior to the closing of the transaction,
hold any patents. Under the intellectual property rights agreement, Nortel
Networks will transfer patent and license rights to Arris Interactive relating
to various products offered by Arris Interactive. See "Other Agreements --
Intellectual Property Rights Agreement." To limit access to and disclosure of
Arris Interactive proprietary information, Arris Interactive enters into
confidentiality and invention assignment agreements with its employees, and
enters into non-disclosure agreements with its suppliers, distributors and
appropriate customers. These statutory and contractual arrangements may prove
insufficient or ineffective at preventing the misappropriation of Arris
Interactive technology or deterring independent third-party development of
similar technologies. In addition, the laws of some foreign countries might not
protect Arris Interactive products or intellectual property rights to the same
extent as the laws of the United States. Protection of Arris Interactive
intellectual property might not be available in every country in which its
products are manufactured, marketed or sold.
MANUFACTURING
Manufacturing operations range from electro/mechanical, labor-intensive
assembly to sophisticated electronic surface mount automated assembly lines. The
typical production cycle for Arris Interactive's products, from the purchasing
of raw components to manufacturing and shipping products, is six months or less.
A significant element of Arris Interactive's manufacturing strategy is to
subcontract production.
Currently, Arris Interactive utilizes four contract manufacturers all
of whom are ISO 9002 certified. Arris Interactive's products are manufactured at
facilities owned by these contract manufacturers in the U.S., Mexico and the
Philippines. Arris Interactive believes its relationships with its contract
manufacturers are good. Contracts with two of these manufacturers are "at will"
and can be terminated at any time. The other two manufacturers have annually
renewable agreements. One of Arris Interactive's at will manufacturers is Nortel
Networks. Nortel Networks is the exclusive manufacturer of Arris Interactive's
host digital terminal. An essential component of the host digital terminal is
the access bandwidth management (ABM) shelf that operates as the communications
interface providing access to the public switch telephone network. The ABM shelf
is proprietary to Nortel Networks and Arris Interactive does not have an
alternate source. Without the ABM shelf Arris Interactive would be unable to
produce the host digital terminal and would, therefore, be unable to sell
constant bit-rate based telephony equipment. Arris Interactive believes that the
investment in equipment and training made by all of the manufacturers in the
course of fulfilling Arris Interactive's business makes the termination of the
relationship an unlikely event. However, if Arris Interactive were to lose a
manufacturer, other than Nortel Networks, Arris Interactive believes that it
could replace that manufacturer with only a minor impact to the business.
Century Electronics, one of Arris Interactive's contract manufacturers,
declared bankruptcy in January 2001. Arris Interactive continues to do business
with Century Electronics under the existing contract. Arris Interactive believes
it can obtain a replacement manufacturer for Century Electronics and do so
without a significant impact to its business.
MATERIALS AND SUPPLIES
Arris Interactive makes significant purchases of electronic components
and other materials and supplies from various domestic and foreign sources.
Currently, Arris Interactive has sufficient materials and components to meet its
production needs. In a continual effort to hedge against potential parts
shortages, Arris Interactive occasionally maintains special inventories of
certain components. Additionally, Arris Interactive actively develops and
maintains alternative sources for essential materials and components. However,
certain components of Arris Interactive's products are supplied exclusively by
Nortel Networks. Currently, there is not an alternate source for the Nortel
Networks' proprietary components.
BACKLOG
Arris Interactive's backlog is a reflection of the backlog and
inventory requirements of its channels, ANTEC and Nortel Networks. As of
December 31, 2000, Arris Interactive had orders on hand from Nortel Networks of
$45.1 million and ANTEC of $88.5 million.
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INTERNATIONAL OPPORTUNITIES
Arris Interactive, through Nortel Networks, sells its products in over
25 countries. Although the deregulation of the telecommunications industry has
been a widespread, international event over recent years, deregulation has not
occurred in all markets. In markets where deregulation has not occurred, strict
regulatory environments are significant impediments to Arris Interactive's
ability to sell its products. For example, countries that still have legislated
telephone monopolies have laws that prohibit competition. Arris Interactive is
unable to sell its voice products in these countries. Arris Interactive's data
products are not currently limited by the telephone monopolies in other
countries. If the laws, regulations, standards or specifications governing the
cable industry in any country should change, then Arris Interactive could be
prevented from offering its products there until it could implement
modifications, which could cause Arris Interactive to incur additional
development costs. There can be no guarantee that the regulations governing
various international markets will not change in a manner that is adverse to
Arris Interactive and its ability to compete in those markets.
While a strict regulatory environment can impede Arris Interactive's
ability to compete, a complete absence of governmental regulation can also cause
serious complications. Many countries either do not regulate the installation of
cable telephone and data systems or fail to regulate the modernization of
existing cable network systems. Arris Interactive sells its products in several
markets in which there is minimal regulation. In these markets it is possible
that new regulations could be imposed at any time, which could place limitations
on a local cable operator's ability to use Arris Interactive products. Cable
operators in these countries may find themselves completely unable to comply
with new regulations, or such compliance could take a long time and cost a great
deal of money. Despite the various regulatory and standards compliance issues,
Arris Interactive remains committed to developing and manufacturing its products
for sale internationally. For the years ended December 31, 2000, 1999 and 1998,
international sales accounted for 38%, 28% and 46% of total revenues. Through
its distributor Nortel Networks, Arris Interactive's primary international
markets are Asia, Europe and South America. Historically the primary countries
to which Nortel Networks has sold Arris Interactive's products internationally
have been Japan, Austria and Chile.
SEASONALITY
Arris Interactive does not believe its business to be seasonally
affected.
SIGNIFICANT CUSTOMERS
Because it utilizes ANTEC and Nortel Networks as distributors, sales to
Arris Interactive's significant customers are conducted by those distribution
channels. Through ANTEC and Nortel Networks, Arris Interactive's biggest
customers are Cox Communications and AT&T. In addition to Cox Communications and
AT&T, Arris Interactive considers other significant customers to be VTR in
Chile, Jupiter Titus in Japan and UPC-Telekabel in Europe.
COMPETITION
All aspects of Arris Interactive's business are highly competitive. The
broadband communications industry itself is dynamic, requiring companies to
react quickly and capitalize on change. Arris Interactive must retain skilled
and experienced personnel and deploy substantial resources to meet the
ever-changing demands of the industry. Arris Interactive's products are marketed
with emphasis on quality and are competitively priced. Product reliability and
performance, superior and responsive technical and administrative support, as
well as technological innovations and speed to market are some of the factors on
which competition in the industry is based. To the extent that Arris Interactive
cannot meet the challenges of the competitive broadband communications industry,
its business may be adversely affected.
Arris Interactive competes with international and national
manufacturers, distributors and wholesalers, including some companies larger
than itself. Arris Interactive's main competition can be segmented into two
areas: 1) constant bit rate and 2) internet protocol.
In the constant bit rate market Arris Interactive's primary competitors
are ADC and Tellabs. Each company has developed and manufactures a proprietary
constant bit rate telephony suite of products that include a headend terminal,
software, and network interface units. This suite of products is sold to cable
operators so that they may deploy
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telephony, over their cable networks. The headend terminals and software are
located at central points in the cable operators network. The network interface
units are deployed by the cable operators in the field at their customers
residences. The competing products do not interface with each other. Typically,
a customer will deploy one competitor's suite of products in a geographic
segment of their network.
In the internet protocol market, Arris Interactive's main competitors
are Motorola, ADC, Cisco, with further competition from a number of small
start-up companies. This market segment is evolving rapidly. A significant
competitive factor in the internet protocol segment is that all products are to
be based on a common set of standards. Therefore, any company's products should
be compatible with its competitors' products in a cable operators network.
Currently revenues are dominated by two products: cable modems and cable modem
termination systems (CMTS). As discussed previously, in 1999 Arris Interactive
made the decision to exit the cable modem market and hence does not compete in
this segment. Arris Interactive does compete with the companies listed above in
the CMTS segment. Further product offerings in the internet protocol segment are
expected to include further development of the CMTS and the introduction of
network interface units, to be located at the cable operator's customers
premises, which offer features such as telephony and high speed data.
In addition, because of the convergence of the cable,
telecommunications and computer industries and rapid technological development,
new competitors are entering the cable market. Many of Arris Interactive's
competitors or potential competitors are substantially larger and have greater
resources than Arris Interactive.
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EMPLOYEES
As of December 31, 2000, Arris Interactive had approximately 615
full-time employees, including approximately 185 employees loaned from Nortel
Networks, none of whom were members of a union. Management does not anticipate
any significant changes to the number of loaned Nortel Networks employees after
the closing. Arris Interactive believes that its relationship with its employees
is excellent. The future success of Arris Interactive depends in part on its
ability to attract and retain key executive, marketing, engineering and sales
personnel. Competition for qualified personnel in the telecommunications and
cable industries is intense, and the loss of certain key personnel could have a
material adverse effect on Arris Interactive. Arris Interactive has bonus
programs that are intended to provide incentives for its key employees to remain
with the company.
PROPERTIES
In addition to Arris Interactive's headquarters located just north of
Atlanta in Suwanee, Georgia, Arris Interactive leases office space in Andover,
Massachusetts and Research Triangle Park, North Carolina. These facilities
provide over 170,000 square feet of sales and administrative offices, storage,
manufacturing, and research and development labs. The Suwanee facility contains
complete test labs with more than 15,000 lines of Cornerstone cable telephony
installed. During 2000, Arris Interactive finished building its interoperability
test labs at the Andover facility. During the fourth quarter of 2000, Arris
Interactive leased an additional 54,000 square feet of office space in Suwanee,
Georgia.
LEGAL PROCEEDINGS
Arris Interactive is not currently engaged in any litigation that it
believes would have a material adverse effect on its financial condition or
results of operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with Arris Interactive's
financial statements and the related notes thereto and the description of Arris
Interactive's business included elsewhere in this document. As discussed in Note
11 to the Arris Interactive financial statements, the financial statements have
been restated.
RESULTS OF OPERATIONS
The following table sets forth relevant financial data as a percentage
of revenues:
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------
2001 2000 2000 1999 1998
------ ------ ------ ------ ------
Total revenues ................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ................................. 88.9 77.8 75.4 72.2 79.0
------ ------ ------ ------ ------
Gross profit ..................................... 11.1 22.2 24.6 27.8 21.0
Selling, general and administrative expenses ..... 5.5 4.4 4.3 4.6 8.6
Research and development expenses ................ 17.7 13.5 13.7 14.1 24.1
Purchased in-process research and development ....
0.0 0.0 0.0 0.0 61.1
Loss on equipment disposal ....................... 0.0 0.0 0.0 0.3 0.0
------ ------ ------ ------ ------
Operating (loss) income .......................... (12.1) 4.3 6.6 8.7 (72.9)
Interest (income) ................................ (0.4) (0.5) (0.4) (0.4) (0.3)
Interest expense ................................. 2.7 2.3 1.8 2.3 6.7
Other, net ....................................... 0.0 0.0 0.0 0.2 0.0
------ ------ ------ ------ ------
Net (loss) income ................................ (14.4)% 2.5% 5.2% 6.6% (79.3)%
====== ====== ====== ====== ======
SIGNIFICANT CUSTOMERS
Sales of Cornerstone products are covered under separate
distribution agreements entered into between Arris Interactive and each
of ANTEC and Nortel Networks, which expire upon the earlier of December
31, 2005 or termination of the joint venture. The agreements provide a
nontransferable, exclusive right to ANTEC and Nortel Networks to sell
and distribute the Cornerstone suite of products. The agreements also
set forth, among other things, sales levels, products, pricing and
customers. Geographic revenue information is based on the location of
the end customer.
The following tables set forth Arris Interactive's revenues by
geographic area (in thousands):
QUARTER ENDED MARCH 31,
(UNAUDITED)
2001 2000
-------------------------------- --------------------------------
UNITED UNITED
INT'L STATES TOTAL INT'L STATES TOTAL
------- ------- -------- ------- ------- --------
Cornerstone ANTEC $ -- $76,088 $ 76,088 $ -- $51,485 $ 51,485
Cornerstone Nortel 22,272 1,997 24,269 42,024 11,494 53,518
Other (2) -- 145 145 -- 64 64
------- ------- -------- ------- ------- --------
Total $22,272 $78,230 $100,502 $42,024 $63,043 $105,067
======= ======= ======== ======= ======= ========
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YEAR ENDED DECEMBER 31,
2000 1999 1998
-------------------------------- -------------------------------- ------------------------------
UNITED UNITED UNITED
INT'L STATES TOTAL INT'L STATES TOTAL INT'L STATES TOTAL
-------- -------- -------- -------- -------- -------- ------- ------- --------
Cornerstone ANTEC $ -- $266,596 $266,596 $ -- $215,220 $215,220 $ -- $28,311 $ 28,311
Cornerstone Nortel(1) 215,207 78,685 293,892 80,834 33,163 113,997 32,090 12,795 44,885
Other(2) -- 980 980 23,649 17,302 40,951 21,849 21,918 43,767
-------- -------- -------- -------- -------- -------- ------- ------- --------
Total $215,207 $346,261 $561,468 $104,483 $265,685 $370,168 $53,939 $63,024 $116,963
======== ======== ======== ======== ======== ======== ======= ======= ========
(1) The breakdown between international and U.S. Cornerstone sales to
Nortel Networks represents Arris Interactive's best estimates based on
the latest available information on the end customers. Based on that
information Arris Interactive believes the international sales were
primarily to VTR in Chile, Titus Jupiter in Japan and UPC in Western
Europe.
(2) Includes sales for LANcity during the three and four month periods
ended March 31, 1999 and December 31, 1998. Subsequent to the merger on
March 31, 1999, sales of LANcity products were through Nortel Networks
and ANTEC.
In mid-January 2001, Nortel Networks canceled some deliveries of Arris
Interactive products for the first quarter of 2001. The cancellation reflects
Nortel Networks' desire to reduce existing inventory prior to the closing of the
transaction as well as a softening in orders received. The amounts described
under "Arris Interactive's Business -- Backlog" reflects the cancellation of
orders by Nortel Networks.
COMPARISON OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2001 AND 2000
Net Revenues. Revenues decreased 4.3%, or $4.6 million, from $105.1
million for the quarter ended March 31, 2000 to $100.5 million for the quarter
ended March 31, 2001. Sales of Arris Interactive's constant bit rate network
interface units increased $37.4 million, or 80.4%, from $46.6 million for the
quarter ended March 31, 2000 to $84.0 million for the quarter ended March 31,
2001. This increase was offset by a decrease in sales of constant bit rate
infrastructure equipment of $14.4 million, or 64.1%, from $22.5 million for the
quarter ended March 31, 2000 to $8.1 million for the quarter ended March 31,
2001. Also offsetting the increase in constant bit rate network interface units
was a decrease in sales of Arris Interactive's cable modems, both proprietary
and DOCSIS, as well as a decrease in sales of Arris Interactive's other internet
protocol-based products and services. Arris Interactive's revenue from internet
protocol-based products and services, inclusive of cable modems, decreased $27.6
million, or 86.0%, from $32.1 million for the quarter ended March 31, 2000 to
$4.5 million for the quarter ended March 31, 2001.
Arris Interactive decided during 1999 to discontinue developing and
manufacturing the cable modem except on a limited basis in order to fulfill
certain contractual obligations. Revenue for the first quarter of 2001 reflects
the decrease expected from discontinuing the development and manufacturing of
cable modems. Sales of Arris Interactive's cable modems, which include
proprietary and standards-based products, accounted for $21.1 million and $0.9
million for the quarter ended March 31, 2000 and March 31, 2001, respectively.
Further, sales to Nortel Networks during the quarter ended March 31,
2001 were impacted by Nortel Networks' actions to reduce their finished goods
inventory levels prior to the closing of the transaction contemplated in this
document.
Gross Profit. The gross profit decreased from $23.3 million for the
quarter ended March 31, 2000 to $11.2 million for the quarter ended March 31,
2001. The gross profit as a percentage of revenues decreased from 22.2% for the
quarter ended March 31, 2000 to 11.1% for the quarter ended March 31, 2001. The
decrease in gross profit was due to a change in product mix and to the
write-down to estimated net realizable value of Arris Interactive's cable modem
inventory. During 2000 and prior years, Arris Interactive's customers purchased
more equipment and software as
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opposed to network interface units. The equipment and software that constitute a
cable telephony system carry higher margins than the network interface unit.
Gross profit for the quarter ended March 31, 2001 reflect higher sales volumes
of network interface units and lower volumes of infrastructure equipment. The
write-down of cable modem inventory was approximately $3.5 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 20.1%, or $.9 million, to $5.5 million for the
quarter ended March 31, 2001 from $4.6 million for the quarter ended March 31,
2000. As a percentage of revenues, selling, general and administrative expenses
increased from 4.4% for the quarter ended March 31, 2000 to 5.5% for the quarter
ended March 31, 2001. The actual increase in spending quarter over quarter was
primarily due to the growth of Arris Interactive during 2000, which required
significant investment in information technology resources and systems to
support the business' growth. Additionally, a second leased facility in Suwanee,
Georgia was occupied in the fourth quarter of 2000. Finally, as Arris
Interactive's growth has accelerated and additional personnel have been hired,
Arris Interactive's spending related to human resources and telecommunications
have increased.
Research and Development Expenses. Research and development expenses
increased 25.7%, or $3.6 million, to $17.8 million for the quarter ended March
31, 2001 from $14.2 million for the quarter ended March 31, 2000. As a
percentage of revenues, research and development expenses increased from 13.5%
for the quarter ended March 31, 2000 to 17.7% for the quarter ended March 31,
2001. The increase in actual spending was primarily due to increasing the
development efforts related to voice over internet protocol.
Interest Income and Expense. Arris Interactive's interest expense is
attributable to the note payable to Nortel Networks. The interest rate is equal
to LIBOR plus 2% and is not fixed for the term of the note. Interest expense
increased 16.5%, or $0.4 million, to $2.8 million for the quarter ended March
31, 2001 from $2.4 million for the quarter ended March 31, 2000 due to an
increase in the outstanding balance. Arris Interactive's interest income is
derived from its operating cash balances deposited with the bank. Interest
income decreased $0.1 million to $0.4 million for the quarter ended March 31,
2001 from $0.5 million the quarter ended March 31, 2000 due to an decrease in
Arris Interactive's average cash balance.
Net Income. Net loss for the quarter ended March 31, 2001 was $14.5
million as compared to net income of $2.7 million for the quarter ended March
31, 2000.
COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Net Revenues. Revenues increased 51.7%, or $191.3 million, to $561.5
million for the year ended December 31, 2000 from $370.2 million for the year
ended December 31, 1999. The increase in revenues was due to the increase in
sales of Arris Interactive's CBR products which more than offset a decrease in
sales of Arris Interactive's cable modem products.
As discussed previously, Arris Interactive decided during 1999 to
discontinue developing and manufacturing the cable modem except on a limited
basis in order to fulfill certain contractual obligations. In addition, to
ensure that its customers would have a supply source for the DOCSIS cable modem
originally developed by Arris Interactive, Arris Interactive entered into an
original equipment manufacturing agreement with Thompson multimedia. Arris
Interactive's customers are able to purchase cable modems directly from Thompson
multimedia. As a result, sales of cable modem products, which include
proprietary and standards based, decreased $54.2 million, or 50.4%, from $107.5
million for the year ended December 31, 1999 to $53.3 million for the year ended
December 31, 2000. Excluding the cable modem sales, revenues from internet
protocol-based products and services almost tripled from $16.3 million for the
year ended December 31, 1999 to $45.7 million for the year ended December 31,
2000. Sales related to DOCSIS based CMTS were slow to develop during 1999
primarily due to the fact that Arris Interactive's CMTS was not certified by
CableLabs(R) until late in the year. With the emergence of DOCSIS standards many
of Arris Interactive's customers consider certification by CableLabs(R) and TCom
Labs to be necessary for deployment.
Revenues from CBR products increased 88.8%, or $217.5 million, from
$245.0 million for the year ended December 31, 1999 to $462.5 million for the
year ended December 31, 2000. The increase in CBR product revenues reflect the
increase in customer telephone line deployment. During the year ended December
31, 2000 Arris
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Interactive's customers installed over one million telephone lines for their
subscribers as compared to 240,000 lines for the year ended December 31, 1999.
Gross Profit. The gross profit increased from $102.8 million for the
year ended December 31, 1999 to $138.1 million for the year ended December 31,
2000. However, gross profit as a percentage of revenues decreased from 27.8% for
the year ended December 31, 1999 to 24.6% for the year ended December 31, 2000.
The decrease in gross profit as a percentage of revenues was due primarily to a
change in product mix. During 1999 and prior years, Arris Interactive's
customers purchased more infrastructure equipment and software as opposed to
network interface units. The equipment and software that constitute a cable
telephony system carry higher margins than the network interface units. Because
the network interface units are purchased on a subscriber basis, as deployments
accelerate the customer's network interface unit purchases increase relative to
their infrastructure purchases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 39.1%, or $6.7 million, to $23.9 million for
the year ended December 31, 2000 from $17.2 million for the year ended December
31, 1999. As a percentage of sales, selling, general and administrative expenses
decreased from 4.6% for the year ended December 31, 1999 to 4.3% for the year
ended December 31, 2000. The increase in actual spending was due to several
factors. First, it became evident to management that the current systems
infrastructure would not adequately support the sales growth and the decision
was made to invest in an enterprise resource planning system. At the beginning
of 2000, Arris Interactive implemented a new computer platform and converted its
manufacturing, order entry, purchasing and general ledger systems to the new
platform. In addition to the expenses associated with adopting the more
sophisticated computer platform, Arris Interactive also increased the number of
support personnel in the various functions effected by the implementation.
Second, Arris Interactive increased its spending associated with marketing
communications. Specifically, Arris Interactive's expenditures related to its
customer relationship management program increased significantly, a reflection
of Arris Interactive's customers' increase in deployment velocity. Those
expenses include trade shows, market research, consumer surveys, users' group
activities, technical papers and travel. Finally, as Arris Interactive's growth
has accelerated and additional personnel have been hired, Arris Interactive's
spending related to facilities, human resources and telecommunications have
increased.
Research and Development Expenses. Research and development expenses
increased 46.9%, or $24.5 million, to $76.8 million for the year ended December
31, 2000 from $52.3 million for the year ended December 31, 1999. As a
percentage of sales, research and development expenses decreased from 14.1% for
the year ended December 31, 1999 to 13.7% for the year ended December 31, 2000.
The increase in actual spending was primarily due to an increase in development
efforts related to voice over internet protocol. To a lesser extent, spending
related to facilities and telecommunications attributable to research and
development have increased.
Interest Income and Expense. Arris Interactive's interest expense is
attributable to the note payable to Nortel Networks. The interest rate is equal
to LIBOR plus 2% and is not fixed for the term of the note. Interest expense
increased 17.2%, or $1.5 million, to $9.9 million for the year ended December
31, 2000 from $8.4 million for the year ended December 31, 1999 due to an
increase in the outstanding balance. The increase in the outstanding loan
balance was due to the accumulated interest. Arris Interactive's interest income
is derived from its operating cash balances deposited with the bank. Interest
income increased $0.9 million to $2.2 million for the year ended December 31,
2000 from $1.3 million the year ended December 31, 1999 due to an increase in
Arris Interactive's average cash balance.
Net Income. Net income for the year ended December 31, 2000 was $29.4
million as compared to net income of $24.5 million for the year ended December
31, 1999.
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COMPARISON OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Revenues increased 216.5%, or $253.2 million, to $370.2
million for the year ended December 31,1999 from $117.0 million for the year
ended December 31, 1998. Revenues from internet protocol-based products and
services, both proprietary and DOCSIS and inclusive of cable modems, increased
$81.5 million from $43.6 million for the year ended December 31, 1998 to $125.2
million for the year ended December 31, 1999. The increase in internet
protocol-based sales was primarily due to the fact that for the year ended
December 31, 1998 only four months of internet protocol-based products and
services sales have been included in revenues whereas twelve months of sales
have been included in revenues for the year ended December 31, 1999. As
discussed previously, Arris Interactive merged with LANcity on March 31, 1999
and the results of operations for LANcity for the four and three month periods
ended December 31, 1998 and March 31, 1999, respectively, have been included in
Arris Interactive's results of operations.
Revenues from constant bit-rate products increased 234.1%, or $171.7
million, to $245.0 million for the year ended December 31, 1999 from $73.3
million for the year ended December 31, 1998. Arris Interactive experienced
tremendous growth during 1999 due to the increased acceptance by cable
operators, notably AT&T and Cox in the U.S., VTR in Chile, and UPC in Europe,
that telephony was a viable and profitable service to offer the cable TV
subscriber.
Gross Profit. The gross profit increased from $24.5 million for the
year ended December 31, 1998 to $102.8 million for the year ended December 31,
1999. The gross profit as a percentage of revenues increased from 21.0% for the
year ended December 31, 1998 to 27.8% for the year ended December 31, 1999. The
increase in gross profit was due primarily to an increase in infrastructure
equipment sales, which is a high margin product line, and significant product
cost reductions in the network interface units. From Arris Interactive's
inception, a significant portion of Arris Interactive's research and development
expenses were directed towards product cost reductions in the network interface
units. Arris Interactive began to reap the benefits of those efforts during the
fourth quarter of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 71.6%, or $7.2 million, to $17.2 million for
the year ended December 31, 1999 from $10.0 million for the year ended December
31, 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 8.6% for the year ended December 31, 1998 to 4.6% for
the year ended December 31, 1999. The increase in actual spending was due to
several factors. First, the acquisition of LANcity during 1999 increased Arris
Interactive's spending related to facilities, human resources,
telecommunications and travel. Arris Interactive increased expenditures in
administration, finance and information technology to support the second
facility (Andover, MA) and additional employees. Second, the growth in sales
increased the demand for sales support, which included headcount and therefore
salaries, benefits and travel. Finally, as Arris Interactive became profitable,
Arris Interactive's expenses to fund the employee incentive plans increased
significantly. The employee incentive plans are an important component in the
retention and rewarding of Arris Interactive's employees.
Research and Development Expenses. Research and development expenses
increased 85.2%, or $24.0 million, to $52.3 million for the year ended December
31, 1999 from $28.2 million for the year ended December 31, 1998. As a
percentage of revenues, research and development expenses decreased from 24.1%
for the year ended December 31, 1998 to 14.1% for the year ended December 31,
1999. The increase in actual spending was primarily due to an increase in
development efforts related to internet protocol-based products brought about by
the acquisition of LANcity and increased expenses related to the employee
incentive plans.
Purchased In-Process Research and Development. The purchased in-process
research and development of $71.5 million incurred in 1998 resulted from the
merger with LANcity. See Notes 1 and 11 of Arris Interactive's financial
statements for a detailed discussion of the merger and the charge.
Interest Income and Expense. Arris Interactive's interest expense was
attributable to the note payable to Nortel Networks. The interest rate is equal
to LIBOR plus 2% and is not fixed for the term of the note. Interest expense
increased 8.0%, or $0.6 million, to $8.4 million for the year ended December 31,
1999 from $7.8 million for the year ended December 31, 1998 due primarily to an
increase in the LIBOR rate. Arris Interactive's interest income was derived from
its operating cash balances deposited with its bank. Interest income increased
$1.0 million to $1.3 million
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for the year ended December 31, 1999 from $0.3 million the year ended December
31, 1998 due to an increase in Arris Interactive's average cash balance.
Net Income (Loss). Net income for the year ended December 31, 1999 was
$24.5 million as compared to a net loss of $92.8 million for the year ended
December 31, 1998. The net loss for 1998 was attributable to the reasons
discussed above.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
Financing. Arris Interactive's operating agreement provides for a loan
agreement that allows Arris Interactive to borrow up to a maximum of $190.0
million (exclusive of accumulated interest and royalties to Nortel Networks)
from Nortel Networks and ANTEC. As of December 31, 2000, Arris Interactive had
borrowed $102.0 million of this amount, of which ANTEC's pro rata share was $9.0
million. Under the terms of the loan agreement, Nortel Networks provided 100% of
the first $66 million (exclusive of accumulated interest and royalties) of
borrowings. Borrowings in excess of $66.0 million (exclusive of accumulated
interest and royalties) are provided by both Nortel Networks and ANTEC according
to their relative ownership interests. Prior to the acquisition of LANcity on
March 31, 1999, Nortel Networks funded 75% and ANTEC funded 25% of the
borrowings in excess of $66.0 million. All borrowings subsequent to the
acquisition of LANcity are provided with Nortel Networks funding 81.25% and
ANTEC funding 18.75%. Advances under the loan agreement are made at an interest
rate equal to LIBOR plus 2% on the date of the advance. The loan agreement
provides for all individual advances plus accumulated interest to be
consolidated into one note at year end. At December 31, 2000 and 1999, all
outstanding advances were consolidated into one note with an interest rate of
7.9425% and 8.6513%, respectively. All advances under the loan agreement are
made in full by Nortel Networks with ANTEC remitting their portion, if any, of
the advance to Nortel Networks. All repayments under the loan agreement are made
to Nortel Networks with Nortel Networks responsible for remitting to ANTEC any
portion, if any, attributable to ANTEC. During 1999, Arris Interactive made a
payment of $15.0 million as a result of positive cash flows. The advances under
the loan agreement are secured by substantially all of the assets of Arris
Interactive. Principal repayments of the note prior to the due date are required
when cash flows are positive, subject to approval by the members.
During the quarter ended March 31, 2001, Arris Interactive borrowed $8
million under the loan agreement. As of the quarter ended March 31, 2001, Arris
Interactive had borrowed $110 million (exclusive of accumulated interest and
royalties to Nortel Networks), all of which was directly borrowed from Nortel
Networks with ANTEC's pro rata share being $10.5 million.
Capital Expenditures. Capital expenditures are made at a sufficient
level to support the strategic and operating needs of the business. Arris
Interactive's capital expenditures were $20.0 million for the year ended
December 31, 2000. For the year ended December 31, 1999, capital expenditures
were $9.5 million as compared to $11.6 million in 1998. For the quarter ended
March 31, 2001, Arris Interactive had capital expenditures of $2.4 million.
Cash Flow. Since Arris Interactive's inception in November 1995, Arris
Interactive's cash flow requirements have been supplied by Nortel Networks and
ANTEC and are covered under the loan agreement discussed above. With the
exception of the sale of the digital video division during 1997 in exchange for
cash and restricted stock, Arris Interactive's only investing activities have
been in the purchasing and occasional sale of fixed assets no longer used in the
business. Arris Interactive's financing activities have been limited to
transactions with the Nortel Networks and ANTEC or capital leases.
For the year ended December 31, 2000, cash levels decreased $8.1
million primarily due to purchases of equipment which were partially offset by
cash flows from operations. For the year ended December 31, 1999, cash levels
increased $16.3 million primarily due to $12.8 million generated by cash flows
from operations and borrowings on the note payable for accrued interest. For the
year ended December 31, 1998, cash levels increased $6.1 million. For the
quarter ended March 31, 2001, cash levels increased $5.3 million due to
borrowings under the loan agreement.
Net cash provided by operating activities for the years ended December
31, 2000 and 1999 was $11.9 million and $12.8 million. The increase in cash
provided by operating activities was primarily due to net income, which was
partially offset by increases in receivables and inventories in support of
increased sales volume. Cash used by
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operating activities during 1998 was $6.3 million, which was primarily driven by
net losses. Cash used by operating activities for the quarter ended March 31,
2001 was $0.2 million due to net losses as well as increases in inventory, which
were partially offset by decreases in receivables and increases in payables.
Cash used in investing activities is primarily related to capital
expenditures. During 1999 Arris Interactive sold the stock it had received in
exchange for the digital video assets. The stock was sold on a public exchange
and Arris Interactive received cash proceeds of $0.5 million.
Cash provided by financing activities during 1999 and 1998 was $12.5
million and $24.0 million. As part of the acquisition of LANcity, Arris
Interactive received cash of $15.0 million. During 1999 Arris Interactive made a
payment of $15.0 million to Nortel Networks against the note payable. During the
quarter ended March 31, 2001, Arris Interactive borrowed $8 million under the
loan agreement.
Arris Interactive's receivables are primarily due from ANTEC and Nortel
Networks. As per Arris Interactive's joint venture agreement, the receivables
are due net 60 days. For the quarter ended March 31, 2001 and the years ended
December 31, 2000 and December 31, 1999, the receivables due from non-members
are from contract manufacturers. Arris Interactive's agreements with its
contract manufacturers are at fixed prices for the finished goods. The
agreements specify which components are supplied by Arris Interactive, if any,
and which are supplied by the manufacturer. However, from time to time it has
been necessary for Arris Interactive to supply the contract manufacturers with
components the manufacturer originally agreed to furnish. The situation has
arisen when there were component shortages, long lead times or large price
fluctuations. Because it is impractical for Arris Interactive to renegotiate
agreements each time one of these situations arises, Arris Interactive generally
purchases the material and bills the manufacturer. Receivables from the
manufacturers are due net 30 days.
During 2000 the industry experienced world wide shortages in certain
components Arris Interactive uses in its products. To reduce the impact on
customer deliveries, Arris Interactive built up its inventory levels and placed
purchase orders to ensure adequate supplies of raw materials and finished goods
for the first half of 2001. Inventory levels increased $9.0 million from $62.2
million at December 31, 2000 to $71.2 million at March 31, 2001. It is
anticipated that inventories will continue to increase during the second quarter
and then decrease for the remainder of 2001. In general, a tightening of credit
availability and capital spending delays from customers, including AT&T, are
expected to have a significant impact on Arris Interactive's inventory levels
during 2001.
Future capital requirements will depend upon several factors, including
sales levels, timing and scope of research and development efforts, and new
product introduction with contract manufacturers. It is anticipated that
expenditures will be made for lab equipment, test equipment and information
technology in the normal course of business consistent with historical levels.
Arris Interactive is fully financed by Nortel Networks and ANTEC. Arris
Interactive expects that available borrowings under the loan agreement will be
sufficient to fund its ongoing operations for the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of Arris Interactive's risk-management
activities includes forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
Arris Interactive is exposed to various market risks, including
interest rates. Changes in these rates may adversely affect its results of
operations and financial condition. Historically, due to limitations in its
limited liability company agreement, Arris Interactive has not entered into any
interest rate swap agreement, derivative instrument or any other type of
arrangement to hedge its exposure to volatility relating to these market risks.
In addition, Arris Interactive does not hold or issue derivative instruments for
trading or other speculative purposes and does not have any material contracts
denominated in foreign currencies. Arris Interactive is exposed to foreign
currency exchange rate risk as a result of one of its suppliers being located in
Canada. In late 2000, this supplier moved its operations to Raleigh, North
Carolina. With the exception of this agreement, all of Arris Interactive's
supply contracts are denominated in U.S. dollars. In addition, Arris Interactive
minimizes the risks associated with foreign currency fluctuations by issuing all
sales contracts in U.S. dollars. Because Arris Interactive believes the risks
are minimal, it does not hedge the risks associated with foreign currency
fluctuations.
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APPROVAL OF 2001 STOCK INCENTIVE PLAN
RECOMMENDATION
The ANTEC board of directors recommends that you approve the 2001 Stock
Incentive Plan. With the exception of the number of shares available for grant
(9,580,000 under the 2001 Stock Incentive Plan compared to 2,500,000 under
ANTEC's 2000 Stock Incentive Plan) and the limitation on the number of shares
that can be used other than for stock options and stock appreciation rights, the
2001 Stock Incentive Plan is substantially similar to ANTEC's current stock
incentive plan.
PURPOSES AND EFFECTS
In the technology industry, stock-based compensation methodologies have
become increasingly important in the recruiting and retaining of key employees.
To better enable Broadband Parent to compete for talent in the broadband
communications market, the board of directors has adopted, subject to the
approval of the stockholders at this meeting, the Broadband Parent 2001 Stock
Incentive Plan.
The stock incentive plan is aimed at facilitating the hiring, retention
and continued motivation of key employees, consultants and directors while
aligning more closely the interests of the plan participants with those of
Broadband Parent and its stockholders by granting awards relating to Broadband
Parent common stock. The compensation committee of Broadband Parent's board of
directors, such other board committee as the board may designate, or the board
itself will administer the stock incentive plan. Any key employee, director, or
active consultant of Broadband Parent and its subsidiaries are eligible to
receive a grant under the stock incentive plan. The committee will make the
determination of the persons within these categories (which encompass all
officers) to receive grants, the terms, the form, and level of grants. Awards
under the stock incentive plan may be in the form of incentive stock options,
non-qualified stock options, stock grants, stock units, restricted stock, stock
appreciation rights, performance shares and units, dividend equivalent rights
and reload options.
Upon the completion of the transaction, no additional awards will be
made under ANTEC's existing stock incentive plans. Awards granted under those
plans prior to the completion of the transaction will be converted to options or
rights to Broadband Parent stock in accordance with the terms of those options
and rights.
The exercise price of any option or stock appreciation right cannot be
less than the fair market value of the corresponding number of shares as of the
date of grant, provided that up to 10% of the shares provided by the stock
incentive plan may be granted under options or stock appreciation rights that
have exercise prices that are not less than 85% of the fair market value of the
corresponding number of shares as of the date of grant and provided further that
options or stock appreciation rights replacing options or rights not granted by
ANTEC or Broadband Parent may have exercise prices that, in the judgment of the
committee, result in options or rights comparable in value to those being
replaced. In ANTEC's previous grants, the exercise price of stock options has
been fair market value at the time of the grant and it is anticipated that
Broadband Parent will continue this practice, absent special circumstances. No
more than 25% of shares granted under the stock incentive plan may be awarded in
a form other than options or stock appreciation rights. No person may be
granted, in any period of two consecutive calendar years, awards under the stock
incentive plan covering more than 1,000,000 shares of Broadband Parent common
stock. No option may be repriced by amendment, substitution or cancellation and
regrant, unless authorized by the stockholders. Adjustments as a result of stock
splits and other events that adjust the number of shares subject to the stock
incentive plan, as explained below, will not be considered repricing.
A total of 9,580,000 shares of Broadband Parent's common stock may be
issued under the stock incentive plan. This number is approximately 12.7% of the
number of shares expected to be outstanding following the transaction. This
number will be adjusted for stock splits, spin-offs, extra-ordinary cash
dividends and similar events. The shares may be newly issued or common stock
reacquired by Broadband Parent.
The board of directors or the committee may, from time to time,
suspend, terminate, revise or amend the stock incentive plan or terms of any
grant except that, without the approval of stockholders, no such revision or
amendment
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may change the number of shares covered by or specified in the stock incentive
plan, change the restrictions described above, or expand those eligible for
grants under the stock incentive plan.
Generally, under present federal tax laws, a grant under the stock
incentive plan of a stock option, a stock unit or a share of restricted stock
subject to the required risk of forfeiture should create no tax consequences for
a participant at the time of grant. Generally, Broadband Parent will be entitled
to tax deductions at the time and to the extent that participants recognize
ordinary income. However, in some cases Broadband Parent will not be entitled to
a deduction when a participant recognizes ordinary income from the exercise of
the options if this income, together with other compensation received by that
person from Broadband Parent, exceeds $1,000,000 in any one year.
Upon exercise of an option, which is not an incentive stock option
within the meaning of Section 422 of the Code, a participant will be taxed on
the excess of the fair market value of the shares on the date of exercise over
the exercise price. A participant will generally have no taxable income upon
exercising an incentive stock option. If the participant does not dispose of
shares acquired upon the exercise of an incentive stock option within two years
of the grant or one year of the exercise, any gain or loss realized on the
participant's subsequent disposition will be capital gain or loss and Broadband
Parent will not be entitled to a tax deduction. If such holding period
requirements are not satisfied, the participant will generally realize ordinary
income at the time of disposition in an amount equal to the excess of the fair
market value of the shares on the date of exercise (or, if less, the amount
realized upon disposition) over the option price and Broadband Parent will be
entitled to a tax deduction. Any remaining gain is taxed as long or short-term
capital gain. The value of a stock unit at the time it converts to stock and the
value of restricted stock at the time the restriction lapses is taxed as
ordinary income to the participant.
In 2000, ANTEC made the following grants from its current stock
incentive plans:
Option
NAME Grants Stock Units
---- ------ -----------
Robert J. Stanzione .............................. 160,000 30,077
John M. Egan ..................................... -- --
Lawrence A. Margolis ............................. 60,000 5,700
Gordon E. Halverson .............................. 100,000 640
Michael Graziano ................................. 16,500 --
All executive officers, including the above ...... 356,500 --
All directors who are not executive officers ..... -- 9,600
All employees other than those who are
executive officers ............................... 1,993,500 2,600
The options have an exercise price equal to the market price of the
shares on the date of grant, vest annually in fourths beginning on the first
anniversary of the grant, vest in full upon death or permanent full disability
and will expire in ten years or sooner in some circumstances. For a further
description of the options granted to the individuals named above see ANTEC's
Form 10-K/A for the year ended December 31, 2000, which is incorporated by
reference into this document. The stock units granted to ANTEC's directors
convert to shares on a one for one basis at the time selected by each director
at the time of grant. The stock units granted to ANTEC's executive officers and
other employees convert in a similar manner. These stock units were elected by
each recipient in lieu of a portion of the cash bonus earned for 1999. Cash was
converted to equivalent stock units by dividing 125% of the cash amount to be
converted by the value of a share of ANTEC stock on January 31, 2000, the date
of grant. Twenty percent of the stock units will be forfeited if the recipient
voluntarily terminates his or her employment prior to December 31, 2003. In
addition, ANTEC and Mr. Stanzione agreed to substitute 24,077 stock units for a
cash bonus he was to receive in 2001. The units convert to shares of stock on a
one for one basis on June 30, 2004, or the earlier termination of his
employment, if, prior to June 30, 2001, Mr. Stanzione has not terminated his
employment without good reason. 4,815 of these units will be forfeited if he
terminates his employment prior to June 30, 2004. For a further description of
the stock units see ANTEC's Form 10-K/A for the year ended December 31, 2000,
which is incorporated by reference into this document.
The committee will determine the terms of future grants under the stock
incentive plan, subject to the restrictions described above.
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VOTE REQUIRED FOR APPROVAL
Approval of the stock incentive plan requires the affirmative vote of
the majority of the votes cast by ANTEC stockholders at the ANTEC special
meeting.
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APPROVAL OF MANAGEMENT INCENTIVE PLAN
RECOMMENDATION
The ANTEC board of directors recommends that you approve the Management
Incentive Plan. This plan is substantially similar to ANTEC's current management
incentive plan.
PURPOSES AND EFFECTS
Executives of ANTEC earn bonuses each year under plans established by
the compensation committee of the board of directors for a management incentive
plan adopted by the stockholders of ANTEC. Following the transaction, the
application of this plan to future years and to executives of Broadband Parent
and Arris Interactive is subject to the approval of the stockholders at the
ANTEC special meeting. This approval is being sought so that, to the maximum
extent permitted, the amounts paid under the management incentive plan will not
be subject to, or cause other compensation to be subject to, the limitations
imposed by the Omnibus Budget Reconciliation Act of 1993 on the deductibility of
executive compensation under Section 162(m) of the Internal Revenue Code.
The purpose of the management incentive plan is to provide awards to
the executives of Broadband Parent, ANTEC and Arris Interactive for the
achievement of specified financial or other objective goals of Broadband Parent
for a year or for a specified period. Additionally, in some periods, a minority
portion of the target of some or all the participants in the management
incentive plan may be dependent on the subjective determination of the committee
or their supervisors of the achievement of qualitative goals. Any subjectively
determined amounts will continue to be subject to the limitations under Section
162(m). All executive officers and the other executives who report directly to
the chief executive officer are eligible to be selected to receive an award
under the management incentive plan (other selected employees participate in
similar plans that stockholders are not being asked to approve.) The
participants in the management incentive plan will be determined each year by
the committee and the number of participants will vary from year to year. A
target expressed as a percentage of salary will be assigned each year by the
committee to each participant. The management incentive plan provides that the
target may be as high as 200% and as low as 20% of salary. The actual rewards
may range from zero to 200% of the assigned targets depending on the achievement
of the objectives established by the committee (or in the case of qualitative
goals of participants, other than the chief executive officer or the chairman,
by an executive officer) during the first quarter of the period.
The management incentive plan's financial objectives may be
- operating, pre-tax, or net earnings of Broadband Parent, a
subsidiary, a division or business unit thereof, or another
entity where there is a significant investment by Broadband
Parent and opportunity to influence the performance of that
entity;
- earnings per share of Broadband Parent;
- cash flow of any of these entities;
- return on capital, tangible or total, employed by any of these
entities as measured by any of these earnings;
- achievement of specified revenues or proceeds from specified
activities, in or out of the ordinary course of business;
- other similar financial objectives that the committee
determines to be in the interest of Broadband Parent; or
- in the case of Mr. Egan, the goals provided by his employment
agreement.
The committee determines which of these measures are utilized and the percent of
target earned by the levels of achievement of the selected measures, including
the weighting of the selected measures (or in the case of qualitative
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goals of participants, other than the chief executive officer or the chairman,
an executive officer determines) when the objectives for the year are
established.
The committee will be comprised of "outside" directors as provided by
regulations under the Internal Revenue Code. The committee has the authority and
responsibility for the interpretation, administration and application of the
provisions of the management incentive plan, and the committee's interpretation
of the management incentive plan and all actions taken by it and determinations
made by it are binding on the participants and Broadband Parent. No board or
committee member will be liable for any determination, decision or action made
or taken under the management incentive plan in good faith.
The committee may amend or terminate the management incentive plan at
any time, provided however, that in no event can the committee, after the period
for establishing the objectives for the year, adjust for that year any targets,
objectives, or the percentage of target earned by levels of achievement of each
objective in a manner that would increase the amount of compensation that would
be payable under the management incentive plan and subject to the limitations of
Section 162(m).
No participant in the management incentive plan may receive an annual
award under the management incentive plan of more than $2,000,000, as increased
by inflation in the consumer price index after December 31, 2000. Amounts earned
under the management incentive plan are determined and paid as soon as practical
after the end of each year. To the extent permitted by the applicable Internal
Revenue Service regulations and the terms of Broadband Parent's 401(k) savings
plan, such amounts may be contributed by the participants to that plan. To the
extent such contribution is not permitted by the applicable regulations,
participants may elect to defer payment of amounts earned under the management
incentive plan to a later date under deferred compensation arrangements adopted
by Broadband Parent from time to time. Management incentive plan participants
will be eligible to defer payment of all or such portion of awards under the
management incentive plan as they individually determine. These deferred amounts
will be treated as if they were invested in selected investment funds available
under Broadband Parent's 401(k) savings plan.
The committee, in establishing the management incentive plan for a
year, may determine that all or a portion of an award payable under the
management incentive plan to certain participants shall or may be paid in common
stock or phantom stock that may or may not be restricted. The method for
computing the amount of stock is selected by the committee and may be based on
the average market price of the stock over a period not exceeding one year, or
it may be based on a percentage, not less than 75% of the market price of the
stock at the end of the year for which the award was earned or during a period
during the last month of that year. Any shares issued for awards under the
management incentive plan will be issued under the 2001 stock incentive plan or
other future stock incentive plans of Broadband Parent.
The amounts that will be paid under the management incentive plan for
2001 and subsequent years are not determinable at this time. Set forth below are
the bonus or incentive paid by ANTEC for 2000. In the case of Messrs. Egan,
Stanzione and Margolis, 83.3% of their awards was paid in ANTEC stock valued at
the dated of grant, with one third vesting immediately, one third vesting on the
first anniversary of the grant date and the remainder vesting on the second
anniversary of the grant date as described in ANTEC's Form 10-K/A for the year
ended December 31, 2000, which is incorporated by reference into this document.
For Mr. Halverson, 36.5% of his award was paid in ANTEC stock with similar
vesting terms.
NAME Target % % of Target $ Paid
---- -------- ----------- ------
John M. Egan.................................................... 75% 60% $ 225,000
Robert J. Stanzione............................................. 75 60 225,000
Lawrence A. Margolis............................................ 60 60 112,240
Gordon E. Halverson............................................. 50 87 82,830
Michael Graziano................................................ 30 44 19,000
All executive officers, including the above named persons....... 664,070
All employees other than those who are executive officers....... 3,226,805
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VOTE REQUIRED FOR APPROVAL
Approval of the management incentive plan requires the affirmative vote
of the majority of the votes cast by ANTEC stockholders at the ANTEC special
meeting.
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APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
RECOMMENDATION
The ANTEC board of directors recommends that you approve the Employee
Stock Purchase Plan. With the exception of the shortening of the purchase period
to six months as described below from twelve months, this plan is substantially
similar to ANTEC's current employee stock purchase plan.
PURPOSES AND EFFECTS
The employees of Broadband Parent may purchase shares of Broadband
Parent common stock, under the terms of the Broadband Parent's employee stock
purchase plan. The plan is intended to align more closely the interests of
employees with those of Broadband Parent and its stockholders by providing
employees of Broadband Parent the opportunity to purchase shares of common stock
at favorable prices and terms.
The stock purchase plan will be administered by the compensation
committee of the board of directors. The committee will have authority and
responsibility for the interpretation, administration and application of the
provisions of the stock purchase plan. No board or committee member will be
liable for any determination, decision or action made in good faith with respect
to the stock purchase plan, and the Broadband Parent's by-laws provide for
indemnity to each person made or threatened to be made a party to any action or
proceeding by reason of board or committee membership.
A total of 800,000 shares of Broadband Parent common stock may be
issued under the stock purchase plan. The shares may be authorized but unissued
shares or shares reacquired by Broadband Parent and held in treasury. As of
October 1, 2000, the beginning of the most recent option period, there were
44,167 options outstanding to purchase ANTEC shares under ANTEC's current
employee stock purchase plan. Upon the completion of the transaction, these
options will become options to purchase shares of Broadband Parent common stock
in accordance with their terms, but no further options will be granted under the
current plan.
All employees of Broadband Parent or any subsidiary of Broadband Parent
whose customary employment is more than 20 hours per week are eligible to
purchase shares through regular payroll deductions. No employee owning more than
5% of Broadband Parent's voting securities may participate.
Broadband Parent will grant eligible employees options to purchase
shares through a payroll deduction program. These options are granted once every
six months on a date specified in the plan. The term of the option is a
six-month period beginning on the date of the grant. Eligible employees are able
to designate an amount to be withheld from their regular pay within the minimum
and maximum limits as specified under the plan. No one is permitted, in any
year, to purchase shares having a total fair market value on the grant date of
greater than $25,000. The maximum number of shares subject to each option is the
number of whole shares which the projected payroll deductions, authorized by the
participant for the option period, would purchase at an exercise price per share
equal to 85% of the fair market value of a share on the grant date.
An option is exercised automatically on the last day of the option
period, the exercise date, at which time Broadband Parent deducts, from the
participant's account, an amount which is sufficient to purchase, at the option
price, up to the number of shares subject to participant's option. The balance
of the participant's account is refunded to the participant promptly after the
exercise date. The option price per share is equal to 85% of the fair market
value of shares on the grant date or exercise date, whichever is less.
Participation in the stock purchase plan is terminated when the
participant:
- voluntarily withdraws from the stock purchase plan;
- resigns or is discharged; or
- retires or dies.
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Upon termination of participation, all funds in the participant's account are
refunded to the participant without interest, except that upon retirement or
death, the participant or the participant's executor, as the case may be, may
elect to exercise any outstanding options of the participant.
The number of shares covered by the stock purchase plan, the number of
shares covered by each outstanding option and exercise price thereof will be
adjusted proportionately for any increase or decrease in the number of issued
shares resulting from a subdivision or consolidation of shares or payment of
stock dividends on the common stock or any other increase or decrease in the
number of issued shares effected without receipt of consideration by the
Broadband Parent, subject to any required action by stockholders. If Broadband
Parent is the surviving corporation in any merger or consolidation, each
outstanding option will pertain to the securities to which a holder of the
number of shares subject to the option would have been entitled.
The board of directors or the committee may, from time to time,
suspend, terminate, revise or amend the stock purchase plan in any respect
whatsoever except that, without the approval of stockholders, no such revision
or amendment may increase the number of shares subject to the stock purchase
plan, reduce the exercise price below that provided in the plan, or cause the
plan not to be in conformance with the requirements of Section 423 of the
Internal Revenue Code. No suspension, discontinuation, revision or amendment may
adversely affect any award previously made, without the consent of the optionee,
unless necessary to comply with applicable law.
The stock purchase plan is intended to be an "employee stock purchase
plan" in conformance with the requirements of Section 423 of the Internal
Revenue Code. If an employee exercises an option under the stock purchase plan
and does not, within either two years after the date of the grant of the option
or one year after the exercise date, dispose of the stock purchased, the
employee will not realize taxable income from the grant or exercise of the
option, and any gain realized on disposition of the stock will be taxable as
ordinary income to the extent of:
- 15% of the market value of the stock on the date the option
was granted; or
- the excess of the fair market value of the stock on the date
of disposition of the stock over the option price,
whichever is less, with any balance taxable as a capital gain. If the shares
purchased upon exercise of an option are disposed of prior to expiration of the
foregoing required holding period (a disqualifying disposition), the employee
will realize ordinary income at that time equal to the difference between the
option price and the fair market value of the stock on the date the option was
exercised and such income will become additional tax basis in such shares. Any
resulting gain or loss will be taxed as capital gain or loss. To the extent an
employee realizes ordinary income from disqualifying disposition, Broadband
Parent may take a deduction for federal income tax purposes.
VOTE REQUIRED FOR APPROVAL
Approval of the employee stock purchase plan requires the affirmative
vote of the majority of the votes cast by ANTEC stockholders at the ANTEC
special meeting.
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LEGAL MATTERS
The validity of the Broadband Parent common stock to be issued in
connection with the ANTEC merger will be passed upon by Troutman Sanders LLP.
EXPERTS
The consolidated financial statements of ANTEC at December 31, 2000 and
1999 (as restated), and for each of the three years in the period ended December
31, 2000 (as restated in 2000 and 1999), which are incorporated by reference in
this Prospectus and Registration Statement from ANTEC's Form 10-K/A for the year
ended December 31, 2000, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report with respect thereto, and are
incorporated by reference herein in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The financial statements of Arris Interactive as of December 31, 2000
and 1999, and for each of the three years in the period ended December 31, 2000
(as restated in 1998), included in this document have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing in this
document (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement described in Note 11), and
have been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
Any Broadband Parent stockholder who intends to submit a proposal for
inclusion in the proxy materials for the 2002 annual meeting of Broadband Parent
must submit such proposal to the Secretary of Broadband Parent by December 5,
2001. SEC rules set forth standards as to what stockholder proposals are
required to be included. In addition, the Broadband Parent bylaws provide that
any stockholder wishing to make a nomination for director, or wishing to
introduce a proposal or other business, at the 2002 annual meeting of Broadband
Parent must give at least sixty days advance notice, subject to exceptions, and
that notice must meet other requirements set forth in the Broadband Parent
bylaws. The bylaws of Broadband Parent provide that the annual meeting of
stockholders is to be held on May 1st of each year, unless otherwise provided by
the board of directors.
WHERE YOU CAN FIND MORE INFORMATION
This document incorporates the following documents by reference.
- ANTEC's Annual Report on Form 10-K/A, for the year ended
December 31, 2000;
- ANTEC's Current Report on Form 8-K, dated April 9, 2001; and
- ANTEC's Quarterly Report on Form 10-Q/A, for the quarter ended
March 31, 2001.
All documents filed by ANTEC under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this document and before
the date of the special meeting also are incorporated by reference into and are
made a part of this document from the date of filing of those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT,
DELIVERED WITH THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this document will be deemed to be modified or
superseded for purposes of this document to the extent that a statement
contained in this document or any other subsequently filed document that is
deemed to be incorporated by reference into this document modifies or supersedes
that statement. Any statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this document.
ANTEC (File No. 000-22336) files annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public
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reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the website maintained by the SEC
at "http://www.sec.gov."
Broadband Parent filed a Registration Statement on Form S-4 to register
with the SEC the Broadband Parent common stock to be issued to ANTEC
stockholders in the transaction and this document constitutes a prospectus of
Broadband Parent common stock in addition to being a proxy statement of ANTEC.
You should rely only on the information contained in this document to
vote on the transaction. We have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated July 2, 2001. You should not assume that the information
contained in the document is accurate as of any date other than such date, and
neither the mailing of the document to stockholders nor the issuance of
Broadband Parent common stock in the merger shall create any implication to the
contrary.
TRADEMARKS
"Monarch" and "Regal" are registered trademarks of ANTEC. Arris
Interactive has filed trademark applications for "Voice Port" and "Packet Port."
In addition, Arris Interactive uses the registered name "Cornerstone," which is
owned by Nortel Networks. As part of the transaction, Nortel Networks will
transfer the trademark "Cornerstone," among others, to Arris Interactive. All
other trademarks used in this document are the property of the respective
owners.
103
107
INDEX TO FINANCIAL STATEMENTS
ARRIS INTERACTIVE L.L.C.
Audited Financial Statements
Independent Auditors' Report..................................F-2
Balance Sheets................................................F-3
Statements of Operations......................................F-4
Statements of Members' Capital Deficiency.....................F-5
Statements of Cash Flows......................................F-6
Notes to Financial Statements.................................F-7
Unaudited Financial Statements
Balance Sheets...............................................F-16
Statements of Operations.....................................F-17
Statements of Cash Flows.....................................F-18
Notes to Financial Statements................................F-19
F-1
108
INDEPENDENT AUDITORS' REPORT
Arris Interactive L.L.C.:
We have audited the accompanying balance sheets of Arris Interactive L.L.C. (the
"Company") as of December 31, 2000 and 1999 and the related statements of
operations, Members' capital deficiency, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2000 and
1999, and the results of its operations, members' capital deficiency and cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 11, the accompanying financial statements have been
restated.
/s/ Deloitte & Touche LLP
January 26, 2001
(April 9, 2001 as to the third paragraph of Note 10)
(June 22, 2001 as to Note 11)
Atlanta, Georgia
F-2
109
ARRIS INTERACTIVE L.L.C.
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
ASSETS 2000 1999
--------- ---------
Current assets:
Cash and cash equivalents ................................. $ 15,783 $ 23,896
Trade accounts receivable:
ANTEC ................................................. 84,465 78,732
Nortel Networks ....................................... 65,415 17,161
Other, net of allowance for doubtful accounts of
$1,958 and $0, respectively ........................... 13,820 604
Inventories ............................................... 62,251 24,221
Prepaid expenses .......................................... 484 192
Note receivable - Nortel Networks ......................... 700 700
--------- ---------
242,918 145,506
Property, plant and equipment - net ............................ 26,445 14,240
Note receivable - Nortel Networks, net of current portion ...... 579 1,128
--------- ---------
$ 269,942 $ 160,874
========= =========
LIABILITIES AND MEMBERS' CAPITAL DEFICIENCY
Current liabilities:
Trade accounts payable:
Nortel Networks ....................................... $ 75,359 $ 63,170
ANTEC ................................................. 1,015 345
Other ................................................. 61,845 10,464
Employee compensation ..................................... 15,758 8,638
Other accrued liabilities ................................. 9,723 8,990
--------- ---------
163,700 91,607
Long-term liabilities:
Notes payable:
Nortel Networks ....................................... 124,637 114,753
ANTEC ................................................. 1,799 1,799
Employee compensation - net of current portion ............ 8,663 10,977
--------- ---------
135,099 127,529
Commitments and contingencies (Note 5) ......................... -- --
Members' capital deficiency (As Restated-See Note 11)
Paid-in capital ........................................... 103,332 103,332
Accumulated other comprehensive income (loss) ............. -- --
Accumulated deficit ....................................... (132,189) (161,594)
--------- ---------
(28,857) (58,262)
--------- ---------
$ 269,942 $ 160,874
========= =========
See notes to financial statements.
F-3
110
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
2000 1999 1998
--------- --------- -------------
Revenue: As Restated -
See Note 11
ANTEC ........................................... $ 266,596 $ 215,220 $ 28,311
Nortel Networks ................................. 293,892 113,997 44,885
Other ........................................... 980 40,951 43,767
--------- --------- ---------
Total revenue ........................................ 561,468 370,168 116,963
Cost of revenue:
ANTEC ........................................... 209,321 136,974 23,460
Nortel Networks ................................. 213,429 96,782 32,603
Other ........................................... 638 33,633 36,378
--------- --------- ---------
Total cost of revenue ................................ 423,388 267,389 92,441
Gross profit ......................................... 138,080 102,779 24,522
Operating expenses:
Selling and marketing expense ................... 12,501 8,918 6,418
General and administrative expense .............. 11,425 8,283 3,603
Research and development expense ................ 76,804 52,274 28,231
Purchased in-process research and development ... -- -- 71,500
Loss on equipment disposal ...................... 250 1,130 --
--------- --------- ---------
Total operating expenses ............................. 100,980 70,605 109,752
Operating income (loss) .............................. 37,100 32,174 (85,230)
Interest income ...................................... 2,189 1,348 338
Interest expense ..................................... (9,884) (8,432) (7,807)
Other ................................................ -- (617) (53)
--------- --------- ---------
Net income (loss) .................................... $ 29,405 $ 24,473 $ (92,752)
========= ========= =========
See notes to financial statements.
F-4
111
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF MEMBERS' CAPITAL DEFICIENCY
(IN THOUSANDS)
Paid-in Accumulated Accumulated
Capital other Deficit
(As comprehensive (As Restated Total
Restated - income - See Note Comprehensive
See Note 11) (loss) 11) Total Income (Loss)
------------------------------------------------------------------------------
Balance - December 31, 1997 .................. $ 100 -- $ (93,315) $(93,215) --
Unrealized loss on marketable
equity securities ....................... -- $(547) -- (547) $ (547)
Capital contribution in connection with
common control transfer
transaction - As Restated ............... 88,232 -- -- 88,232 --
Net loss - As Restated .................. -- -- (92,752) (92,752) (92,752)
-------- ----- --------- -------- --------
Total comprehensive loss - As Restated .... $(93,299)
========
Balance - December 31, 1998 - As Restated .... 88,332 (547) (186,067) (98,282) --
Capital contribution .................... 15,000 -- -- 15,000
Realized loss on marketable equity
securities .............................. -- 547 -- 547 $ 547
Net income .............................. -- -- 24,473 24,473 24,473
-------- ----- --------- -------- --------
Total comprehensive income ................ $ 25,020
========
Balance - December 31, 1999 - As Restated .... 103,332 -- (161,594) (58,262) --
Net income .............................. -- -- 29,405 29,405 $ 29,405
-------- ----- --------- -------- --------
Total comprehensive income ................ -- -- -- -- $ 29,405
========
Balance - December 31, 2000 - As Restated .... $103,332 $ -- $(132,189) $(28,857)
======== ===== ========= ========
See notes to financial statements.
F-5
112
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES As Restated -
See Note 11
Net income (loss) .............................................. $ 29,405 $ 24,473 $(92,752)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Write off of purchased in process
research and development ................................... -- -- 71,500
Depreciation and amortization .............................. 7,531 4,221 2,156
Loss on sale of marketable equity securities ............... -- 617 52
Loss on equipment disposal ................................. 250 1,130 645
Long-term employee compensation ............................ (2,314) 6,577 2,020
Noncash interest expense ................................... 9,884 -- 7,807
Change in operating assets and liabilities
Increase in accounts receivable ............................ (67,203) (82,520) (9,524)
Increase in inventories .................................... (38,030) (11,176) (14,429)
Increase in prepaids and other assets ...................... (292) (121) (3)
Decrease (increase) in notes receivable .................... 549 5 (1,833)
Increase in accounts payable and accrued liabilities ....... 72,093 69,628 28,056
-------- -------- --------
Net cash provided by (used in) operating activities ...... 11,873 12,834 (6,305)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment ................. (19,986) (9,526) (11,582)
Proceeds from the sale of marketable equity securities ..... -- 515 --
-------- -------- --------
Net cash used in investing activities .................... (19,986) (9,011) (11,582)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle borrowings on notes payable ...................... -- 4,040 24,000
Principle payments on notes payable ........................ -- (6,580) --
Capital contribution in connection with transfer under
common control ........................................... -- 15,000 --
Principal payments of capital leases ....................... -- -- (32)
-------- -------- --------
Net cash provided by financing activities ................ -- 12,460 23,968
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ (8,113) 16,283 6,081
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................... 23,896 7,613 1,532
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 15,783 $ 23,896 $ 7,613
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ......................................... $ -- $ 15,011 $ --
======== ======== ========
The Company did not make any payments during 2000, 1999 and 1998 for
income taxes.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year-ended December 3l, 1999, the Company received a capital
contribution in the form of cash, inventories, property and equipment and
intercompany payable forgiveness from Nortel Networks in exchange for an
increase in Nortel Networks' ownership interest.
See notes to financial statements.
F-6
113
ARRIS INTERACTIVE L.L.C.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999
AND 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
ORGANIZATION - Arris Interactive L.L.C. (the "Company") was established
on November 9, 1995 under a Limited Liability Company Agreement ("LLCA") by and
between Nortel Networks LLC (which along with Nortel Networks Corporation and
Nortel Networks Inc. are referred to herein as "Nortel Networks") and ANTEC
Corporation ("ANTEC") (collectively, the "Members"). The Company's legal
formation as a limited liability company precludes the issuance of stock and its
capital structure more closely resembles that of a partnership. As such, all of
the Company's earnings and losses flow to the Members. Upon the Company's
formation, its Members contributed cash of $100,000; $75,000 from Nortel
Networks and $25,000 from ANTEC, which resulted in an initial ownership interest
in the Company of 75% by Nortel Networks and 25% by ANTEC.
The allocation of profit and loss and cash flows of the Company is
defined in its limited liability agreement. This agreement generally results in
a sharing of ongoing working capital requirements and profit and loss based on
initial membership interests up until March 31, 1999 and adjusted thereafter to
reflect Nortel Networks' contribution of LANcity to Arris for an increase from
75% to 81.25% of members' capital deficiency.
DESCRIPTION OF BUSINESS - The Company was founded as a joint venture to
develop products for delivering members' voice, video and data services over
hybrid fiber-coax ("HFC") networks. The Company's principal products are
marketed and sold under the brand name Cornerstone and are sold through the
Members. ANTEC is the exclusive channel for Cornerstone to top multiple system
operators ("MSOs") in the United States. Nortel Networks is the exclusive
channel for Cornerstone to telephone companies and other operators in North
America and to the international market.
MERGER - On March 31, 1999, Nortel Networks contributed certain assets
and forgave certain obligations related to its Broadband Transmission Division
("LANcity") along with a cash infusion to the Company in exchange for an
increase in Nortel Networks' membership interest in the Company from 75% to
81.25% (the "Merger"). Nortel Networks had originally acquired LANcity as part
of its acquisition of Bay Networks on August 31, 1998. Since Nortel Networks
owned all of LANcity and had majority control of the Company, the Merger has
been accounted for in a manner similar to a pooling of interests since the
entities were under the common control of Nortel Networks. Accordingly, the 1999
and 1998 financial statements of the Company have been restated to include the
results of operations, financial position and cash flows of LANcity since August
31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles - The accompanying financial statements are
presented in accordance with accounting principles generally accepted in the
United States of America.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents - For financial reporting purposes, the
Company classifies all highly liquid investments that have a maturity when
purchased of less than three months as cash equivalents.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to market and credit risk consist principally of cash and
cash equivalents, notes receivable and accounts receivable. The Company has
investment policies that limit the amount of credit exposure to any one issuer
and restricts placement of those investments to issuers evaluated as
creditworthy. The Company maintains its cash and cash equivalents with high
quality financial
F-7
114
institutions. The Company performs periodic reviews of the credit standing of
its investments and the financial institutions managing those investments.
The Company performs ongoing credit evaluations of its customers, and
generally does not require collateral from its customers to support accounts
receivable. Requests to extend significant credit are reviewed and approved by
senior management. The Company considers the need for an allowance for potential
losses due to credit risks but has experienced insignificant write-offs.
Management believes that the reserves for losses are not currently necessary.
Fair value of financial instruments - The following methods were used
by the Company to estimate its fair value disclosures for financial instruments.
Cash and Cash Equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Notes Payable: The carrying amount of the Company's borrowings
in the form of notes payable, all of which bear interest at floating rates, are
also assumed to approximate their fair values.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out basis) or market. The cost of finished goods includes material, labor
and manufacturing overhead. Inventories have been reduced by an amount that
management estimates to be adequate to absorb losses due to inventory
obsolescence.
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost less accumulated depreciation and amortization. For financial
reporting purposes, depreciation is calculated using the straight-line method
over the estimated useful lives of the assets. The expected useful lives of the
Company's plant and equipment range from three to 10 years. Leasehold
improvements are amortized over the lesser of the remaining lease term or five
years. Maintenance and repairs are charged to expense as incurred. Expenditures
which substantially increase an asset's useful life are capitalized.
Long-Lived Assets - The Company has adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. The Company reviews long-lived assets to be held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable based on an analysis of
undiscounted future cash flows. The Company also evaluates the realizability of
long-lived assets at each balance sheet date.
Warranty Costs - The Company accrues for known and expected warranty
costs at the time of sale based on an estimate of the total warranty costs, and
such reserves are included in current liabilities.
Income Taxes - As a limited liability company, the Company is treated
as a partnership for federal and state income tax purposes, and its income or
loss is taxed directly to its members. Accordingly, the accompanying financial
statements do not include any income tax provisions.
Revenue Recognition - The Company recognizes revenues from product
sales upon shipment, when title and risk of loss has passed to the customer,
based on signed contract terms and conditions if collectibility is reasonably
assured, product pricing is fixed and determinable and product returns are
reasonably estimated.
Research and Development - Research and development costs are charged
to earnings in the periods in which they are incurred. Engineering, research and
development costs consist primarily of costs associated with development of new
products and manufacturing processes.
In connection with Nortel Networks' acquisition of Bay Networks, which
included LANcity, Nortel Networks recorded a charge for purchased in-process
research and development ("IPR&D"). This charge included $71.5 million related
to a project of LANcity. The IPR&D project related to the design of a standard
based cable modem, which allows remote data communications, and a cable headend
unit, which receives communications from a cable modem, that comply with a
specification known as the Data Over Cable Service Interface Specification
("DOCSIS"). As of the acquisition date of LANcity, all Phase 1 planning and
specification activities were complete and the project was in the Phase 2
design,
F-8
115
implementation and testing stage. Remaining development efforts included
prototyping and testing activities. Nortel Networks estimated that the project
was 50 percent complete, that it would require approximately $26 million to
successfully complete the project, and that product revenues would begin in late
1998. No acquirer specific synergies were explicitly employed in the analysis of
the purchased IPR&D. A discount rate of 20.0 percent was employed in the
analysis. This project experienced delays in completion of the cable modem
product due to difficulties in the DOCSIS certification process. The project was
completed in 1999.
Comprehensive Income (loss) - Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS No. 130
requires unrealized gains or losses on the Company's available for sale
securities to be included in accumulated other comprehensive income (loss).
Marketable equity securities - SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires that all applicable
investments be classified as trading securities, available for sale securities
or held to maturity securities. The Company did not have any investments
classified as trading securities during the periods presented. The statement
further requires that held to maturity securities be reported at amortized cost
and available for sale securities be reported at fair value, with unrealized
gains and losses excluded from earnings but reported in a separate component of
shareholders' equity until they are sold. At the time of sale, any gains or
losses, calculated by the specific identification method, are recognized as a
component of operating results.
Reclassifications - Certain prior period amounts have been reclassified
to conform with the current period presentation.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement (as amended by SFAS No. 137 and SFAS No. 138)
is effective for all fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, as amended, some contracts that were not
formerly considered derivatives may now meet the definition of a derivative. The
Company adopted SFAS No. 133, as amended effective January 1, 2001. There was no
effect on the Company's financial position or results of operations upon
adoption of this statement.
In 1999, Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition
in Financial Statements, was issued. The SAB provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB No. 101, as amended by SAB No. 101B, becomes effective
for the fourth fiscal quarter of fiscal years beginning after December 15, 1999.
The Company has determined that there was no effect on its financial position or
results of operations when it adopted SAB 101.
3. INVENTORIES
Inventories consist of the following (in thousands):
DECEMBER 31,
----------------------
2000 1999
-------- --------
Raw materials $ 30,157 $ 11,465
Finished goods 32,094 12,756
-------- --------
$ 62,251 $ 24,221
======== ========
F-9
116
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
DECEMBER 31,
--------------------
2000 1999
------- -------
Leasehold improvements $ 4,155 $ 2,345
Furniture and fixtures 467 207
Machinery and computer equipment 37,009 19,200
------- -------
41,631 21,752
Less accumulated amortization and depreciation 15,186 7,512
------- -------
$26,445 $14,240
======= =======
Depreciation and amortization expense for the years ended December 31,
2000, 1999 and 1998 was $7,531,000, $4,221,000 and $2,156,000, respectively.
5. COMMITMENTS
The Company leases computer and office equipment with several vendors
that are covered under operating leases. Most of the leases are for periods of
36 months with the exception of the furniture lease which is for 10 years and
commenced in March 1997. The expiration dates vary from February 1999 through
March 2007. For the years ended December 31, 2000, 1999 and 1998, the total
rental expense under the operating leases was $835,000, $439,000 and $376,000,
respectively.
In addition to computer and office equipment, the Company has entered
into operating leases for building space in Andover, Massachusetts and Suwanee,
Georgia. The Suwanee lease commenced on January 1, 1997 and terminates on
February 28, 2007. The Andover lease commenced on July 1, 1999 and terminates on
June 30, 2004. During 2000 the Company entered into an operating lease for
additional space in Suwanee, Georgia. This lease commenced on November 1, 2000
and terminates on October 31, 2007. The total rental expense under the building
leases was $1,711,000, $1,129,000 and $760,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
At December 31, 2000, the future minimum lease payments for each of the
next five years and thereafter were as follows (in thousands):
OPERATING LEASES
----------------
2001 $ 3,405
2002 3,297
2003 3,027
2004 2,364
2005 2,014
Thereafter 2,808
-------
Total minimum lease payments $16,915
=======
6. EMPLOYEE INCENTIVE PLANS
All Company employees are covered by the Company's long-term ("LTIP")
incentive plan. For the year ended December 31, 1999, employees located in the
Suwanee, Georgia facility were eligible for the Company's short-term ("STIP")
incentive plan, while certain individuals who became employees of the Company as
a result of the merger were eligible under separate plans known as KEIP ("Key
Employee Incentive Plan") and Tier 1/2. The KEIP and Tier 1/2 plans were cash
incentive plans whereby amounts were earned based on the achievement of certain
business milestones. The KEIP and Tier 1/2 plans were terminated during 2000 and
for the year ended December 31, 2000, all employees were eligible for the STIP.
At December 31, 2000 and 1999, the Company had accrued $0 and $1,285,000,
respectively, as payable under the provisions of the KEIP and Tier 1/2 incentive
plans.
F-10
117
The STIP is an incentive plan designed to reward employees with cash
bonuses payable during the first quarter of the subsequent year to which the
bonuses apply and it consists of two components, one that is dependent upon the
Company's achievement of certain financial targets, and a second component that
measures the individual's contribution to team performance objectives. At
December 31, 2000 and 1999, the Company had approximately $6,824,000 and
$2,235,000, respectively, accrued under the STIP incentive plan.
The LTIP is a rolling plan of three-year cycles. Each three-year cycle
is based upon a defined matrix of such factors as revenue, profitability and
market position and becomes payable in the first quarter subsequent to the
three-year period (i.e., the 1996 LTIP became payable during the first quarter
of 1999). While the STIP amounts are established as a percentage of salary, the
LTIP is awarded in units. The actual value of the units is established at the
time they become payable, but are targeted to fall within the range of $0 to $30
per unit. The Company accrues the cost of the LTIP plans over each three-year
LTIP plan service period. On an interim and annual basis, the Company performs
an assessment of the expected value of the units at the time of payment and
adjusts its recorded liability accordingly. At December 31, 2000 and 1999, the
Company had approximately $14,014,000 and $13,342,000, respectively, accrued
under the LTIP incentive plan.
In addition to the STIP and LTIP, employees who joined Arris by
September 1, 1996 received "Founder's Grants." The Founder's Grants are
structured and accounted for identically to the LTIP with respect to a defined
matrix of profitability and market position, as well as a targeted payout range
of $0 to $30 per unit. Half the units are payable in 2001 for the three-year
cycle of 1998-2000. The remaining units are payable in 2002 for the three-year
cycle 1999-2001. At December 31, 2000 and 1999, the Company had approximately
$2,833,000 and $2,427,000, respectively, accrued under the Founder's Grants
incentive plan.
The Company expensed $14,507,000, $15,756,000 and $7,115,000 with
respect to the above employee incentive plans during the years ended December
31, 2000, 1999 and 1998, respectively.
7. NOTES PAYABLE
The Company's notes payable consisted of (in thousands):
DECEMBER 31,
------------------------
2000 1999
-------- --------
Note payable to Nortel Networks due December 31, 2005 $124,133 $114,249
Noninterest-bearing note payable to Nortel Networks due December 504 504
2005
Noninterest-bearing note payable to ANTEC due December 2005 1,799 1,799
-------- --------
$126,436 $116,552
======== ========
The LLCA provides for a loan agreement that allows the Company to
borrow up to a maximum of $190,000,000 (exclusive of accumulated interest and
royalties) from the Members. As of December 31, 2000, the Company had borrowed
$102,000,000 of this amount. Under the terms of the loan agreement, the
borrowings in excess of $66,000,000 (exclusive of interest) are provided by both
Members according to their relative ownership interests. Prior to the Merger on
March 31, 1999, Nortel Networks funded 75% and ANTEC 25% of the borrowings in
excess of $66,000,000. All borrowings subsequent to the Merger are provided with
Nortel Networks funding 81.25% and ANTEC funding 18.75%. Advances under the loan
agreement are made at an interest rate equal to LIBOR plus 2% on the date of the
advance. The loan agreement provides for all individual advances, including
accrued interest, to be consolidated into one note at year-end. At December 31,
2000 and 1999, all outstanding advances were consolidated into one note with an
interest rate of 7.9425% and 8.6513%, respectively. All advances under the loan
agreement are made in full by Nortel Networks with ANTEC remitting their
portion, if any, of the advance to Nortel Networks. All repayments under the
loan agreement are made to Nortel Networks, with Nortel Networks responsible for
remitting to ANTEC any portion, if any, attributable to ANTEC. During 1999, the
Company made a payment of $15,000,000 as a result of positive cash flows. The
advances under the loan agreement are secured by substantially all of the assets
of the Company. Principal repayments of the note prior to the due date are
required when cash flows are positive subject to approval by the Members.
F-11
118
The accumulated accrued interest was $18,094,000 and $8,210,000 at
December 31, 2000 and 1999, respectively, and is included in the total notes
payable balance in the above table.
The Company has an unsecured line of credit with a bank in the amount
of $1,000,000. No amounts were outstanding under this credit facility at
December 31, 2000 or 1999.
8. SALES AND BUSINESS SEGMENT INFORMATION
Sales of Cornerstone products are covered under separate distribution
agreements entered into between the Company and each of its Members, which
expire upon the earlier of December 31, 2005 or termination of the LLCA in
accordance with LLCA provisions. The agreements provide a nontransferable,
exclusive right to the Members to sell and distribute the Cornerstone suite of
products. The agreements also set forth, among other things, sales levels,
products, pricing, and customers.
The Company operates in one reportable business segment to develop
products for delivering voice, video and data services over the HFC networks.
The Company's headquarters and its operations are principally located in the
United States. The Company's research and development activities are conducted
in the United States. The Company conducts its sales, marketing and customer
services activities throughout the world. Geographic long-lived asset
information is based on the physical location of the assets at the end of each
period. Geographic revenue information is based on the location of the end
customer.
The following table sets forth the Company's identifiable, long-lived
assets (principally property, plant and equipment) by geographic area (in
thousands):
DECEMBER 31,
----------------------
2000 1999
------- -------
United States $22,632 $13,158
Canada 28 85
Japan 108 68
Malaysia 34 53
Mexico 648 --
Philippines 2,995 876
------- -------
Total $26,445 $14,240
======= =======
The following table sets forth the Company's sales by geographic area
(in thousands):
YEAR ENDED DECEMBER 31,
2000 1999 1998
------------------------------ ------------------------------ ----------------------------
UNITED UNITED UNITED
INT'L STATES TOTAL INT'L STATES TOTAL INT'L STATES TOTAL
-------- -------- -------- -------- -------- -------- ------- ------- --------
Cornerstone ANTEC $ -- $266,596 $266,596 $ -- $215,220 $215,220 $ -- $28,311 $ 28,311
Cornerstone Nortel Networks(1) 215,207 78,685 293,892 80,834 33,163 113,997 32,090 12,795 44,885
Other(2) -- 980 980 23,649 17,302 40,951 21,849 21,918 43,767
-------- -------- -------- -------- -------- -------- ------- ------- --------
Total $215,207 $346,261 $561,468 $104,483 $265,685 $370,168 $53,939 $63,024 $116,963
======== ======== ======== ======== ======== ======== ======= ======= ========
(1) The breakdown between international and U.S. Cornerstone sales to
Nortel Networks represents the Company's best estimates based on the
latest available information on the end customers. Based on that
information the Company believes the international sales were primarily
to VTR in Chile, Titus Jupiter in Japan and UPC in Western Europe
(Unaudited).
(2) Includes sales for LANcity during the three and four month periods
ended March 31, 1999 and December 31, 1998. Subsequent to the merger on
March 31, 1999, sales of LANcity products were through Nortel Networks
and ANTEC.
F-12
119
9. RELATED PARTY TRANSACTIONS
In November 1995, the Company was formed as a joint venture between
Nortel Networks and ANTEC and much of the Company's operations are subject to
the various agreements related to or contained in the LLCA. As discussed in Note
8, the Company's Cornerstone product line is sold exclusively through the
Members. At December 31, 2000 and 1999, all of the receivables due from the
Members were related to Cornerstone product sales. The Company's cash
requirements are exclusively provided by the Members.
As a result of the relationship with the Members, the Company has been
able to obtain favorable terms with respect to a number of its business
transactions including, but not limited to, employee benefit plans, capital and
operating leases, and vendor pricing. The Company was not able to obtain such
favorable terms without the Members. Some of these business transactions were in
the form of allocated charges from the Member as described below. Management
believes that the allocations were made on a reasonable basis; however, the
allocations are not necessarily indicative of the level of expense that would
have been incurred had the Company contracted with outside parties. In many
cases, management did not make a study or any attempt to obtain quotations from
third parties to determine what costs of obtaining such services from third
parties would have been. All costs and expenses incurred by the Members on
behalf of the Company have been reflected in the financial statements.
COST OF REVENUES - The Company purchases certain components from the
Members which are used in the manufacture of the Cornerstone products. In
addition the Company has contracted with Nortel Networks to manufacture some of
its finished goods. The following table represents the Company's purchases
included in cost of revenues by vendor (in thousands):
DECEMBER 31,
---------------------------------------
2000 1999 1998
-------- -------- -------
Nortel Networks $ 89,876 $ 70,884 $30,085
ANTEC 6,522 2,173 536
Other 326,990 194,332 61,820
-------- -------- -------
Total $423,388 $267,389 $92,441
======== ======== =======
ROYALTIES AND LICENSES - As part of the LLCA, the Company entered into
nontransferable, nonexclusive licensing agreements with each of its Members for
a period of 10 years.
The license agreement with Nortel Networks provides for royalty
payments to Nortel Networks of 5% of the defined royalty base for sales of
Cornerstone products, as defined. The royalty base is defined as the sales price
received by the Company less amounts paid to Nortel Networks for the
manufacturing of the Cornerstone products. The royalty applies to the full sales
price for Cornerstone products manufactured at non-Nortel Networks facilities.
For the years ended December 31, 2000, 1999 and 1998, the Company incurred
royalty expense of $25,260,000, $14,763,000 and $2,460,000, respectively. As of
December 31, 2000 and 1999, the Company owed Nortel Networks royalties of
$14,080,000 and $5,473,000, respectively.
SELLING, MARKETING, GENERAL AND ADMINISTRATIVE - The Company contracts
with its Members whereby the Members provide certain general and administrative
services. These charges are allocated to the Company using procedures deemed
appropriate for the nature of the expenses involved. The procedures utilized
various allocation bases such as facility square footage, number of employees,
net sales and direct effort expended and/or actual costs incurred. The following
table represents the Company's general and administrative expenses by provider
(in thousands):
F-13
120
DECEMBER 31,
-------------------------------------
2000 1999 1998
------- ------- -------
Nortel Networks $10,907 $ 9,261 $ 5,845
ANTEC -- 10 --
Arris 13,019 7,930 4,176
------- ------- -------
Total $23,926 $17,201 $10,021
======= ======= =======
RESEARCH AND DEVELOPMENT - The Company contracts with its Members
whereby the Members provide certain research and development services. The
charges are determined using a rate per head per hour. That rate includes
salaries, benefits and overhead. The following table represents the Company's
research and development expenses by provider (in thousands):
DECEMBER 31,
-------------------------------------
2000 1999 1998
------- ------- -------
Nortel Networks $11,608 $ 3,036 $ 1,143
ANTEC 2,840 580 --
Arris 62,356 48,658 27,088
------- ------- -------
Total $76,804 $52,274 $28,231
======= ======= =======
10. RECENT AND SUBSEQUENT EVENTS
On October 18, 2000, the Members announced that they had signed a
definitive agreement by which ANTEC will acquire Nortel Networks' (81.25%)
ownership interest in the Company in exchange for $325 million in cash and 33
million shares of common stock of ANTEC. ANTEC, which currently owns 18.75% of
the Company, will combine the Company with ANTEC's existing business under a
consolidated ownership structure. ANTEC will rename itself Arris Group, Inc.
upon completion of this transaction. Following the proposed transaction, Nortel
Networks would own approximately 46% of Arris Group, Inc.
On December 15, 2000, ANTEC, in a joint press release with Nortel
Networks, announced that as a result of changes in industry conditions and
financial markets, a previously secured bank facility, the proceeds of which
were to fund the transaction, would need to be replaced.
On April 9, 2001, ANTEC and Nortel Networks signed an amendment to the
plan of reorganization and issued a joint press release announcing the new terms
of the transaction. Under the terms of the amended agreement Nortel Networks
will own approximately 49.2 percent of the new company, and ANTEC stockholders
will own the remaining 50.8 percent. Nortel Networks will also convert at
closing approximately $90 million of certain current payables and royalties due
from, and advances made to the Company into a new membership interest in the
Company. Subject to the satisfaction of certain conditions, Arris Interactive
will redeem this new membership interest, beginning six months after the closing
of the transaction. The transaction is expected to close during the third
quarter of 2001.
11. RESTATEMENT
Subsequent to the issuance of the December 31, 2000 financial
statements, the Company's management determined that the results of operations
for LANcity for December 31, 1998, which were included in the Company's results
of operations as a result of the merger as described in Note 1, should be
restated to include a $71.5 million charge for purchased in-process research and
development costs resulting from Nortel Networks' acquisition in 1998 of Bay
Networks. As a result, the Company's results of operations for the year ended
December 31, 1998 and members capital deficiency have been restated from amounts
previously reported to reflect the charge and resulting contribution to capital.
The significant effects of the restatement are as follows:
F-14
121
2000 1999 1998
-------------------------- -------------------------- ---------------------------
AS AS AS
PREVIOUSLY PREVIOUSLY PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED
---------- ----------- ----------- ----------- ------------ ------------
Financial Position:
Paid in Capital................ $ 31,832 $ 103,332 $ 31,832 $ 103,332 $ 16,832 $ 88,332
Accumulated deficit............ (60,689) (132,189) (90,094) (161,594) (114,567) (186,067)
Results of Operations:
Purchased in-process
research and development....... -- -- -- -- -- 71,500
Operating income (loss)........ (13,730) (85,230)
Net income (loss).............. (21,252) (92,752)
F-15
122
ARRIS INTERACTIVE L.L.C.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
UNAUDITED
Current Assets:
Cash and cash equivalents ......................................... $ 21,104 $ 15,783
Trade accounts receivable:
ANTEC .......................................................... 103,271 84,465
Nortel Networks ................................................ 33,847 65,415
Other, net of allowance for doubtful accounts of $1,968 and
$1,958, respectively ........................................... 9,484 13,820
Inventories ....................................................... 71,224 62,251
Prepaid expenses .................................................. 1,034 484
Note receivable - Nortel Networks ................................. 700 700
--------- ---------
240,664 242,918
Property, Plant and Equipment - net ................................... 26,342 26,445
Note Receivable - Nortel Networks, net of current portion ............. 605 579
--------- ---------
$ 267,611 $ 269,942
========= =========
LIABILITIES AND MEMBERS' CAPITAL DEFICIENCY
Current Liabilities:
Trade accounts payable:
Nortel Networks ................................................ $ 95,419 $ 75,359
ANTEC .......................................................... 307 1,015
Other .......................................................... 42,009 61,845
Employee compensation ............................................. 8,299 15,758
Other accrued liabilities ......................................... 9,070 9,723
--------- ---------
155,104 163,700
Long Term Liabilities:
Notes payable
Nortel Networks ................................................ 149,499 124,637
ANTEC .......................................................... 1,799 1,799
Employee compensation - net of current portion .................... 4,562 8,663
--------- ---------
155,860 135,099
Commitments and Contingencies (Note 5) ................................ -- --
Members' Capital Deficiency:
Paid-in Capital ................................................... 103,332 103,332
Accumulated other comprehensive income ............................ -- --
Accumulated deficit ............................................... (146,685) (132,189)
--------- ---------
(43,353) (28,857)
--------- ---------
$ 267,611 $ 269,942
========= =========
See notes to financial statements.
F-16
123
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
--------- ---------
Revenue
ANTEC .................................. $ 76,089 $ 51,485
Nortel Networks ........................ 24,268 53,518
Trade .................................. 145 64
--------- ---------
Total Revenue ............................... 100,502 105,067
Cost of revenues
ANTEC .................................. 71,042 39,028
Nortel Networks ........................ 18,163 42,720
Trade .................................. 106 27
--------- ---------
Total cost of revenue ....................... 89,311 81,775
Gross profit ........................... 11,191 23,292
Operating expenses:
Selling and marketing expense .......... 2,641 2,396
General and administrative expense ..... 2,848 2,170
Research and development expense ....... 17,830 14,182
--------- ---------
Total operating expenses .................... 23,319 18,748
Operating income (loss) ..................... (12,128) 4,544
Interest income ............................. 421 507
Interest expense ............................ (2,789) (2,395)
--------- ---------
Net income (loss) ........................... $ (14,496) $ 2,656
========= =========
See notes to financial statements.
F-17
124
ARRIS INTERACTIVE L.L.C.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ..................................................... $(14,496) $ 2,656
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ..................................... 2,547 1,147
Long-term employee compensation ................................... (4,101) (2,603)
Noncash interest expense .......................................... 2,789 2,394
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable ........................ 17,098 (7,059)
Increase in inventories ........................................... (8,973) (10,559)
Decrease (increase) in prepaids and other assets .................. (550) 34
Increase in notes receivable ...................................... (26) (37)
Increase (decrease) in accounts payable and accrued liabilities ... 5,477 28,109
-------- --------
Net cash provided by (used in) operating activities ............... (235) 14,082
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment ........................ (2,444) (2,793)
-------- --------
Net cash used in investing activities ............................. (2,444) (2,793)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle borrowings on notes payable ............................. 8,000 --
-------- --------
Net cash provided by financing activities ......................... 8,000 --
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................ 5,321 11,289
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 15,783 23,896
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 21,104 $ 35,185
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................ $ -- $ --
======== ========
The Company did not make any payments during 2001 and 2000 for income
taxes.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended March 31, 2001, the Company converted
$14,073 of royalties payable to Nortel Networks to an interest-bearing note
payable to Nortel Networks.
See notes to financial statements.
F-18
125
ARRIS INTERACTIVE L.L.C.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000 (UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
ORGANIZATION - Arris Interactive L.L.C. (the "Company") was established
on November 9, 1995 under a Limited Liability Company Agreement
("LLCA") by and between Nortel Networks LLC (which along with Nortel
Networks Corporation and Nortel Networks Inc. are referred to herein as
"Nortel Networks") and ANTEC Corporation ("ANTEC") (collectively, the
"Members"). The Company's legal formation as a limited liability
company precludes the issuance of stock and its capital structure more
closely resembles that of a partnership. As such, all of the Company's
earnings and losses flow to the Members. Upon the Company's formation,
its Members contributed cash of $100,000; $75,000 from Nortel Networks
and $25,000 from ANTEC, which resulted in an initial ownership interest
in the Company of 75% by Nortel Networks and 25% by ANTEC.
The allocation of profit and loss and cash flows of the Company is
defined in its limited liability agreement. This agreement generally
results in a sharing of ongoing working capital requirements and profit
and loss based on initial membership interests up until March 31, 1999
and adjusted thereafter to reflect Nortel Networks' contribution of
LANcity to Arris for an increase from 75% to 81.25% of members capital
deficiency.
DESCRIPTION OF BUSINESS - The Company was founded as a joint venture to
develop products for delivering voice, video and data services over
hybrid fiber coax ("HFC") networks. The Company's principal products
are marketed and sold under the brand name Cornerstone and are sold
through the Members. ANTEC is the exclusive channel for Cornerstone to
top multiple system operators ("MSO") in the United States. Nortel
Networks is the exclusive channel for Cornerstone to telephone
companies and other operators in North America and to the international
market.
From November 1995 through July 1997, the Company had two separate
product lines operating in one business segment, Digital Video and
Cornerstone, both of which did business domestically and
internationally. On August 1, 1997, substantially all of the assets
used to produce the Digital Video product were sold to an unrelated
third party.
BASIS OF PRESENTATION - The unaudited financial statements as of and
for the three months ended March 31, 2001 and 2000 have been prepared
by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission and on the same basis as the audited financial
statements included elsewhere in the prospectus. In the opinion of
management, these financial statements include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of its financial position, operating results and cash
flows for the interim periods presented. The results of operations for
the three months ended March 31, 2001 are not necessarily indicative of
results to be expected for the full calendar year 2001 or any future
period.
2. NEW ACCOUNTING STANDARDS
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. This statement (as amended by SFAS No. 137 and
SFAS No. 138) is effective for all fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting standards
for derivative instruments, including some derivative instruments
embedded in other contracts and for hedging activities. Under SFAS No.
133, as amended, some contracts that were not formerly considered
derivatives may now meet the definition of a derivative. The Company
adopted SFAS No. 133, as amended effective January 1, 2001. There was
no effect on the Company's financial position or results of operations
upon adoption of this statement.
In 1999, Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition
in Financial Statements, was issued. The SAB provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB No. 101, as amended by SAB No. 101B,
becomes effective for the fourth fiscal quarter of fiscal years
F-19
126
beginning after December 15, 1999. There was no effect on the Company's
financial position or results of operations upon adoption of SAB 101.
3. INVENTORIES
Inventories consist of the following (in thousands):
March 31,
2001 December 31,
(Unaudited) 2000
----------- ------------
Raw materials $25,689 $30,157
Finished goods 45,535 32,094
------- -------
$71,224 $62,251
======= =======
4. RELATED PARTY TRANSACTIONS
In November 1995, the Company was formed as a joint venture between
Nortel Networks and ANTEC and much of the Company's operations are
subject to the various agreements related to or contained in the LLCA.
The Company's Cornerstone product line is sold exclusively through the
Members. At March 31, 2001 (unaudited) and December 31, 2000, all of
the receivables due from the Members were related to Cornerstone
product sales. The Company's cash requirements are exclusively provided
by the Members.
As a result of the relationship with the Members, the Company has been
able to obtain favorable terms with respect to a number of its business
transactions including, but not limited to, employee benefit plans,
capital and operating leases, and vendor pricing. The Company was not
able to obtain such favorable terms without the Members. Some of these
business transactions were in the form of allocated charges from the
Members as described below. Management believes that the allocations
were made on a reasonable basis; however, the allocations are not
necessarily indicative of the level of expense that would have been
incurred had the Company contracted with outside parties. In many
cases, management did not make a study or any attempt to obtain
quotations from third parties to determine what costs of obtaining such
services from third parties would have been. All costs and expenses
incurred by the Members on behalf of the Company have been reflected in
the financial statements.
COST OF REVENUES - The Company purchases certain components from the
Members which are used in the manufacture of the Cornerstone products.
In addition, the Company has contracted with Nortel Networks to
manufacture some of its finished goods. The following table represents
the Company's purchases included in cost of revenues by vendor (in
thousands):
Three Months Ended
March 31,
------------------------
2001 2000
------- -------
(Unaudited)
Nortel Networks $ 272 $37,853
ANTEC 14 1,671
Other 89,025 42,251
------- -------
Total $89,311 $81,775
======= =======
ROYALTIES AND LICENSES - As part of the LLCA, the Company entered into
nontransferable, nonexclusive licensing agreements with each of its
Members for a period of 10 years.
The license agreement with Nortel Networks provides for royalty
payments to Nortel Networks of 5% of the defined royalty base for sales
of Cornerstone products, as defined. The royalty base is defined as the
sales price received by the Company less amounts paid to Nortel
Networks for the manufacturing of the Cornerstone products. The royalty
applies to the full sales price for Cornerstone products manufactured
at non-Nortel Networks facilities. For the three
F-20
127
months ended March 31, 2001 and 2000 (unaudited), the Company incurred
royalty expense of $4,858,000 and $4,173,000, respectively. As of March
31, 2001 (unaudited) and December 31, 2000, the Company owed Nortel
Networks royalties of $4,864,000 and $14,080,000, respectively.
SELLING, GENERAL AND ADMINISTRATIVE - The Company contracts with its
Members whereby the Members provide certain general and administrative
services. These charges are allocated to the Company using procedures
deemed appropriate for the nature of the expenses involved. The
procedures utilized various allocation bases such as facility square
footage, number of employees, net sales and direct effort expended
and/or actual costs incurred. The following table represents the
Company's general and administrative expenses by provider (in
thousands):
Three Months Ended
March 31,
----------------------
2001 2000
------ ------
(Unaudited)
Nortel Networks $2,862 $1,862
ANTEC -- --
Other 2,627 2,704
------ ------
Total $5,489 $4,566
====== ======
RESEARCH AND DEVELOPMENT - The Company contracts with its Members
whereby the Members provide certain research and development services.
The charges are determined using a rate per head per hour. That rate
includes salaries, benefits and overhead. The following table represents
the Company's research and development expenses by provider (in
thousands):
Three Months Ended
March 31,
------------------------
2001 2000
------- -------
(Unaudited)
Nortel Networks $ 2,116 $ 2,072
ANTEC 178 621
Other 15,536 11,489
------- -------
Total $17,830 $14,182
======= =======
5. SALES AND BUSINESS SEGMENT INFORMATION
Sales of Cornerstone products are covered under separate distribution
agreements entered into between the Company and each of its Members, which
expire upon the earlier of December 31, 2005 or termination of the LLCA in
accordance with LLCA provisions. The agreements provide a nontransferable,
exclusive right to the Members to sell and distribute the Cornerstone suite of
products. The agreements also set forth, among other things, sales levels,
products, pricing, and customers.
The Company operates in one reportable business segment to develop
products for delivering voice, video and data services over the HFC networks.
The Company's headquarters and its operations are principally located in the
United States. The Company's research and development activities are conducted
in the United States. The Company conducts its sales, marketing and customer
services activities throughout the world. Geographic long-lived asset
information is based on the physical location of the assets at the end of each
period. Geographic revenue information is based on the location of the end
customer.
F-21
128
The following table sets forth the Company's identifiable, long-lived
assets (principally property, plant and equipment) by geographic area (in
thousands):
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(UNAUDITED)
United States $22,681 $22,632
Canada 25 28
Japan 96 108
Malaysia 29 34
Mexico 641 648
Philippines 2,870 2,995
------- -------
Total $26,342 $26,445
======= =======
The following table sets forth the Company's sales by geographic area
(in thousands):
QUARTER ENDED MARCH 31,
2001 2000
---------------------------------- -----------------------------------
UNITED UNITED
INT'L STATES TOTAL INT'L STATES TOTAL
------- ------- -------- ------- ------- ---------
Cornerstone ANTEC $ -- $76,088 $ 76,088 $ -- $51,485 $ 51,485
Cornerstone Nortel Networks(1) 22,272 1,997 24,269 42,024 11,494 53,518
Other -- 145 145 -- 64 64
------- ------- -------- ------- ------- ---------
Total $22,272 $78,230 $100,502 $42,024 $63,043 $ 105,067
======= ======= ======== ======= ======= =========
(1) The breakdown between international and U.S. Cornerstone sales to
Nortel Networks represents the Company's best estimates based on the
latest available information on the end customers. Based on that
information the Company believes the international sales were primarily
to VTR in Chile, Titus Jupiter in Japan and UPC in Western Europe
(Unaudited).
F-22
129
APPENDICES
APPENDIX I AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX II OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
APPENDIX III 2001 STOCK INCENTIVE PLAN
APPENDIX IV MANAGEMENT INCENTIVE PLAN
APPENDIX V EMPLOYEE STOCK PURCHASE PLAN
130
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
131
AGREEMENT AND PLAN OF REORGANIZATION
by and among
ANTEC CORPORATION,
BROADBAND PARENT CORPORATION,
BROADBAND TRANSITION CORPORATION,
NORTEL NETWORKS LLC,
NORTEL NETWORKS INC.
and
ARRIS INTERACTIVE L.L.C.
Dated as of October 18, 2000
(As modified by the First Amendment to
Agreement and Plan of Reorganization, dated as of
April 9, 2001)
132
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization, dated as of October 18,
2000, as modified by the First Amendment to the Agreement and Plan of
Reorganization, dated as of April 9, 2001 (this "Agreement"), is by and among
ANTEC CORPORATION, a corporation organized under the laws of Delaware (the
"Company"), BROADBAND PARENT CORPORATION, a corporation organized under the laws
of Delaware ("Newco"), BROADBAND TRANSITION CORPORATION, a corporation organized
under the laws of Delaware ("Transition"), NORTEL NETWORKS INC., a corporation
organized under the laws of Delaware ("Nortel Networks"), NORTEL NETWORKS LLC, a
limited liability company organized under the laws of Delaware, and ARRIS
INTERACTIVE L.L.C., a limited liability company organized under the laws of
Delaware ("Existing Venture").
WITNESSETH:
WHEREAS, Newco is a newly-formed wholly-owned subsidiary of the Company
and Transition is a newly-formed wholly-owned subsidiary of Newco;
WHEREAS, Nortel Networks LLC is an indirect wholly-owned subsidiary of
Nortel Networks;
WHEREAS, the Company owns an 18.75% interest in the Existing Venture,
and Nortel Networks LLC owns an 81.25% interest in the Existing Venture;
WHEREAS, the Company, Newco, Transition, Nortel Networks, Nortel
Networks LLC, and Existing Venture entered into the Agreement and Plan of
Reorganization, dated as of October 18, 2000 (the "Original Agreement"), whereby
the parties agreed: (1) that Transition would merge with and into the Company
(the "Merger") so that the Company would be the surviving corporation in the
Merger and a wholly-owned subsidiary of Newco and the stockholders of the
Company would receive shares of Newco Common Stock and (2) that Nortel Networks
LLC would contribute its interest in the Existing Venture to Newco in exchange
for (i) shares of Newco Common Stock and (ii) cash as described in the Original
Agreement;
WHEREAS, the respective Boards of Directors or the Managing Member (as
applicable) of the Company, Newco, Transition, Nortel Networks, and Nortel
Networks LLC have determined that it is advisable and in the best interests of
their respective companies and their respective stockholders or members (as
applicable) to modify the terms of the Original Agreement so that, among other
things, (i) a portion of the Existing Venture's currently outstanding
indebtedness to Nortel Networks LLC pursuant to the Existing Venture Loan
Agreement (including all of the amounts attributable to the Company's
Participating Interest (as defined below) therein) be contributed to the capital
of the Existing Venture, (ii) Nortel Networks LLC contribute its entire equity
interest in the Existing Venture to Newco in exchange for 37 million shares of
Newco Common Stock (the "Newco Shares") and no cash, and (iii) the remaining
portion of the Existing Venture's currently outstanding indebtedness to Nortel
Networks LLC under the Existing Venture Loan Agreement, and certain other
currently
133
outstanding obligations of the Existing Venture to Nortel Networks and/or its
Affiliates, be deemed paid in full and satisfied by the issuance to Nortel
Networks LLC of the New Membership Interest (as defined below) and the guaranty
by Newco of the redemption of the New Membership Interest, and (iv) contingent
payment in the amount of up to $10 million plus the amount of cash and cash
equivalents then held by the Existing Venture is made to Nortel Networks LLC at
and immediately following the Closing, in each case as further described in, and
on the terms and conditions set forth in, the Agreement;
WHEREAS, the respective Boards of Directors or the Managing Member (as
applicable) of the Company, Newco, Transition, Nortel Networks, and Nortel
Networks LLC have determined that it is advisable and in the best interests of
their respective companies and their respective stockholders or members (as
applicable) to amend the Original Agreement and certain of the pre-existing
Ancillary Agreements to provide for the foregoing and the other matters set
forth herein;
WHEREAS, the parties intend that for U.S. federal income tax purposes,
the Merger qualify as a "reorganization" within the meaning of Section 368(a) of
the Code (as defined herein) and that the Merger, taken together with the
Contribution, shall constitute an exchange under Section 351 of the Code;
WHEREAS, the parties intend that for U.S. federal income tax purposes,
the Contribution, taken together with the Merger, shall constitute an exchange
under Section 351 of the Code; and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Transactions and also to prescribe certain
conditions to the Transactions.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01. Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Affiliate" of a party shall mean a person or entity that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such party; provided, however, that the Existing
Venture shall not, for the purposes of this Agreement or any Ancillary
Agreement, be, or be deemed or construed to be, an affiliate of either (i) the
Company or any of its Affiliates or (ii) Nortel Networks or any of its
Affiliates except that the Existing Venture shall be deemed and construed to be
an affiliate of the Company (and its Affiliates), but not of Nortel Networks (or
its Affiliates), as of and after the Closing.
"Agreement" shall have the meaning set forth in the first paragraph of
this Agreement.
"Ancillary Agreements" shall mean:
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(i) Amended and Restated Investor Rights Agreement among Newco,
Nortel Networks and Nortel Networks LLC dated April 9, 2001
(the "Investor Rights Agreement"), attached as Exhibit C;
(ii) Registration Rights Agreement between Newco and Nortel
Networks LLC (as such agreement may be modified in accordance
with that certain letter agreement, dated as of the date
hereof, among the Company, Newco and Nortel Networks LLC) (the
"Registration Rights Agreement"), attached as Exhibit D;
(iii) Sales Representative/Distribution Agreement between the
Existing Venture and Nortel Networks and/or the appropriate
Nortel Networks Affiliate (the "Sales
Representative/Distribution Agreement");
(iv) Transition Services Agreement between the Existing Venture and
Nortel Networks and/or the appropriate Nortel Networks
Affiliate (the "Transition Services Agreement");
(v) Intellectual Property Agreement between the Existing Venture
and Nortel Networks Limited (the "Intellectual Property
Agreement"), attached as Exhibit E;
(vi) Termination Agreement among the Company, Nortel Networks,
Nortel Networks, LLC, Nortel Networks Limited, a Canadian
corporation, Newco and the Existing Venture dated October 18,
2000 (the "Original Termination Agreement"), attached as
Exhibit F, as amended by the First Amendment to Termination
Agreement among the same parties, dated as of April 9, 2001
(the "Termination Amendment" and together with the Original
Termination Agreement, the "Termination Agreement"), attached
as Exhibit F-2;
(vii) Loaned Employee Agreement between Existing Venture and Nortel
Networks (the "Loaned Employee Agreement"), attached as
Exhibit G;
(viii) Supply and Manufacturing Agreement between Newco and Nortel
Networks and/or the appropriate Nortel Networks Affiliates
(the "Supply and Manufacturing Agreement");
(ix) Development Agreement between the Existing Venture and Nortel
Networks and/or the appropriate Nortel Networks Affiliates
(the "Development Agreement");
(x) Second Amended and Restated Limited Liability Company
Agreement of the Existing Venture, dated as of the Closing
Date, providing, among other things, for the issuance to
Nortel Networks LLC of the New Membership Interest at the
Closing as contemplated by Sections 4.01(a) and 4.02(d), the
partial redemption of the same immediately following the
Closing as contemplated by Section 4.07, other matters set
forth in Exhibit H and such other matters as may be reasonably
agreed by Nortel Networks LLC and the Company at or prior to
the Closing (the "New Operating Agreement");
(xi) Subordinated Guaranty of Newco in favor of Nortel Networks
LLC, dated as of the Closing Date, with such terms as are set
forth in Exhibit I-2 and such other
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terms and in such form as may be reasonably agreed by Nortel
Networks and the Company at or prior to the Closing (the
"Guaranty");
(xii) Release and Amendment Agreement among the Company, Newco,
Transition, Nortel Networks, Nortel Networks LLC and Existing
Venture dated as of April 9, 2001, attached as Exhibit J.
"Business Day" shall mean each day on which banking institutions in
both of Toronto, Canada and New York, New York are not authorized or required to
close.
"Capitalization Date" shall have the meaning set forth in Section
6.01(b).
"Closing" shall have the meaning set forth in Section 3.05.
"Closing Date" shall have the meaning set forth in Section 3.05.
"Closing Date Nortel Redemption" shall have the meaning ascribed to
such term in Section 4.07.
"Code" shall mean the U.S. Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Company Affiliate" shall have the meaning set forth in Section 7.06.
"Company Board" shall mean the Board of Directors of the Company.
"Company Certificate" shall mean the Restated Certificate of
Incorporation of the Company, as amended.
"Company Common Stock" shall have the meaning set forth in Section
3.01(b).
"Company Disclosure Schedule" shall have the meaning set forth in the
opening paragraph of Section 5.01.
"Company Equity Interests" shall have the meaning set forth in Section
6.01(c).
"Company Filed SEC Documents" shall have the meaning set forth in
Section 6.01(g).
"Company Financial Advisor" shall have the meaning set forth in Section
6.01(l).
"Company Intellectual Property Rights" shall have the meaning set forth
in Section 6.01(p).
"Company Meeting" shall have the meaning set forth in Section 7.02.
"Company Plan" shall mean any Plan entered into or currently
maintained, sponsored, or contributed to by the Company or any of its
Subsidiaries or to which the Company or any such Subsidiary has any obligation
to contribute or with respect to which the Company or any of its Subsidiaries
may have any liability.
"Company Preferred Stock" shall have the meaning set forth in Section
6.01(b).
"Company Proxy Statement" shall have the meaning set forth in Section
7.03(a).
"Company Restricted Stock" shall have the meaning set forth in Section
3.04(d).
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"Company SEC Documents" shall have the meaning set forth in Section
6.01(g).
"Company Stock Option Plans" shall mean all of the following: the 2000
Stock Incentive Plan, the 2000 Mid-Level Stock Option Plan, the Amended and
Restated Employee Stock Purchase Plan, the 1997 Stock Incentive Plan, the
Amended and Restated Employee Stock Incentive Plan, the Company/Keptel Exchange
Options Plan, the ESP Stock Plan, the Company/TSX Exchange Options Plan and the
Director Stock Option Plan.
"Company Stock Options" shall have the meaning set forth in Section
3.04(a).
"Confidentiality Agreement" shall mean that certain confidentiality
agreement, dated May 9, 2000, by and between the Company and Nortel Networks,
which the parties hereby amend to extend the term to December 31, 2003.
"Contemplated Financing" shall have the meaning ascribed to such term
in Section 7.17.
"Contribution" shall have the meaning set forth in Section 4.04.
"Copyrights" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Costs" shall have the meaning set forth in Section 7.10(a).
"Damages" shall have the meaning set forth in Section 9.05.
"Deloitte" shall have the meaning set forth in Section 7.12.
"Development Agreement" shall have the meaning set forth in the
definition of Ancillary Agreements.
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"Effective Date" shall have the meaning set forth in Section 2.02.
"Effective Time" shall have the meaning set forth in Section 2.02.
"Environmental Laws" shall have the meaning set forth in Section
6.01(o).
"ERISA" shall mean the U.S. Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning set forth in Section 3.03(a).
"Exchange Fund" shall have the meaning set forth in Section 3.03(a).
"Existing Venture" shall have the meaning set forth in the first
paragraph of this Agreement.
"Existing Venture Cash Balance" shall mean the U.S. dollar amount of
cash and cash equivalents held by the Existing Venture on the Business Day
immediately preceding the Closing Date.
"Existing Venture Loan Agreement" shall mean the Secured Loan Agreement
among Nortel Networks LLC, the Company and the Existing Venture, dated as of
November 17, 1995,
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as amended as of February 27, 1998 and March 31, 1999, together with any and all
pledge agreements, security agreements, and other documents and instruments
relating thereto.
"Existing Venture Operating Agreement" shall have the meaning set forth
in Section 4.05.
"Existing Venture Plan" shall mean any Plan entered into or currently
maintained, sponsored, or contributed to by Nortel Networks or to which Nortel
Networks has any obligation to contribute or with respect to which Nortel
Networks may have any liability, in each case solely to the extent that
employees of the Existing Venture are eligible to participate in such Plan.
"Exon-Florio" shall have the meaning set forth in Section 6.01(r).
"E&Y" shall have the meaning set forth in Section 7.12.
"First Framework Agreement" shall mean that first framework agreement
dated as of November 17, 1995, among Nortel Networks, the Company, Systems
Integration Venture L.L.C. and Existing Venture, as amended by an agreement
dated February 27, 1998 by and among Nortel Networks, the Company and Existing
Venture.
"Governmental Authority" means any court, administrative agency or
commission or other foreign or domestic federal, state, provincial or local
governmental authority or instrumentality.
"Guaranty" shall have the meaning ascribed to such term in clause (xi)
of the definition of the term "Ancillary Agreements" in this Section 1.01.
"HSR Act" shall have the meaning set forth in Section 6.01(r).
"Indemnified Party" shall mean any Person entitled to indemnification
under the terms of this Agreement.
"Indemnifying Party" shall mean any Person required to provide
indemnification under the terms of this Agreement.
"Indenture" shall have the meaning set forth in Section 7.15.
"Integrated Transaction" shall have the meaning set forth in Section
7.14.
"Integrated Transferor" shall have the meaning set forth in Section
7.14.
"Intellectual Property Agreement" shall have the meaning set forth in
the definition of Ancillary Agreements.
"Intellectual Property Rights" shall mean all proprietary, license and
other rights in and to: (A) trademarks, service marks, brand names, trade dress,
trade names, words, symbols, color schemes and other indications of origin
("Trademarks"); (B) patents, patent applications (together, "Patents"),
inventors' certificates and invention disclosures; (C) trade secrets and other
confidential or non-public business information, including ideas, formulas,
compositions, discoveries and improvements, know-how, manufacturing and
production processes and techniques, and research and development information;
drawings, specifications, plans, proposals and technical data; analytical
models, investment and lending strategies and records, financial
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and other products; financial, marketing and business data, pricing and cost
information; business and marketing plans and customer and supplier lists and
information; in each case whether patentable, copyrightable or not ("Trade
Secrets"); (D) computer programs and databases, in each case whether patentable,
copyrightable or not (collectively, "Software"), and all documentation therefor;
(E) writings and other works of authorship, including marketing materials,
brochures, training materials, including all copyrights and moral rights related
to each of the foregoing ("Copyrights"); (F) mask works; (G) rights to limit the
use or disclosure of confidential information by any Person; (H) domain names;
(I) URLs; (J) registrations of, and applications to register, any of the
foregoing with any Governmental Authority and any renewals or extensions
thereof; (K) the goodwill associated with each of the foregoing; and (L) any
claims or causes of action arising out of or related to any infringement or
misappropriation of any of the foregoing; in each case in any jurisdiction.
"Interest" shall have the meaning ascribed to such term in the Existing
Venture Loan Agreement, provided that, for the avoidance of doubt, such term
specifically excludes the New Membership Interest.
"Investor Rights Agreement" shall have the meaning set forth in the
definition of Ancillary Agreements.
"Knowledge" with respect to (A) Nortel Networks or Nortel Networks LLC,
or any of their respective Affiliates, shall mean solely the actual conscious
knowledge, with no additional inquiry (regardless of whether the making of any
such inquiry would be deemed reasonable under the circumstances), of the
individuals specified on Schedule 1.01(a); (B) the Company, Newco or Transition,
or any of their respective Affiliates, shall mean solely the relevant knowledge,
after reasonable inquiry in light of all of the circumstances under which a
representation or warranty is made (including, for instance, the limited amount
of time available in which to make inquiry) of the individuals specified on
Schedule 1.01(b); and (C) the Existing Venture, or any of its Affiliates, shall
mean solely the actual conscious knowledge, with no additional inquiry
(regardless of whether the making of any such inquiry would be deemed reasonable
under the circumstances), of the individuals specified on Schedule 1.01(c).
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Loaned Employee Agreement" shall have the meaning set forth in the
definition of Ancillary Agreements.
"Material Adverse Effect" shall mean with respect to the referenced
Person, any change, circumstance or effect that (i) is or is reasonably likely
to be materially adverse to the business, condition (financial or otherwise) or
results of operations of such party and its Subsidiaries taken as a whole.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"NASD" shall mean the Nasdaq Stock Market, Inc.
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"New Certificates" shall have the meaning set forth in Section 3.03(a).
"Newco Cash Amount" shall mean the amount of (i) $213,200,000 plus (ii)
the Outstanding Loan Amount.
"Newco Common Stock" shall have the meaning set forth in Section
3.01(b).
"New Membership Interest" shall mean the limited liability company
interest in the Existing Venture to be issued to Nortel Networks LLC at the
Closing as contemplated by Sections 4.01(a) and 4.02(d), with such terms as are
set forth in this Agreement (including Exhibit H) and such other terms as may be
reasonably agreed by Nortel Networks LLC and the Company at or prior to the
Closing, all such terms to be reflected in the New Operating Agreement.
"New Membership Interest Balance" shall have the meaning ascribed to it
in Section 4.02(f).
"Newco Shares" shall have the meaning set forth in the recitals to this
Agreement for all purposes of the Agreement.
"Nortel Amount Payable" shall have the meaning ascribed to such term in
Section 4.02(e).
"Nortel Cash Amount" shall have the meaning ascribed to such term in
Section 4.01(a).
"Nortel Networks" shall have the meaning set forth in the first
paragraph of this Agreement.
"Nortel Networks LLC" shall have the meaning set forth in the first
paragraph of this Agreement.
"Nortel Networks Disclosure Schedule" shall have the meaning set forth
in the opening paragraph of Section 5.02.
"Nortel Redemption Amount" shall mean the amount, if any, permitted by
the terms of the Contemplated Financing to be borrowed by the Existing Venture
and paid to Nortel Networks LLC on the Closing Date immediately following the
Closing in connection with the Closing Date Nortel Redemption (as contemplated
by Section 4.07 and Exhibit H), but not greater than the amount of
$10,000,000.00.
"Obligations" shall have the meaning ascribed to such term in the
Existing Venture Loan Agreement (provided that the royalties referenced in
clause (z) of Section 4.02(d)(ii) of the Agreement do not constitute Obligations
for the purposes of the Agreement).
"Old Certificates" shall have the meaning set forth in Section 3.03(a).
"Outside Closing Date" shall mean the earlier of (A) July 31, 2001, and
(B) such date following the termination of the commitment for the Contemplated
Financing as Nortel Networks, in its sole discretion, concludes that the Company
will not be able to fulfill the financing condition set forth in Section
8.03(f). For these purposes the commitment for the Contemplated Financing shall
be deemed to be terminated: (i) when the Company has received notice from the
lenders that the commitment is terminated, (ii) when the Company will not be
able to meet the financing conditions under the commitment for the Contemplated
Financing and
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the lenders have indicated their unwillingness to modify or waive such
conditions to permit consummation of the Contemplated Financing, or (iii) if the
Company fails to confirm in writing to Nortel Networks, within two (2) Business
Days of any written request for such confirmation by Nortel Networks, the
Company's good faith and reasonable belief that it will be able to fulfill the
financing conditions or negotiate modifications or waivers of the terms of the
commitment for the Contemplated Financing to permit consummation of the
Contemplated Financing, which confirmation shall specify the actions to be taken
by the Company to meet the lenders' requirements and the Company's reasons for
believing that such requirements will be satisfied, all of which shall be
reasonably satisfactory to Nortel Networks; provided that any modification or
waiver of the financing conditions or otherwise of the terms of the commitment
for the Contemplated Financing to permit consummation of the Contemplated
Financing as referenced in clauses (ii) and (iii) of this sentence which
requires modification of any of the terms of the Agreement or any Ancillary
Agreement or otherwise requires any action or omission not specified in the
Agreement or the Ancillary Agreements to be taken or omitted to be taken by
Nortel Networks or any of its Affiliates, or adversely affects any of the
material rights of Nortel Networks or any of its Affiliates set forth in the
Agreement or any Ancillary Agreement, shall be conclusively deemed to constitute
termination of the commitment for the Contemplated Financing for the purposes of
clause (B) of the sentence above.
"Participating Interest" shall mean, collectively, the Company's
Optional Participating Interest (if any) and Mandatory Participating Interest
(as such terms are defined in the Existing Venture Loan Agreement).
"Patents" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Person" or "person" shall mean any individual, bank, corporation,
limited liability company, partnership, association, joint-stock company,
business trust or unincorporated organization.
"Plan" shall mean any "employee benefit plan", within the meaning of
Section 3(3) of ERISA, whether or not subject to ERISA, and any employment,
consulting, termination, severance, retention, change in control, deferred or
incentive compensation, bonus, stock option or other equity based, vacation or
other fringe benefit, perquisite or compensation plan, program, policy,
arrangement, agreement or commitment, including foreign plans except for foreign
plans which are required to be maintained pursuant to applicable law.
"Previously Disclosed" by a party shall mean set forth in the related
section of its Disclosure Schedule.
"Registration Rights Agreement" shall have the meaning set forth in the
definition of Ancillary Agreements.
"Registration Statement" shall have the meaning set forth in Section
7.03(a).
"Regulatory Law" shall mean the Sherman Act, as amended, the Clayton
Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and
all other federal, state and foreign, if any, statutes, rules, regulations,
orders, decrees, administrative and judicial doctrines and other laws that are
designed or intended to prohibit, restrict or regulate actions
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having the purpose or effect of monopolization or restraint of trade or
lessening of competition through merger or acquisition.
"Rights" shall mean, with respect to any person, securities or
obligations convertible into or exercisable or exchangeable for, or giving any
other person any right to subscribe for or acquire, or any options, calls or
commitments relating to, or any stock appreciation right or other instrument the
value of which is determined in whole or in part by reference to the market
price or value of, shares of capital stock or other equity securities of such
person.
"Sales Representative/Assignment/Distribution Agreement" shall have the
meaning set forth in the definition of Ancillary Agreements.
"Savings Plan" shall have the meaning set forth in Section 7.23.
"SEC" shall mean the United States Securities and Exchange Commission.
"Second Framework Agreement" shall mean the second framework agreement
among Nortel Networks, Nortel Networks LLC, the Company and Existing Venture
dated as of March 31, 1999.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Software" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Subsidiary" and "Significant Subsidiary" shall have the meanings
ascribed to them in Rule 1-02 of Regulation S-X of the SEC; provided, however,
that the Existing Venture shall not, for the purposes of this Agreement or any
Ancillary Agreement, be, or be deemed or construed to be, a Subsidiary of either
(i) the Company or any of its Affiliates or (ii) Nortel Networks or any of its
Affiliates.
"Supply and Manufacturing Agreement" shall have the meaning set forth
in the definition of Ancillary Agreements.
"Surviving Corporation" shall mean the Company, as the surviving
corporation in the Merger.
"Takeover Laws" shall have the meaning set forth in Section 6.01(n).
"Tax Returns" shall have the meaning set forth in Section 6.01(q).
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, however denominated, including, without limitation, all net income,
gross income, gross receipts, sales, use, ad valorem, goods and services,
capital, transfer, franchise, profits, license, withholding, payroll,
employment, employer health, excise, estimated, severance, stamp, occupation,
property or other taxes, custom duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority whether arising before, on or
after the Effective Date.
"Termination Agreement" shall have the meaning set forth in the
definition of Ancillary Agreements.
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"Trade Secrets" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Trademarks" shall have the meaning set forth in the definition of
Intellectual Property Rights.
"Transactions" shall mean the transactions contemplated by this
Agreement and/or the Ancillary Agreements.
"Transition" shall have the meaning set forth in the first paragraph of
this Agreement.
"Transition Common Stock" shall have the meaning set forth in Section
3.01(a).
"Transition Services Agreement" shall have the meaning set forth in the
definition of Ancillary Agreements.
"Treasury Shares" shall mean shares of the Company Common Stock held by
the Company or any of its Subsidiaries.
"U.S. GAAP" shall mean United States generally accepted accounting
principles.
"$" shall mean United States Dollar.
"Year 2001 Loan Amount" shall have the meaning ascribed to such term in
Section 4.01(a).
"Year-End Loan Amount" shall have the meaning ascribed to such term in
Section 4.01(a).
"Year-End 2000 Loan Amount" shall mean the amount of $124,132,911.60.
"1999 Amount Payable" shall have the meaning ascribed to such term in
Section 4.02(d).
"2000 Amount Payable" shall have the meaning ascribed to such term in
Section 4.02(d).
"2001 Amount Payable" shall have the meaning ascribed to such term in
Section 4.02(d).
"2001 Interim Period" shall mean the period from and including January
1, 2001 to and including the Closing Date.
ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.01. The Merger.
(a) Surviving Corporation. Upon the terms and subject to
the conditions set forth in this Agreement, and in accordance with the DGCL, at
the Effective Time, Transition will
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merge with and into the Company pursuant to this Agreement. Following the
Effective Time the separate corporate existence of Transition shall cease and
the Company shall survive and continue to exist as a Delaware corporation (the
"Surviving Corporation").
(b) Effectiveness and Effects of the Merger. Subject to
the satisfaction or waiver of the conditions set forth in Article VIII in
accordance with this Agreement, the Merger shall become effective upon the
occurrence of the filing in the office of the Secretary of State of the State of
Delaware of a certificate of merger in accordance with Section 251 of the DGCL,
or such later date and time as may be set forth in such certificate. The Merger
shall have the effects prescribed in the DGCL. Without limiting the generality
of the foregoing, and subject thereto, and unless stated otherwise in this
Agreement, at the Effective Time all the property, rights, privileges, powers
and franchises of the Company and Transition shall be vested in the Surviving
Corporation, and all debt, liabilities and duties of the Company and Transition
shall become the debt, liabilities and duties of the Surviving Corporation.
(c) Certificate of Incorporation and By-Laws. The
certificate of incorporation and by-laws of Transition, as in effect immediately
prior to the Effective Time, but with the heading and Article 1 of the
certificate of incorporation amended to read: "The name of the Corporation is
ANTEC Corporation," and the by-laws shall be amended to reflect the name change,
and shall be those of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(d) Officers and Directors of Surviving Corporation. The
officers of the Company as of the Effective Time shall be the officers of the
Surviving Corporation, until the earlier of their resignation or removal or
otherwise ceasing to be an officer or until their respective successors are duly
elected and qualified, as the case may be. The directors of Transition as of the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or otherwise ceasing to be a director or
until their respective successors are duly elected and qualified, as the case
may be.
2.02. Effective Date and Effective Time. Subject to the satisfaction
or waiver (subject to applicable law) of the conditions set forth in Article
VIII in accordance with this Agreement, the parties shall cause the effective
date of the Merger (the "Effective Date") to occur on (i) the third Business Day
to occur after the last of the conditions set forth in Section 8.01 shall have
been satisfied or waived in accordance with the terms of this Agreement or (ii)
such other date to which the parties may agree in writing. The time on the
Effective Date when the Merger shall become effective is referred to as the
"Effective Time."
2.03. Tax Consequences. It is intended that the Merger shall qualify
as a reorganization under Section 368(a) of the Code and that the Merger, in
conjunction with the Contribution, shall constitute an exchange under Section
351 of the Code.
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ARTICLE III
CONVERSION OF SHARES; EXCHANGE PROCEDURES
3.01. Conversion of Shares. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or stockholder:
(a) Conversion of Transition Common Stock. Each share of
common stock, par value $.01 per share, of Transition (the "Transition Common
Stock") issued and outstanding immediately prior to the Effective Time that is
owned by Newco shall remain outstanding and thereafter be deemed to be a fully
paid, non-assessable and validly issued share of Surviving Corporation common
stock, par value $.01 per share.
(b) Conversion of Company Common Stock. Each share of
common stock, par value $.01 per share, of the Company (the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time (other
than shares of Company Common Stock to be canceled pursuant to Section 3.01(c))
shall become and be converted into the right to receive one share of Newco
common stock, par value $.01 per share ("Newco Common Stock"). All of the shares
of Company Common Stock converted into the right to receive Newco Common Stock
pursuant to this Article III, shall no longer be outstanding and shall
automatically be canceled and shall cease to exist as of the Effective Time.
(c) Treasury Shares. Each share of Company Common Stock
held by the Company or any wholly-owned Subsidiary of the Company as Treasury
Shares immediately prior to the Effective Time shall no longer be outstanding
and shall automatically be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
(d) Conversion of Newco Common Stock. Each share of
common stock, par value $.01 per share, of Newco issued and outstanding
immediately prior to the Effective Time that is owned by the Company shall no
longer be outstanding and shall be canceled and shall cease to exist as of the
Effective Time.
3.02. Rights as Stockholders; Stock Transfers. At the Effective
Time, holders of Company Common Stock shall cease to be, and shall have no
rights as, stockholders of the Company, other than the right to receive any
dividend or other distribution with respect to such Company Common Stock with a
record date occurring prior to the Effective Time and the consideration provided
under this Article III. After the Effective Time, there shall be no transfers on
the stock transfer books of the Company or the Surviving Corporation of shares
of Company Common Stock.
3.03. Exchange Procedures.
(a) At or prior to the Effective Time, Newco shall
deposit, or shall cause to be deposited, with a bank or trust company having (or
whose parent has) net capital of not less than $100,000,000 (the "Exchange
Agent"), for the benefit of the holders of certificates formerly
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representing shares of Company Common Stock ("Old Certificates"), for exchange
in accordance with this Article III, certificates representing the shares of
Newco Common Stock ("New Certificates") (such New Certificates being hereinafter
referred to as the "Exchange Fund") to be delivered pursuant to this Article III
in exchange for outstanding shares of Company Common Stock.
(b) As promptly as practicable after the Effective Date,
Newco shall send or cause the Exchange Agent to send or cause to be sent to each
former holder of record of shares (other than Treasury Shares) of Company Common
Stock immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the consideration set forth
in this Article III. Newco shall cause the New Certificates representing shares
of Newco Common Stock into which a stockholder's shares of Company Common Stock
are converted at the Effective Time and any dividends or distributions which
such person shall be entitled to receive pursuant to this Article III, to be
delivered to such stockholder upon delivery to the Exchange Agent of Old
Certificates representing such shares of Company Common Stock (or, pursuant to
Section 3.03(f), a surety bond reasonably satisfactory to Newco and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid in respect of dividends or distributions
which any such person shall be entitled to receive pursuant to this Article III
upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of Company
Common Stock for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to
shares of Newco Common Stock with a record date occurring after the Effective
Time shall be paid to the holder of any unsurrendered Old Certificate
representing shares of Company Common Stock converted in the Merger into the
right to receive shares of Newco Common Stock until the holder thereof shall be
entitled to receive New Certificates in exchange therefor in accordance with
this Article III. After becoming so entitled in accordance with this Article
III, the record holder thereof also shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Newco Common Stock such
holder had the right to receive upon surrender of the Old Certificate, and
payment thereof shall be made promptly following the later of (i) the date on
which such holder shall become entitled to receive New Certificates and (ii) the
payment date with respect to such dividend or other distribution.
(e) Any portion of the Exchange Fund that remains
unclaimed by the stockholders of the Company for three months after the
Effective Time shall, upon demand by Newco, be paid or delivered to Newco. Any
stockholders of the Company who have not theretofore complied with this Article
III shall thereafter look only to Newco for delivery of the shares of Newco
Common Stock, and payment of unpaid dividends and distributions on the shares of
Newco Common Stock deliverable in respect of each share of Company Common Stock
such stockholder holds, as determined pursuant to this Agreement, in each case,
without any interest thereon.
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(f) If any Old Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Old Certificate to be lost, stolen or destroyed and the posting by
such person of a bond in such reasonable amount as Newco may direct as indemnity
against any claim that may be made against it or the Surviving Corporation with
respect to such Old Certificate, Newco shall, in exchange for such lost, stolen
or destroyed Old Certificate, deliver or cause the Exchange Agent to deliver a
New Certificate in respect thereof pursuant to this Article III.
3.04. Stock Options and Other Stock Plans; Restricted Stock.
(a) Effective at the Effective Time, each option to
purchase shares of Company Common Stock or stock units convertible into shares
of Company Common Stock (collectively, the "Company Stock Options") granted to
employees or directors of, or consultants or advisors to, the Company or any
Subsidiary thereof pursuant to the terms of the Company Stock Option Plans that
is outstanding immediately prior to the Effective Time shall be assumed by Newco
and deemed to constitute an option to acquire or a stock unit convertible into,
on substantially the same terms and conditions (including such terms relating to
the exercise price, vesting and exercisability of the Company Stock Options and
terms relating to adjustments for any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares or
similar transaction following such assumption) as were applicable under such
Company Stock Option immediately prior to the Effective Time, the same number of
shares of Newco Common Stock. The date of grant of each such Company Stock
Option shall be the date on which such Company Stock Option was originally
granted. As soon as reasonably practicable following the Effective Date, Newco
shall cause to be delivered to each holder of a Company Stock Option that has
been assumed by Newco pursuant to this Section 3.04 a notice stating that (x)
such Company Stock Option has been converted into an option to purchase shares
of Newco Common Stock, (y) such Company Stock Option has been assumed by Newco
and shall continue in effect subject to all of the terms and conditions
applicable thereto immediately prior to the Effective Time and (z) setting forth
the number of shares of Newco Common Stock covered by such Company Stock Option
and the per share option exercise price for such shares of Newco Common Stock.
From and after the Effective Time, Newco shall comply with the terms of each
Company Stock Option Plan pursuant to which the Company Stock Options were
granted; provided, that (i) the board of directors of Newco or an authorized
committee thereof shall succeed to the authorities and responsibilities of the
Company Board or any committee thereof under the Company Stock Option Plans;
(ii) the terms of the Company Stock Option Plans shall be amended as necessary
to reflect the assumption of the Company Stock Options contemplated hereunder;
and (iii) so long as it is not inconsistent with the foregoing, Newco, at its
election, may replace the Company Stock Options with options granted under a new
Newco plan.
(b) Prior to the Effective Date, the Company shall take
all necessary or appropriate action (including amending any of the Company Stock
Option Plans or making adjustments as permitted thereby) to effectuate the
assumption and conversion of the Company
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Stock Options by Newco and the assignment to Newco of the authorities and
responsibilities of the Company Board or any committee thereof under the Company
Stock Option Plans.
(c) Newco shall cause to be taken all corporate action
necessary to reserve for issuance a sufficient number of shares of Newco Common
Stock for delivery upon exercise of Company Stock Options in accordance with
this Section 3.04. As soon as reasonably practicable following the Effective
Date, Newco shall use its reasonable efforts to cause the shares of Newco Common
Stock subject to Company Stock Options to be registered under the Securities Act
pursuant to a registration statement on Form S-8 (or any successor or other
appropriate forms) and shall use its reasonable efforts to cause the
effectiveness of such registration statement (and current status of the
prospectus or prospectuses contained therein) to be maintained for so long as
Company Stock Options remain outstanding.
(d) Restricted Stock. If any shares of Company Common
Stock that are outstanding immediately prior to the Effective Time are unvested
or are subject to a repurchase option, risk of forfeiture or other condition
providing that such shares ("Company Restricted Stock") may be forfeited to or
repurchased by the Company upon termination or modification of the employment,
directorship or other relationship between the Company (and/or any Affiliate of
the Company) and the holder of such Company Restricted Stock under the terms of
any restricted stock agreement or other agreement with the Company (and/or the
relevant Affiliate of the Company) that does not by its terms provide that such
repurchase option, risk of forfeiture or other condition lapses upon
consummation of the Transactions, then the shares of Newco Common Stock issued
upon the conversion of such shares of Company Common Stock in the Merger will
continue to be unvested to the same extent and/or subject to the same repurchase
options, risks of forfeiture or other conditions (as applicable) following the
Effective Time, and the certificates representing such shares of Newco Common
Stock shall accordingly be marked with appropriate legends noting such
repurchase options, risks of forfeiture or other conditions.
3.05. Closing. The closing of the Merger and the Contribution (the
"Closing") will take place at the offices of Troutman Sanders LLP, 600 Peachtree
Street, N.E., Suite 5200, Atlanta, Georgia, at 11:00 A.M., Eastern time, on the
day on which all of the conditions listed in Section 8.01 are satisfied or
waived, to the extent that they may be waived, or at such other date and time as
the Company and Nortel Networks otherwise agree (the "Closing Date").
ARTICLE IV
THE CONTRIBUTION; EFFECTS OF THE CONTRIBUTION
4.01. Indebtedness Under Existing Venture Loan Agreement. In
connection with the Existing Venture Loan Agreement:
(a) at the Closing, any and all Obligations (including,
for the avoidance of doubt, the unpaid royalties payable by the Existing Venture
outstanding as of December 31, 2000 in the aggregate amount of approximately
$14,000,000 (subject to final reconciliation by the Company and Nortel Networks
in good faith prior to the Closing), which royalties shall, for the
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purposes of the Agreement, be deemed to have been advanced to the Existing
Venture under the Existing Venture Loan Agreement as of January 1, 2001,
together with interest thereon from January 1, 2001 until the Closing at the
rate specified in the Existing Venture Loan Agreement) incurred by the Existing
Venture under the Existing Venture Loan Agreement on or after January 1, 2001
(other than any interest accruing on the Year-End 2000 Loan Amount for the 2001
Interim Period) shall be deemed paid in full and satisfied by the issuance of
the New Membership Interest by the Existing Venture to Nortel Networks LLC and
the execution and delivery of the Guaranty (the amount of such Obligations, the
"Year 2001 Loan Amount");
(b) at the Closing, (i) the Company shall contribute to
the capital of the Existing Venture all of the Company's Participating Interest
(including the portion thereof attributable to interest accrued but unpaid under
the Existing Venture Loan Agreement on the portion of the Obligations
represented by the Year-End 2000 Loan Amount for 2001 Interim Period), which
Participating Interest was equal, as of December 31, 2000 and prior to the
addition of interest for the 2001 Interim Period, to $9,834,343.15, (ii) Nortel
Networks LLC shall contribute to the capital of the Existing Venture all of the
Obligations remaining outstanding after the payment in full and satisfaction of
the portion of such obligations equal to the Year 2001 Loan Amount as set forth
in Section 4.01(a), less the amount of the Company's Participating Interest
contributed to the capital of the Existing Venture pursuant to clause (i) of
this Section 4.01(b) (the amount of such contribution by Nortel Networks LLC was
equal, as of December 31, 2000 and prior to the addition of interest for the
2001 Interim Period, to $114,298,568.45), and (iii) the capital accounts of the
Company and Nortel Networks LLC in the Existing Venture attributable to their
respective Interests shall be appropriately adjusted to reflect the foregoing
contributions to the capital of the Existing Venture (which shall be deemed to
occur prior to the issuance of the New Membership Interest to Nortel Networks
LLC), and the Company's and Nortel Networks LLC's respective Interests also
shall be adjusted, on the basis of the Existing Venture valuation of
$122,000,000.00, to reflect the same;
(c) prior to the Closing, the Company, at the Company's
sole election, may require the Existing Venture to make an election pursuant to
Section 754 of the Code;
(d) at the Closing, upon consummation of the transactions
contemplated by Sections 4.01(a) and (b) above, the Existing Venture Loan
Agreement shall terminate (as set forth in greater detail in, and subject to,
the Termination Agreement), and no further amounts may be advanced thereunder;
and
(e) prior to the Closing, the Existing Venture shall not
make any payments under the Existing Venture Loan Agreement without the prior
written consent of Nortel Networks LLC.
4.02. Satisfaction of Existing Obligations.
(a) [Intentionally Omitted]
(b) [Intentionally Omitted]
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(c) [Intentionally Omitted]
(d) At the Closing, the Existing Venture shall issue the
New Membership Interest, and Newco shall execute and deliver the Guaranty, in
each case to Nortel Networks LLC. Such issuance of the New Membership Interest
and the execution and delivery of the Guaranty shall be deemed to constitute
payment in full and satisfaction of the following obligations of the Existing
Venture:
(i) the portion of the Obligations equal to the
Year 2001 Loan Amount, as set forth in Section 4.01(a); and
(ii) all amounts owed by the Existing Venture, as
of the Closing, to Nortel Networks and/or its Affiliates for purchases of goods
and/or services and/or royalties (other than any amounts deemed advanced under
the Existing Venture Loan Agreement), including (x) in respect of purchases of
goods and/or services by the Existing Venture on or prior to December 31, 1999,
the aggregate amount of $17,200,000 (the "1999 Amount Payable"), (y) in respect
of purchases of goods and/or services by the Existing Venture with respect to
the year ended December 31, 2000, the aggregate amount of approximately
$45,000,000 (subject to final reconciliation by the Company and Nortel Networks
in good faith prior to the Closing) (the "2000 Amount Payable"), and (z) the
aggregate amount owed to Nortel Networks and/or its Affiliates as of the Closing
relating to (A) purchases of goods and/or services by the Existing Venture with
respect to the 2001 Interim Period, and (B) royalties payable by the Existing
Venture to Nortel Networks and/or its Affiliates with respect to the 2001
Interim Period (such aggregate amount, the "2001 Amount Payable").
(e) At the Closing, the obligations of the Existing
Venture described in clause (ii)(z) of Section 4.02(d) above shall be offset by
the aggregate amount (the "Nortel Amount Payable") owed by Nortel Networks and
its Affiliates to the Existing Venture relating to purchases of goods and/or
services from the Existing Venture by Nortel Networks and/or its Affiliates at
all times prior to the Closing, as reflected in Section 4.02(f) below, and all
obligations of Nortel Networks and/or or its Affiliates relating to such
purchases (other than the obligation to return to the Existing Venture the
inventory of Existing Venture products held by Nortel Networks and its
Affiliates as of the Closing, as set forth on Schedule 8.01(f)) shall be deemed
paid in full and satisfied in full as of the Closing.
(f) In connection with the issuance by the Existing
Venture of the New Membership Interest to Nortel Networks LLC and the execution
by Newco and delivery to Nortel Networks LLC of the Guaranty, as contemplated by
Sections 4.01(a) and 4.02(d) above, all of the right, title and interest of
Nortel Networks and its Affiliates (including Nortel Networks LLC) in and to the
obligations and amounts set forth in clauses (i) and (ii) of Section 4.02(d), as
adjusted by operation of Section 4.02(e), shall be deemed contributed by or on
behalf of Nortel Networks LLC to the capital of the Existing Venture. The
initial capital account balance of Nortel Networks LLC in the Existing Venture
attributable to the New Membership Interest shall, as of the Closing, be equal
to the New Membership Interest Balance. For the purposes of this
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Agreement, the term "New Membership Interest Balance" shall mean (i) the sum of
(A) the Year 2001 Loan Amount, (B) the 1999 Amount Payable, (C) the 2000 Amount
Payable and (D) the 2001 Amount Payable, less (ii) the sum of the Nortel Amount
Payable and the Existing Venture Cash Balance. The Year 2001 Loan Amount, the
2001 Amount Payable, the Nortel Amount Payable, the Nortel Redemption Amount and
the Existing Venture Cash Balance shall, subject to the other provisions of this
Agreement, be determined by Nortel Networks and the Company in good faith as
close to (but prior to) the Closing as reasonably practicable.
4.03. [Intentionally Omitted]
4.04. Contribution. At the Closing, immediately after consummation
of all of the transactions contemplated by Sections 4.01 and 4.02, in exchange
for Nortel Networks LLC's Interest in the Existing Venture, free and clear of
any Liens, Newco shall issue to Nortel Networks LLC the Newco Shares, as follows
(all such transactions, collectively, the "Contribution"):
(a) Nortel Networks LLC shall transfer all of its
Interest in the Existing Venture to Newco by delivering to Newco an executed
Instrument of Assignment and Assumption and thereafter delivering to Newco such
other documents as Newco may reasonably request to effect the transfer on the
books and records of the Existing Venture; and
(b) Newco shall issue the Newco Shares to Nortel Networks
LLC, and shall deliver to Nortel Networks LLC one or more stock certificates in
the aggregate representing the Newco Shares in the name of Nortel Networks LLC
or such other subsidiary of Nortel Networks as Nortel Networks may specify in a
notice delivered to Newco not less than two Business Days prior to the Closing.
4.05. Existing Venture Operating Agreement. At the Closing, each of
the Company and Nortel Networks LLC shall execute and deliver the New Operating
Agreement, amending and restating in its entirety the Amended and Restated
Limited Liability Company Agreement of the Existing Venture LLC, dated as of
March 31, 1999 (the "Existing Venture Operating Agreement"). In addition, (a)
the Existing Venture, Company and Nortel Networks LLC agree, effective as of the
Closing, to waive any provisions in the Existing Venture Agreement to effectuate
the Transactions, (b) the Company and Nortel Networks LLC hereby direct the
Existing Venture to do all that is necessary under any applicable laws to
effectuate such waiver and the Transactions, (c) Nortel Networks LLC shall cause
its representatives on the Members Committee of the Existing Venture to resign
upon the Closing without any liability to the Existing Venture, and (d) the
Company, Nortel Networks LLC and the Existing Venture agree that, at all times
after the execution hereof and prior to the Closing (or, if earlier, termination
of this Agreement in accordance with its terms), the Existing Venture shall not,
without prior approval by a majority vote of the Representatives, (i) establish
reserves in excess of $250,000 or (ii) fail to pay its accounts payable (both
existing and future) to the Company or Nortel Networks or any of its Affiliates
within 60 days of invoice.
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4.06. Section 351 Exchange. It is intended that for U.S. federal
income tax purposes, the Contribution, taken together with the Merger, shall
constitute an exchange under Section 351 of the Code.
4.07. On the Closing Date, immediately following the Closing and the
consummation of the Contemplated Financing, the Existing Venture shall pay to
Nortel Networks LLC, as the holder of the New Membership Interest and in partial
redemption thereof (the "Closing Date Nortel Redemption"), the Nortel Redemption
Amount, in cash in immediately available U.S. funds.
ARTICLE V
ACTIONS PENDING TRANSACTIONS
5.01. Forbearances of the Company. From the date hereof until the
Effective Time, except for the Transactions, or as set forth in Section 5.01 of
the Disclosure Schedule delivered by the Company to Nortel Networks prior to the
execution of this Agreement (the "Company Disclosure Schedule"), without the
prior written consent of Nortel Networks, the Company will not, and will cause
each of its Subsidiaries not to:
(a) Ordinary Course. Conduct its business and the
business of its Subsidiaries other than in the ordinary and usual course,
consistent with past practice, in material compliance and in all material
respects with applicable laws and regulations or, to the extent consistent
therewith, fail to use reasonable efforts to preserve intact their business
organizations and assets and maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates, or take
any action that would adversely affect its ability to perform any of its
obligations under this Agreement in any material respects.
(b) Capital Stock. (i) Issue, sell, pledge, dispose of,
encumber or reclassify or otherwise modify the terms of, or authorize or propose
the issuance, sale, pledge, disposition, encumbrance or reclassification or
other modification of the terms of, any shares of its capital stock or any
Rights, or amend any of the terms of (including without limitation the vesting
of) any convertible securities, options or other Rights, (ii) enter into any
agreement with respect to the foregoing or (iii) permit any additional shares of
capital stock to become subject to new grants of employee, director, consultant
or advisor stock options, restricted stock awards, other Rights or similar
stock-based employee, director, consultant or advisor rights, other than (x) the
issuance of Company Common Stock (I) upon the exercise of stock options
outstanding as of the date hereof or issued in the ordinary and usual course of
business in accordance with the terms of the Company Stock Option Plans, or (II)
upon conversion of the notes under the Indenture, and (y) issuances by a
wholly-owned Subsidiary of the Company of capital stock to such Subsidiary's
parent.
(c) Dividends, Etc. (i) Make, declare, pay or set aside
for payment any dividend (other than dividends from the Company's Subsidiaries
to the Company or another Subsidiary of the Company) on or in respect of, or
declare or make any distribution on any shares
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of its capital stock or (ii) except for any such transaction by a wholly-owned
Subsidiary of the Company which remains a wholly-owned Subsidiary after
consummation of such transaction (other than Newco), directly or indirectly
adjust, split, combine, redeem, reclassify, purchase, repurchase or otherwise
acquire, any shares of the capital stock of the Company or any of its
Subsidiaries.
(d) Acquisitions and Dispositions. (i) Acquire all or any
portion of the equity securities or interests, assets, business or properties of
any other entity for aggregate consideration in excess of $25,000,000 for all
transactions, or (ii) sell all or substantially all, or any material portion, of
its assets, business or properties (other than sales of goods and services to
distributors and customers in the ordinary and usual course of business), or
(iii) agree to enter into any merger, consolidation or other business
combination.
(e) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness of another Person, issue or sell any
debt securities or options, warrants, calls or other rights to acquire any debt
securities of the Company or any of its Subsidiaries, or enter into any
arrangement having the economic effect of any of the foregoing, other than in
the ordinary and usual course of business, consistent with past practice.
(f) License or Distribution Agreements. Enter into any
exclusive agreement or arrangement with respect to the licensing or distribution
of any Intellectual Property or products of the Company or any of its
Subsidiaries other than in the ordinary and usual course of business.
(g) Compensation. Pay any special bonus or special
remuneration to any of its directors or officers.
(h) Amendments. Amend the Company, Newco or Transition
certificate of incorporation or by-laws, except that Newco may amend the Newco
certificate of incorporation to contain terms identical to the Company's
certificate of incorporation as in effect on the date hereof except that there
shall be 325,000,000 authorized shares of stock and except that Newco's name
shall be changed to "Arris Group, Inc."
(i) Adverse Actions. (i) Take any action while knowing
that such action would, or is reasonably likely to, prevent or impede either the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code and an exchange under Section 351 of the Code or the Contribution
from qualifying as an exchange under Section 351 of the Code; or (ii) knowingly
take any action that is intended or is reasonably likely to result in (A) any of
its representations and warranties set forth in this Agreement being or becoming
untrue at any time, (B) any of the conditions to the Transactions set forth in
Article VIII not being satisfied or satisfaction of any such condition being
materially delayed or (C) a violation of any provision of this Agreement except,
in each case, as may be required by applicable law.
(j) Agreements. Agree or commit to do anything prohibited
by the above paragraphs (a) through (i).
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5.02. Forbearances of Nortel Networks. From the date hereof until
the Effective Time, except for the Transactions, or as set forth in Section 5.02
of Nortel Networks' Disclosure Schedule delivered by Nortel Networks to the
Company prior to the execution of this Agreement (the "Nortel Networks
Disclosure Schedule"), without the prior written consent of the Company, Nortel
Networks will not, and will cause each of its Subsidiaries, including Nortel
Networks LLC, not to:
(a) Adverse Actions. (i) Take any action while knowing
that such action would, or is reasonably likely to, prevent or impede the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code and an exchange under Section 351 of the Code or the Contribution from
qualifying as an exchange under Section 351 of the Code; or (ii) knowingly take
any action that is intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or becoming
untrue at any time, (B) any of the conditions to the Transactions set forth in
Article VIII not being satisfied or satisfaction of any such condition being
materially delayed or (C) a violation of any provision of this Agreement except,
in each case, as may be required by applicable law.
(b) Existing Venture.
(i) Ordinary Course. Permit the Existing Venture
to conduct its business other than in accordance with the Existing Venture
Operating Agreement, in the ordinary and usual course, consistent with past
practice, in material compliance and in all material respects with applicable
laws and regulations or, to the extent consistent therewith, fail to use
reasonable efforts to preserve intact its business organizations and assets and
maintain its rights, franchises and existing relations with customers,
suppliers, employees and business associates, or take any action that would
adversely affect its ability to perform any of its obligations under this
Agreement in any material respects; provided, however, that the actions and
omission relating to operations of the Existing Venture specified in Schedule
5.02(b) to the Agreement shall be conclusively deemed to be permitted by the
provisions of this Section 5.02(b), and no such actions or omission shall
constitute, or be deemed or construed to constitute, a breach or violation of
this Section 5.02(b).
(ii) Distributions. Permit the Existing Venture
to make any distributions to members (provided that the foregoing shall not
apply to royalty payments, or other payments under commercial agreements, by the
Existing Venture), except as otherwise provided in Section 4.01 or Section 4.02.
(iii) Adverse Actions. (A) Permit the Existing
Venture to take any action while knowing that such action would, or is
reasonably likely to, prevent or impede either the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code and an exchange
under Section 351 of the Code or the Contribution from qualifying as an exchange
under Section 351 of the Code; or (B) knowingly take any action that is intended
or is reasonably likely to result in (I) any of its representations and
warranties set forth in this Agreement being or becoming untrue at any time,
(II) any of the conditions to the Transactions
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set forth in Article VIII not being satisfied or satisfaction of any such
condition being materially delayed or (III) a violation of any provision of this
Agreement except, in each case, as may be required by applicable law.
(iv) Indebtedness. Permit the Existing Venture to
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another Person, issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of the Existing Venture, or enter
into any arrangement having the economic effect of any of the foregoing, other
than in the ordinary and usual course of business, consistent with past
practice.
(v) License or Distribution Agreements. Permit
the Existing Venture to enter into any exclusive agreement or arrangement with
respect to the licensing or distribution of any Intellectual Property or
products of the Existing Venture other than in the usual and ordinary course of
business.
(vi) Compensation. Permit the Existing Venture to
pay any special bonus or special remuneration to any of its directors (or
persons serving in similar capacity) or officers.
(vii) Agreements. Permit the Existing Venture to
agree or commit to do anything prohibited by the above subparagraphs (i) and
(vi).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01. Representations and Warranties of the Company, Newco and
Transition. Except as set forth in the Company Disclosure Schedule (each section
of which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein), the Company hereby represents and
warrants to Nortel Networks as follows:
(a) Organization, Standing and Authority. Each of the
Company, Newco and Transition is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, and
is duly qualified to do business and is in good standing in the states of the
United States and foreign jurisdictions where its ownership or leasing of
property or assets or the conduct of its business requires it to be so
qualified, except where the failure to be so qualified and in good standing does
not have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, Newco or Transition. Each
of the Company, Newco and Transition has in effect all federal, state, local and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted,
except where the failure to have in effect such authorizations does not have,
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company, Newco or Transition. Each of the
Company, Newco and Transition has made available to Nortel Networks a complete
and correct copy of its certificate of incorporation and by-laws, each as
amended and
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in full force and effect as of the date of this Agreement, and each of the
Company, Newco and Transition is not in violation of any provision thereof.
(b) Shares.
(i) The authorized capital stock of the Company
consists of (A) 150,000,000 shares of Company Common Stock of which 38,093,366
shares were issued and outstanding as of September 30, 2000 (the "Capitalization
Date"), and (B) 5,000,000 shares of preferred stock, par value $1.00 per share
("Company Preferred Stock"), of which no shares were issued or outstanding as of
the Capitalization Date. Since the Capitalization Date, there have been no
issuances of shares of the capital stock of the Company other than issuances
permitted by Section 5.01(b).
(ii) All issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued, in compliance with
all applicable federal, state and foreign securities laws, and are fully paid
and nonassessable, and no class of capital stock of the Company is entitled to
preemptive rights.
(iii) There were outstanding at the Capitalization
Date no Rights to acquire capital stock from the Company other than (A)
Rights to acquire up to 4,791,667 shares of Company Common Stock upon conversion
of notes issued under the Indenture, and (B) Company Stock Options. Section
6.01(b)(iii) of the Company Disclosure Schedule sets forth for all Company Stock
Options (and all shares of Company Common Stock issued pursuant to restricted
stock awards made under any Company Plan) outstanding at the Capitalization Date
a true and complete list of the following: their holders, their date of grant
(or award), the number of shares of Company Common Stock for which they are
exercisable (or, with respect to restricted stock awards, the number of shares
awarded), and their exercise price as currently in effect. No Rights to acquire
capital stock from the Company have been issued or granted, and no restricted
stock awards have been made, since the Capitalization Date other than issuances
not prohibited by Section 5.01(b).
(iv) The Newco Shares when issued as contemplated
by Articles III and IV hereof will be duly authorized, validly issued, in
compliance with all applicable federal, state and foreign securities laws, and
fully paid and non-assessable.
(c) Subsidiaries.
(i) Section 6.01(c)(i) of the Company Disclosure
Schedule sets forth a list as of the date hereof of all of the Company's
Significant Subsidiaries, together with their jurisdiction of organization.
Unless otherwise described therein, the Company owns, directly or indirectly,
beneficially and of record 100% of the issued and outstanding voting securities
of each such Subsidiary (other than directors' qualifying shares, if any). No
equity securities of any of the Company's Subsidiaries are or may become
required to be issued (other than to the Company or its wholly owned
Subsidiaries) by reason of any Rights, and there are no contracts,
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commitments, understandings or arrangements by which any of such Subsidiaries is
bound to sell or otherwise transfer any shares of capital stock of any such
Subsidiaries (other than to the Company or its wholly owned Subsidiaries). In
addition, Section 6.01(c)(i) of the Company Disclosure Schedule lists as of the
date of this Agreement each corporation, partnership, limited liability company
or similar entity with respect to which, as of the date of this Agreement, the
Company or any Subsidiary of the Company owns more than 5% but less than a
majority of the voting equity or similar voting interest or any interest
convertible into, or exchangeable or exercisable for, more than 5% but less than
a majority of the voting equity or similar voting interest and which interest is
carried on the Company's most recent financial statements (or if not held as of
the date thereof, would be carried on the Company's financial statements if
prepared as of the date hereof) at a value in excess of $1,000,000
(collectively, the "Company Equity Interests"). All of the shares of capital
stock of each of the Subsidiaries of the Company and all the Company Equity
Interests held by the Company (including, without limitation, the Company's
limited liability company interest in the Existing Venture) and each Subsidiary
of the Company are fully paid and non-assessable and are owned by the Company or
such Subsidiary free and clear of any Liens. Other than with respect to the
Existing Venture, there are no material outstanding contractual obligations of
the Company or any of its Subsidiaries to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in any
entity in which the Company or any Subsidiary of the Company owns a Company
Equity Interest.
(ii) Each of the Company's Significant
Subsidiaries has been duly organized and is validly existing in good standing
under the laws of the jurisdiction of its organization. Each of such
Subsidiaries is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and each has in effect all federal,
state, local and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now
conducted, except where the failure to be so duly qualified and in good standing
or to have in effect all federal, state, local, and foreign governmental
authorizations does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(iii) All Subsidiaries of the Company, other than
the Significant Subsidiaries of the Company, if taken together and combined in a
single Subsidiary of the Company, would not constitute a Significant Subsidiary
of the Company.
(d) Corporate Power. Each of the Company, Newco, and
Transition has the corporate power and authority to carry on its business as it
is now being conducted and to own all its properties and assets; and each such
party has the corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each Ancillary Agreement to which it is a
party and to consummate the Transactions.
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(e) Corporate Authority.
(i) Subject, in the case of the consummation of
the Merger, to receipt of the requisite approval and adoption of the "agreement
of merger" (as such term is used in Section 251 of the DGCL) contained in this
Agreement and the Merger by the holders of a majority of the outstanding shares
of Company Common Stock entitled to vote thereon, the Company Board having
unanimously adopted a resolution approving such "agreement of merger" and
declaring its advisability, with Mr. John Ian Craig abstaining, this Agreement,
the Ancillary Agreements and the Transactions have been duly authorized by all
necessary corporate action of the Company, Newco and Transition and their
respective Boards of Directors (assuming that neither Nortel Networks nor Nortel
Networks LLC is an "interested stockholder" of the Company, Newco or Transition
under Section 203 of the DGCL immediately before the execution and delivery of
this Agreement), prior to the date hereof (which action has not been rescinded
or modified in any way). The execution and delivery of this Agreement and the
Ancillary Agreements by the Company, Newco and Transition and the consummation
by the Company, Newco and Transition of the Transactions have been duly
authorized by the respective Boards of Directors of the Company, Newco and
Transition and by the Company as the sole shareholder of Newco and by Newco as
the sole shareholder of Transition. No other corporate proceedings on the part
of Newco or Transition are necessary to authorize this Agreement and the
Transactions.
(ii) Each of this Agreement and the Ancillary
Agreements is, or in the event that such Ancillary Agreement is to be entered
into at Closing, will be, a legal, valid and binding agreement of the Company,
Newco and Transition (to the extent that it is a party thereto), enforceable in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles, whether considered at law or
in equity).
(f) No Defaults. Subject to receipt of the regulatory
approvals, and expiration of the waiting periods, referred to in Section 6.01(r)
and required filings under federal and state securities or other laws, the
execution, delivery and performance of this Agreement and the Ancillary
Agreements and the consummation of the Transactions by the Company, Newco and
Transition (to the extent that they are a party thereto), do not and will not
(i) constitute a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of the Company or Newco or Transition or to
which the Company or Newco or Transition or any of their respective properties
or assets are subject or bound, (ii) constitute a breach or violation of, or a
default under, the articles or certificate of incorporation or by-laws of the
Company or Newco or Transition or (iii) require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license, agreement, indenture or instrument, except in the case of (i) and
(iii), where such breach, violation or default or the failure to obtain such
consents or approvals would not in the aggregate have a Material Adverse Effect
on the Company, Newco or Transition and would not prevent or impair the Company,
Newco or Transition's ability to
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consummate the Transactions. Section 6.01(f) of the Company Disclosure Schedule
contains a list of all consents of third parties required under any material
agreement to be obtained by the Company, Newco or Transition prior to, or as a
result of, the consummation of the Transactions.
(g) Financial Reports and SEC Documents.
(i) Except as set forth in Section 6.01(g) of
the Company Disclosure Schedule, with respect to the periods since December 31,
1997, the Company and its Subsidiaries have filed all reports and statements,
together with any amendments required to be made thereto, that were required to
be filed with the SEC.
(ii) The Company's Annual Reports on Form 10-K
for the fiscal years ended December 31, 1998 and 1999, its Quarterly Report on
Form 10-Q for the period ended June 30, 2000, and all other reports,
registration statements, definitive proxy statements or information statements
filed or to be filed by it or any of its Subsidiaries subsequent to December 31,
1996, under the Securities Act, or under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act, in the form filed, or to be filed (collectively, the "Company
SEC Documents"), with the SEC, as of the date filed (or, with respect to a
document filed prior to the date of this Agreement and amended or superseded by
a subsequent filing prior to the date of this Agreement, then on the date of
such filing as so amended or superseded) (A) complied or will comply in all
material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be; and (B) did not and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
each of the balance sheets contained in or incorporated by reference into any
such Company SEC Document (including the related notes and schedules thereto)
fairly presents and will fairly present the financial position of the entity or
entities to which it relates as of its date, and each of the statements of
income and changes in stockholders' equity and cash flows or equivalent
statements in such Company SEC Documents (including any related notes and
schedules thereto) fairly presents and will fairly present the results of
operations, changes in stockholders' equity and changes in cash flows, as the
case may be, of the entity or entities to which it relates for the periods to
which they relate, in each case in accordance with U.S. GAAP consistently
applied during the periods involved and Regulation S-X of the SEC, except in
each case as may be noted therein, subject to normal year-end audit adjustments
in the case of unaudited statements.
(iii) Since June 30, 2000, the Company has not
incurred any liabilities (whether absolute, accrued, contingent or otherwise)
that are of a nature that would be required to be disclosed on a balance sheet
of the Company or the footnotes related thereto all prepared in conformity with
U.S. GAAP, except (x) liabilities as set forth in the Company SEC Documents
filed prior to the date of this Agreement (the "Company Filed SEC Documents")
and (y) other liabilities incurred in the ordinary course of business consistent
with past practice which do not have, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
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(h) Litigation. No litigation, claim or other proceeding
before any Governmental Authority or arbitrator that is pending or, to the
Company's Knowledge, threatened against the Company or any of its Subsidiaries,
Newco or Transition would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, Newco or Transition. Except
as disclosed on Section 6.01(h) of the Company Disclosure Schedule, no
litigation, claim or other proceeding before any Governmental Authority or
arbitrator is pending or, to the Company's Knowledge, threatened against the
Company or any of its Subsidiaries, Newco or Transition which, if determined
adversely to the Company or any such Subsidiary, Newco or Transition would
reasonably be expected to result in a loss of more than $5,000,000 or the
imposition of any material restrictions on the business of the Company, Newco or
Transition.
(i) Compliance with Laws. Each of the Company, Newco and
Transition:
(i) is in compliance with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, except where failure to so comply does not have, and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, Newco or Transition;
(ii) has all permits, licenses, authorizations,
orders and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities that are required in order to
permit them to conduct their businesses as presently conducted or proposed to be
conducted, and all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to its Knowledge, no suspension or
cancellation of any of them is threatened, except for (x) failures to hold such
permits, licenses, authorizations, orders and approvals and (y) failures to make
such filings, applications and registrations, which do not have, and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, Newco or Transition (provided that clauses (x)
and (y) shall not apply to any permits, licenses, authorizations, orders and
approvals of, or filings, applications and registrations with, the Securities
and Exchange Commission); and
(iii) has received since December 31, 1999, no
written notification or communication from any Governmental Authority, nor do
they have Knowledge of any earlier issued notification or communication which
has not been resolved, (A) asserting that the Company or any of its
Subsidiaries, Newco or Transition is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization.
(j) Material Contracts; Defaults. Except for this
Agreement, the Ancillary Agreements and those agreements and other documents
filed as exhibits to the Company Filed SEC Documents, as of the date of this
Agreement, neither the Company nor any of its Subsidiaries is a party to or
bound by (i) any "material contract" within the meaning of Item
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601(b)(10) of the SEC's Regulation S-K or (ii) any non-competition agreement or
other agreement or arrangement that restricts the Company, Newco or Transition
from competing in any line of business. Neither the Company nor Newco nor
Transition is in default under any such "material contract" or non-competition
or other agreement or arrangement, or under any other material contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, by which its respective assets, business, or operations
may be bound or affected, and there has not occurred any event that, with the
lapse of time or the giving of notice or both, would constitute such a default.
(k) Effect on Other Contracts. The execution, delivery
and performance by the Company, Newco and Transition of this Agreement and the
Ancillary Agreements, and the consummation of the Transactions, will not result
in (i) an acceleration of, vesting of, or other modification of the terms of,
any Right (including, without limitation, outstanding options granted under any
Company Plan) or restricted stock award, (ii) the acceleration or coming due of
any liability or obligation of the Company of any of its Subsidiaries, (iii) the
incurrence by the Company or any of its Subsidiaries of any additional charge,
cost or expense under any agreement or other contractual arrangement with any
third party, or (iv) any other increase in the liabilities and obligations of,
or any diminution of the rights of, the Company or any of its Subsidiaries under
any such agreement or arrangement, in each case other than as set forth on
Section 6.01(k) of the Company Disclosure Schedule.
(l) No Brokers. No action has been taken by the Company,
Newco or Transition, or any of their respective officers, directors or
employees, that would give rise to any valid claim against any party hereto for
a brokerage commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding fees to be paid to
Donaldson, Lufkin & Jenrette (the "Company Financial Advisor") pursuant to the
Company's written agreement with such firm, a true and complete copy of which
has been furnished to Nortel Networks prior to the date of this Agreement.
(m) Employee Benefits; Employee Relations.
(i) Section 6.01(m)(i) of the Company Disclosure
Schedule contains a complete and correct list of each material Company Plan.
With respect to each material Company Plan, true and complete copies have been
provided to Nortel Networks of the Plan document or agreement, including any
amendments thereto, or, with respect to any material Company Plan that is not in
writing, a description thereof and, to the extent applicable, the three (3) most
recent required Internal Revenue Service Form 5500, including all schedules
thereto, the most recent qualification determination and any communications to
or from any Governmental Authority, including a written description of any oral
communication.
(ii) Each Company Plan has been operated and
administered, and is, in compliance with its terms and all applicable Legal
Requirements (including ERISA and the Code and any regulations thereunder).
There are no actions, suits, claims or governmental audits
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(other than routine claims for benefits in the ordinary course) pending or, to
the Knowledge of the Company, threatened with respect to any Company Plan.
(iii) Except as set forth in Section 6.01(m)(iii)
of the Company Disclosure Schedule, no Company Plan is, and neither the Company
nor any Subsidiary thereof contributes to or has any liability or obligation
with respect to any Plan that is, (A) a multi-employer plan within the meaning
of Section 4001(a)(3) of ERISA, (B) any single employer plan or other pension
plan subject to Title IV or Section 302 of ERISA or Section 412 of the Code or
(C) a multiple employer plan within the meaning of Section 4063 or 4064 of
ERISA.
(iv) Each Company Plan that is intended to
qualify under Section 401(a) and/or 401(k) of the Code so qualifies and its
trust is exempt from taxation under Section 501(a) of the Code. The Company and
its Subsidiaries have timely paid all material contributions, premiums and
expenses payable to or in respect of each Company Plan under the terms thereof
and in accordance with applicable Legal Requirements, including ERISA and the
Code, and, to the extent any such contributions, premiums or expenses are not
yet due, the liability therefor has been properly and adequately accrued on the
Company's financial statements included in its Quarterly Report on Form 10-Q for
the period ended June 30, 2000, as required under GAAP.
(v) Neither the Company nor any of its
Subsidiaries has incurred, either directly or indirectly (including as a result
of an indemnification obligation), any liability (other than for benefits
accrued under any Company Plan) under or pursuant to any provision of Title I or
IV of ERISA or the penalty, excise tax or joint and several liability provisions
of the Code relating to employee benefit plans, and no event, transaction or
condition has occurred, exists or is expected to occur which could reasonably be
expected to result in any such liability to the Company, any of its Subsidiaries
or, after the Effective Time, Surviving Corporation or any of its affiliates.
(vi) Except as set forth in Section 6.01(m) (vi)
of the Company's Disclosure Schedule, neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, either
alone or in combination with another event (whether contingent or otherwise)
will (A) entitle any current or former employee, consultant, officer or director
of the Company or any of its Subsidiaries to any increased or modified benefit
or payment; (B) increase the amount of compensation due to any such employee,
consultant, officer or director; (C) accelerate the vesting, payment or funding
of any compensation, stock-based benefit, incentive or other benefit; (D) result
in any "parachute payment" under Section 280G of the Code (whether or not such
payment is considered to be reasonable compensation for services rendered); or
(E) cause any compensation to fail to be deductible under Section 162(m), or any
other provision of the Code or any similar foreign Legal Requirements.
(vii) Except as set forth in Section 6.01(m)(vii)
of the Company Disclosure Schedule, (A) no collective bargaining agreement
exists that is binding on the Company or its Subsidiaries; (B) no proceeding has
been instituted with any Governmental
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Authority for the purpose of obtaining recognition of a bargaining
representative with respect to such employees; (C) there is no labor strike,
slow down or work stoppage pending, or to the Knowledge of the Company,
threatened against the Company or its Subsidiaries and there are no pending or
threatened claims, disputes, controversies, grievances or proceedings relating
to any prospective, current or former employee or group of such employees of the
Company or its Subsidiaries alleging a material breach or material violation of
an employment-related Legal Requirement; (D) the Company and its Subsidiaries
are in material compliance with applicable employment-related Legal
Requirements; and (E) to the Knowledge of the Company, no organizing activity
has been undertaken or is threatened with respect to any employees of the
Company or its Subsidiaries;
(viii) To the Knowledge of the Company all
individuals who are performing or have performed consulting or other services
for the Company or any of its Subsidiaries, whether as consultants, independent
contractors, agents or otherwise, are or were correctly classified by the
Company as either "independent contractors" or "employees" as the case may be,
and, at the Effective Date, will qualify for such classification. There are no
pending, or to the Knowledge of the Company, threatened material claims,
disputes, controversies, grievances or proceedings against the Company or any of
its Subsidiaries relating to any such individual.
(n) Takeover Laws. The Company Board has validly approved
this Agreement, and the transactions contemplated hereby (including the Merger)
for purposes of Section 203 of the DGCL. Except for Section 203 of the DGCL
(which has been rendered inapplicable), no "moratorium," "control share," "fair
price" or other anti-takeover laws and regulations of any state (collectively,
"Takeover Laws") are applicable to the Merger or the other transactions
contemplated by this Agreement.
(o) Environmental Matters.
(i) As used in this Agreement, "Environmental
Laws" means all applicable local, state, provincial, federal and foreign
environmental, health and safety laws (including common law) and regulations in
effect on the date of this Agreement, relating to the protection of human health
and safety as affected by exposure to pollutants, contaminants, or hazardous or
toxic wastes, substances or materials or the protection of the environment
including, without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Clean Air Act, Toxic Substances Control Act, and the Occupational
Safety and Health Act, each as amended, regulations promulgated thereunder, and
state counterparts.
(ii) (x) Currently and during the last five
years, neither the conduct or operations of the Company or any of its
Subsidiaries, nor any condition of any property presently or previously owned,
leased or operated by any of them, materially violates or violated any
Environmental Laws and (y) no condition exists or has existed, and no event has
occurred, with respect to any of them or any such property that is reasonably
likely to result in any material
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liability under any Environmental Laws on the part of the Company, Newco or
Transition. Neither the Company nor any of its Subsidiaries has received any
notice, or has any reason to believe that it will receive a notice, from any
Governmental Authority or third party alleging that the Company or any of its
Subsidiaries, or the operation or condition of any property ever owned, leased,
operated, held as collateral or held as a fiduciary by any of them, are or were
in material violation of or otherwise are alleged to have material liability
under any Environmental Laws, including, but not limited to, responsibility (or
potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, radioactive materials or hazardous or toxic wastes,
substances or materials (collectively, "Hazardous Materials") at, on, beneath,
or originating from any such property, or at any off-site location where the
Company or any of its Subsidiaries disposed or arranged (by contract, agreement
or otherwise) for the disposal of such Hazardous Materials.
(iii) None of the property currently owned, leased
or operated by the Company or by its Subsidiaries is subject to, or as a result
of the Transactions would be subject to, (i) the New Jersey Industrial Site
Recovery Act or any other state or local Environmental Laws which would impose
restrictions on the Transactions, such as notice, disclosure or advance approval
requirements, or (ii) any material Liens under any Environmental Laws.
(p) Intellectual Property.
(i) Except as set forth in Section 6.01(p)(i) of
the Company Disclosure Schedule, the Company and its Subsidiaries own or are
licensed to use all material Intellectual Property Rights currently used in the
business or products of the Company or its Subsidiaries or necessary to conduct
the business of (or manufacture or sell the products of) the Company and its
Subsidiaries as currently conducted or currently anticipated to be conducted
(the "Company Intellectual Property Rights"). Each material item of Company
Intellectual Property Rights will be owned or available for use by Company and
Subsidiaries immediately following the Merger on substantially identical terms
and conditions as it was immediately prior to the Merger.
(ii) The Company and its Subsidiaries have good
and valid title to all material Company Intellectual Property Rights owned by
any of them and valid and enforceable license rights to all Company Intellectual
Property Rights used under license, free and clear, of all Liens, and other than
as set forth in Section 6.01(p)(ii) of the Company Disclosure Schedule. All
material Company Intellectual Property Rights are in full force and effect and
will remain in full force and effect immediately following the Effective Time.
(iii) The Company and its Subsidiaries have a
practice to secure, and have secured, from all consultants and contractors who
contribute or have contributed to the creation or development of Company
Intellectual Property Rights valid written assignments by such persons to the
Company and its Subsidiaries of the rights to such contributions the Company and
its Subsidiaries do not already own by operation of law. The Company and its
Subsidiaries have taken reasonable and appropriate steps to protect and preserve
the confidentiality of all of their Trade Secrets and to protect the proprietary
nature of each other
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item of Company Intellectual Property Rights. Except as set forth in Section
6.01(p)(iii) of the Company Disclosure Schedule, there are no, and the Company
has no claims for, unauthorized uses, disclosures or infringements of any
material Company Intellectual Property Rights, and disclosures to any Person of
Trade Secrets that comprise any part of the Company Intellectual Property Rights
has been pursuant to the terms of a written agreement with such Person, and all
use by the Company and its Subsidiaries of Trade Secrets owned by another Person
has been pursuant to the terms of a written agreement with such Person or is
otherwise lawful. Except as set forth in Section 6.01(p)(iii) of the Company
Disclosure Schedule, to the Company's Knowledge, all uses by other Persons of
Company Intellectual Property Rights have been pursuant to the terms of a
written Contract. Except as set forth in Section 6.01(p)(iii) of the Company
Disclosure Schedule, neither the Company Intellectual Property Rights nor the
use or other exploitation thereof by the Company or its Subsidiaries (or any
consultant, contractor or employee of the Company and its Subsidiaries who
contributes to or has contributed to or participated in the creation or
development of material Company Intellectual Property Rights) in the conduct of
their business as is currently conducted or proposed to be conducted, nor any
product or service of the Company or its Subsidiaries, infringes on,
misappropriates, breaches or violates any third party Intellectual Property
Rights.
(iv) Except as set forth in Section 6.01(p)(iv)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries: (A) has been notified or is otherwise aware of any actual or
threatened adverse proceeding of any Person pertaining to any challenge to the
scope, validity or enforceability of, or the Company's ownership of, any of the
material Company Intellectual Property Rights or (B) is the subject of any claim
of infringement or misappropriation by the Company or any of its Subsidiaries of
any third party Intellectual Property Rights.
(q) Tax Matters.
(i) (A) All returns, declarations, reports,
estimates, information returns and statements required to be filed on or before
the Effective Date under federal, state, local or any foreign tax laws ("Tax
Returns") with respect to it or any of its Subsidiaries, have been or will be
timely filed, or requests for extensions have been timely filed and have not
expired, except where a failure or failures to so file would not, individually
or in the aggregate, be expected to be material; (B) all material Tax Returns
filed by the Company are complete and accurate in all material respects; (C) all
Taxes due and payable (without regard to whether such Taxes have been assessed)
have been paid or adequate reserves have been established for the payment of
such Taxes unless a failure to do so involved less than $5,000,000 and all such
failures did not exceed $5,000,000 in the aggregate; (D) the proper and accurate
amounts have been withheld from all employees (and timely paid to the
appropriate Governmental Authority or set aside in an account for such purposes)
for all periods through the Effective Date in compliance in all material
respects with all Tax withholding provisions of applicable federal, state, local
and foreign laws (including, without limitation, income, social security, and
employment tax withholding for all types of compensation); (E) neither the
Company nor any of its Subsidiaries is a party to any tax sharing or similar
agreement or any agreement pursuant to
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which it or any of its Subsidiaries has an obligation to indemnify any party
(other than it or one of its Subsidiaries) with respect to Taxes; (F) all Taxes
due with respect to completed and settled examinations or concluded litigation
relating to the Company or any of its Subsidiaries have been paid in full or
adequate reserves have been established for the payment thereof; and (G) no
audit or examination or refund litigation with respect to any Tax Return is
pending or threatened.
(ii) The Company, Newco and Transition have no
reason to believe that any conditions exist that might prevent or impede the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code and as an exchange under Section 351 of the Code or the
Contribution, taken together with the Merger, from being treated as an exchange
under Section 351 of the Code.
(iii) Neither the Company nor any Subsidiary has
any actual or potential liability for any Taxes of any person (other than the
Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
similar provision of federal, state, local, or foreign law), or as a transferee
or successor, by contract, or otherwise.
(iv) Except as set forth in Section 6.02(q)(iv)
of the Company Disclosure Schedule, neither the Company nor any Subsidiary is or
has ever been a member of a group of corporations with which it has filed (or
been required to file) consolidated, combined or unitary Tax Returns, other than
a group of which only the Company and the Subsidiaries are or were members.
(v) Neither the Company nor any Subsidiary has
undergone a change in its method of accounting resulting in a material
adjustment to its taxable income pursuant to Section 481(a) of the Code.
(vi) Except with regard to the Merger and other
transactions contemplated by this Agreement, neither Newco nor the Company
currently has any plan or intention to liquidate, merge with another entity
(including each other) or otherwise cease to exist, to transfer any of the
assets thereof other than in the ordinary course of business, to transfer any
interest in the Existing Venture or cause the Existing Venture to liquidate,
merge with another entity or otherwise cease to exist, or to transfer any of the
assets thereof other than in the ordinary course of business. As of the date of
consummation of the transactions contemplated by this Agreement, Newco and the
Company have no plan or intention to engage in a transaction that (i) would be
an Integrated Transaction (as defined in Section 7.14 hereof) and (ii) would
cause Nortel Networks LLC and the stockholders of the Company immediately before
the transactions contemplated by this Agreement and any Integrated Transferors
(as defined in Section 7.14 hereof) not to be in control (within the meaning of
Section 368(c) of the Code) of Newco immediately after the transactions
contemplated by this Agreement.
(r) Regulatory Approvals. No consents or approvals of, or
filings or registrations with, any Governmental Authority or instrumentality are
necessary to consummate the Merger except (i) as may be required under, and
other applicable requirements of, the Hart-Scott Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the
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Competition Act (Canada) and antitrust or other competition laws of other
jurisdictions; (ii) the filing with the SEC of the Company Proxy Statement and
the filing and declaration of effectiveness of the Registration Statement; (iii)
the filing of a certificate of merger with the Secretary of State of the State
of Delaware pursuant to the DGCL; (iv) such filings as are required to be made
or approvals as are required to be obtained under the securities or "Blue Sky"
laws of various states in connection with the issuance of shares of Newco Common
Shares Stock in the Transactions; and (v) as may be required under Section 721
of the U.S. Defense Production Act of 1950, as amended, and the rules
promulgated thereunder ("Exon-Florio") and the rules and regulations promulgated
by the U.S. Department of Defense.
(s) Fairness Opinion. The Company Financial Advisor has
delivered its opinion to the Company Board that the consideration payable by the
Company in respect of the Contribution is fair, from a financial point of view,
to the holders of Company Common Stock and such opinion has not been withdrawn.
(t) No Material Adverse Effect. Since June 30, 2000, and
until the date hereof, the Company, Newco and Transition have conducted their
respective businesses each in the ordinary course (excluding the incurrence of
reasonable and customary liabilities related to this Agreement and the
transactions contemplated hereby). Since June 30, 2000, and until the date
hereof, no event has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events (described in any
paragraph of Section 6.01 or otherwise), has had or is reasonably likely to have
a Material Adverse Effect with respect to the Company, Newco or Transition.
(u) Financing Commitment Letters. The financing
commitment letters attached as Exhibit A are true and correct, have not been
amended or rescinded as of the date hereof, and the Company has no reason to
believe that it would not be able to close on the financing referenced in such
commitment letters on the terms set forth therein.
6.02. Representations and Warranties of Nortel Networks and Nortel
Networks LLC. Except as set forth in the Nortel Networks Disclosure Schedule
(each section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein), Nortel Networks and
Nortel Networks LLC hereby represent and warrant to the Company as follows:
(a) Organization, Standing and Authority. Each of Nortel
Networks and Nortel Networks LLC (x) is a corporation or limited liability
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, and (y) is duly qualified to do business
and, as applicable, is in good standing in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or assets or
the conduct of its business requires it to be so qualified, except where the
failure to be duly organized, validly existing, in good standing, or duly
qualified does not have and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Nortel Networks
or Nortel Networks LLC. Each of Nortel Networks and Nortel Networks LLC
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has in effect all federal, provincial, state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now conducted, except where failure to have in
effect such authorizations does not have and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Nortel
Networks or Nortel Networks LLC.
(b) Corporate Power. Each of Nortel Networks and Nortel
Networks LLC has the corporate or limited liability company (as applicable)
power and authority to carry on its business as it is now being conducted and to
own all its properties and assets; and each of Nortel Networks and Nortel
Networks LLC has the corporate or limited liability company (as applicable)
power and authority to execute, deliver and perform its obligations under this
Agreement and each Ancillary Agreement to which it is a party and to consummate
the Transactions.
(c) Corporate Authority.
(i) This Agreement, the Ancillary Agreements and
the Transactions have been duly authorized and approved by all necessary
corporate action of Nortel Networks and Nortel Networks LLC and their respective
Board of Directors and Managing Member prior to the date hereof (which action
has not been rescinded or modified in any way). The execution and delivery of
this Agreement and the Ancillary Agreements by Nortel Networks and Nortel
Networks LLC and the consummation by Nortel Networks and Nortel Networks LLC of
the Transactions have been duly authorized by all requisite corporate or limited
liability company (as applicable) action on the parts of Nortel Networks and
Nortel Networks LLC. No other corporate proceedings on the parts of Nortel
Networks and Nortel Networks LLC are necessary to authorize this Agreement and
the Transactions.
(ii) Each of this Agreement and the Ancillary
Agreements is, or in the event that such Ancillary Agreement is to be entered
into at Closing, will be a legal, valid and binding agreement of each of Nortel
Networks and Nortel Networks LLC (to the extent that it is a party thereto),
enforceable in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles, whether considered
at law or in equity).
(d) No Defaults. Subject to receipt of the regulatory
approvals, and expiration of the waiting periods, referred to in Section
6.02(h), the execution, delivery and performance of this Agreement and the
Ancillary Agreements and the consummation of the Transactions by Nortel Networks
and Nortel Networks LLC (to the extent that they are a party thereto), do not
and will not (i) constitute a material breach or violation of, or a material
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of Nortel
Networks or Nortel Networks LLC or to which Nortel Networks or Nortel Networks
LLC or any of their respective properties or assets are subject or bound, (ii)
constitute a breach or violation of, or a default under, the articles or
certificate of
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incorporation or by-laws of Nortel Networks or certificate of formation or
operating agreement of Nortel Networks LLC, or (iii) require any consent or
approval under any such material law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument, except in
the case of (i) and (iii), where such breach, violation or default or the
failure to obtain such consents or approvals would not in the aggregate have a
Material Adverse Effect on Nortel Networks or Nortel Networks LLC and would not
prevent or materially impair Nortel Networks or Nortel Networks LLC's ability to
consummate the Transactions. Section 6.02(d) of the Nortel Networks Disclosure
Schedule contains a list of all consents of third parties required under any
material agreement to be obtained by Nortel Networks or Nortel Networks LLC
prior to, or as a result of, the consummation of the Transactions.
(e) Investment Intent. Nortel Networks LLC is acquiring
the Newco Shares for its own account and not with a view of their distribution
within the meaning of Section 2(11) of the Securities Act.
(f) Litigation. Except as previously disclosed, no
litigation, claim or other proceeding before any Governmental Authority
specifically intended to enjoin or otherwise adversely affect the Transactions
is pending or, to Nortel Networks or Nortel Networks LLC's Knowledge, threatened
against Nortel Networks or any of its Subsidiaries.
(g) No Brokers. No action has been taken by it that would
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding fees to be paid by Nortel Networks to
J. P. Morgan Securities Inc.
(h) Regulatory Approvals. Provided that either (A) the
Company and its Subsidiaries have no assets in Canada, or (B) the Company and
its Subsidiaries have (x) assets in Canada of less than 35 million Canadian
Dollars, and (y) Canada-based revenues of less than 35 million Canadian Dollars,
no consents or approvals of, or filings or registrations with, any Governmental
Authority or with any third party are necessary for Nortel Networks and Nortel
Networks LLC to consummate the Merger except for (i) as may be required under,
and other applicable requirements of, the HSR Act, the Competition Act (Canada),
and antitrust or other competition laws of other individual countries in Europe;
(ii) the filing with the SEC of the Company Proxy Statement in definitive form
and the filing and declaration of effectiveness of the Registration Statement;
(iii) the filing of a certificate of merger with the Secretary of State of the
State of Delaware pursuant to the DGCL; (iv) such filings as are required to be
made or approvals as are required to be obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of Newco Common
Shares in the Transactions; and (v) as may be required under Exon-Florio and the
rules and regulations promulgated by the U.S. Department of Defense; and (iv)
such filings and actions as may be required under the New Jersey Industrial Site
Recover Act and its implementing regulations.
(i) Title to Existing Venture Interest. Nortel Networks
LLC has good and valid title to its Interest (as such term is defined in the
Existing Venture Operating Agreement), free and clear of all liens.
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(j) Existing Venture Employee Benefits; Employee
Relations.
(i) As of the date hereof, the employees of
Existing Venture are set forth in Section 6.02(j)(i) of the Nortel Networks
Disclosure Schedule (at the request of the Company, Nortel Networks will update
Section 6.02(j)(i) of the Nortel Networks Disclosure Schedule from time to time
beginning with the date hereof through the Closing).
(ii) Section 6.02(j)(ii) of the Nortel Networks
Disclosure Schedule contains a complete and correct list of each Existing
Venture Plan. Except as set forth in Section 6.02(j)(ii) of the Nortel Networks
Disclosure Schedule, with respect to each Existing Venture Plan, true and
complete copies have been provided to the Company of the Plan document or
agreement, including any amendments thereto, or, with respect to any Existing
Venture Plan that is not in writing, a description thereof and, to the extent
applicable, the three (3) most recent required Internal Revenue Service Form
5500, including all schedules thereto, the most recent qualification
determination and any communications to or from any Governmental Authority,
including a written description of any oral communication.
(iii) Each Existing Venture Plan has been operated
and administered, and is, in compliance with its terms and all applicable Legal
Requirements (including ERISA and the Code and any regulations thereunder).
There are no actions, suits, claims or governmental audits (other than routine
claims for benefits in the ordinary course) pending or, to the Knowledge of
Nortel Networks and Nortel Networks LLC, threatened with respect to any Existing
Venture Plan.
(iv) Except as set forth in Section 6.02(j)(iv)
of the Nortel Networks Disclosure Schedule, no Existing Venture Plan is, and
Existing Venture does not contribute to or have any liability or obligation with
respect to any Plan that is, (A) a multi-employer plan within the meaning of
Section 4001(a)(3) of ERISA, (B) any single employer plan or other pension plan
subject to Title IV or Section 302 of ERISA or Section 412 of the Code or (C) a
multiple employer plan within the meaning of Section 4063 or 4064 of ERISA.
Except as set forth in Section 6.02(j)(iv) of the Nortel Networks Disclosure
Schedule, Existing Venture neither is nor has been a party to any collective
bargaining or other collective labor agreement or understanding.
(v) Each Existing Venture Plan that is intended
to qualify under Section 401(a) and/or 401(k) of the Code so qualifies and its
trust is exempt from taxation under Section 501(a) of the Code. Existing Venture
has timely paid all material contributions, premiums and expenses payable to or
in respect of each Existing Venture Plan under the terms thereof and in
accordance with applicable Legal Requirements, including ERISA and the Code,
and, to the extent any such contributions, premiums or expenses are not yet due,
the liability therefor has been properly and adequately accrued on Existing
Venture's financial statements, as may be required under U.S. GAAP.
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(vi) Existing Venture has not incurred either
directly or indirectly (including as a result of an indemnification obligation),
any liability (other than for benefits accrued under any Existing Venture Plan),
under or pursuant to any provision of Title I or IV of ERISA or the penalty,
excise tax or joint and several liability provisions of the Code relating to
employee benefit plans with respect to any Existing Venture Plan, and no event,
transaction or condition has occurred, exists or is expected to occur which
could reasonably be expected to result in any such liability to Existing Venture
or any of its affiliates under any Existing Venture Plan.
(vii) To the Knowledge of Nortel Networks and
Nortel Networks LLC, all individuals who are performing or have performed
consulting or other services for Existing Venture, whether as consultants,
independent contractors, agents or otherwise, are or were correctly classified
by Existing Venture as either "independent contractors" or "employees" as the
case may be, and, at the Effective Date, will qualify for such classification.
Except as set forth in Section 6.02(j)(vii) of the Nortel Networks Disclosure
Schedule, there are no pending or, to the knowledge of Nortel Networks and
Nortel Networks LLC, threatened material claims, disputes, controversies,
grievances or proceedings against the Existing Venture relating to any such
individual.
6.03 Representations and Warranties of Existing Venture. Except as
set forth in the Existing Venture Disclosure Schedule (each section of which
qualifies the correspondingly numbered representation and warranty or covenant
to the extent specified therein), Existing Venture hereby represents and
warrants to the Company as follows:
(a) Existing Venture Financial Reports. Existing Venture
has provided the Company with the following financial statements: (i) audited
consolidated balance sheets and statements of income, changes in members' equity
and cash flow as of and for the fiscal years ended December 31, 1997, 1998 and
1999 for Existing Venture, including the report thereon of Deloitte & Touche
LLP, independent certified public accountants (the "Existing Venture Audited
Financial Statements"), and (ii) unaudited consolidated balance sheets and
statements of income, changes in members' equity and cash flow (the "Most Recent
Existing Venture Financial Statements") as of and for the period ended September
30, 2000 for Existing Venture. The Existing Venture Audited Financial Statements
(including the notes thereto) have been prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the period covered thereby, present
fairly the financial condition of Existing Venture as of such dates and the
results of operations of Existing Venture for such periods, are correct and
complete in all material respects, and are consistent with the books and records
of Existing Venture. Except where failure to do so does not have, and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Existing Venture, the Most Recent Financial Statements
were prepared in a manner consistent with the way in which the Existing Venture
Audited Financial Statements were prepared, are consistent with the Existing
Venture's corporate books and records, present fairly the financial condition of
the Existing Venture as of such date and the results of operations of the
Existing Venture for such period, and are correct and complete in all material
respects (in each case subject to normal year-end adjustments and lack footnotes
and other presentation items).
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(b) Existing Venture Compliance with Laws. Existing
Venture, to the Knowledge of Existing Venture:
(i) is in compliance with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such businesses, except where failure to so comply does not have, and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Existing Venture;
(ii) has all permits, licenses, authorizations,
orders and approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities that are required in order to
permit it to conduct its business substantially as presently conducted, and all
such permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to its Knowledge, no suspension or cancellation of
any of them is threatened, except for (x) failures to hold such permits,
licenses, authorizations, orders and approvals and (y) failures to make such
filings, applications, and registrations, which do not have, and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Existing Venture; and
(iii) has received since December 31, 1999, no
written notification or communication from any Governmental Authority (A)
asserting that Existing Venture is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit or governmental
authorization, in either event as would have, or would reasonably be expected to
have a Material Adverse Effect on Existing Venture.
ARTICLE VII
COVENANTS
Each of the Company, Transition and Newco hereby covenants to and
agrees with Nortel Networks, and each of Nortel Networks and Nortel Networks LLC
hereby covenants to and agrees with the Company, that:
7.01. Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, it shall use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or desirable (including obtaining any consents of third
parties required under any agreement to be obtained by it or its subsidiaries
prior to, or as a result of, the consummation of the Transactions so that such
agreement is not terminable as a result of the Transactions), or advisable under
applicable laws, so as to permit consummation of the Transactions as promptly as
practicable and otherwise to enable consummation of the Transactions and shall
cooperate fully with the other party hereto to that end. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purpose of this Agreement, to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and franchises of
any of the parties to the Merger, which parties consist, for the avoidance of
doubt, of Transition, Newco and the
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Company (as such rights may be affected by this Agreement and the Ancillary
Agreements), or to vest Newco with full title to Nortel Networks LLC's interest
in the Existing Venture (as such interest may be affected by this Agreement and
the Ancillary Agreements), the proper officers and directors of each party to
this Agreement and their respective Subsidiaries shall take all such necessary
action, at the sole expense of Newco, as may be reasonably requested by Newco.
7.02. Stockholder Approvals. The Company shall take, in accordance
with this Agreement, applicable law, applicable NASD rules and its certificate
of incorporation and by-laws, all action necessary to convene an appropriate
meeting of stockholders of the Company to consider and vote upon the approval
and adoption of the "agreement of merger" (as such term is used in Section 251
of the DGCL) contained in this Agreement and the Transactions and any other
matters required to be approved by the Company's stockholders for consummation
of the Merger and the Contribution (including any adjournment or postponement,
(the "Company Meeting") as promptly as practicable within the time periods
therefor required by the certificate of incorporation and the by-laws of the
Company and applicable Legal Requirements. The Company Board, shall at all times
recommend such approval and shall take all reasonable lawful action to solicit
such approval by its stockholders.
7.03. Registration Statement.
(a) Each of Nortel Networks, Newco, Transition, Nortel
Networks LLC, the Existing Venture and the Company agrees to cooperate in the
preparation of a registration statement on Form S-4 (the "Registration
Statement") to be filed by Newco with the SEC in connection with the issuance of
Newco Common Shares in the Merger (including the proxy statement and prospectus
and other proxy solicitation materials of the Company constituting a part
thereof (the "Company Proxy Statement") and all related documents), including
(to the extent the information to be used in preparation of the same can be
obtained without unreasonable effort, it being agreed that having audits of
LANcity financial statements performed for periods prior to March 31, 1999, does
not constitute unreasonable effort provided that the underlying financial data
is available to Nortel Networks) through the provision of any necessary audited
financial statements with respect to the assets contributed to the Existing
Venture pursuant to the Asset Sale and Contribution Agreement between Nortel
Networks LLC and the Existing Venture dated as of March 31, 1999. The
Registration Statement and the Company Proxy Statement shall comply as to form
in all material respects with the applicable provisions of the Securities Act
and the Exchange Act and the rules and regulations thereunder. Provided the
other party has cooperated as required above, the Company agrees to file the
Company Proxy Statement in preliminary form with the SEC as promptly as
practicable, and Newco agrees to file the Registration Statement with the SEC as
promptly as practicable after any SEC comments with respect to the preliminary
Company Proxy Statement are resolved or at such earlier time as Newco may elect.
Each of Nortel Networks, Newco, Transition, Nortel Networks LLC and the Company
shall, as promptly as practicable after receipt thereof, provide copies of any
written comments received from the SEC with respect to the Registration
Statement and the Company Proxy Statement, as the case may be, to the other
party, and advise the other party of any oral comments with respect to the
Registration Statement or the Company Proxy Statement received
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from the SEC. Each of Nortel Networks, Newco, Transition, Nortel Networks LLC
and the Company agrees to use reasonable best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after filing thereof, and the Company agrees to mail the Company
Proxy Statement to its shareholders as promptly as practicable after the
Registration Statement is declared effective. Newco also agrees to use
reasonable efforts to obtain all necessary state securities law or "Blue Sky"
permits and approvals required to carry out the transactions contemplated by
this Agreement. The Company agrees to furnish to Newco all information
concerning the Company, its Subsidiaries, officers, directors and stockholders
as may be reasonably requested in connection with the foregoing.
(b) Each of Nortel Networks, the Existing Venture and the
Company agrees, as to itself and its Subsidiaries, that none of the information
supplied or to be supplied by it for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement and
each amendment or supplement thereto, if any, becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Company Proxy Statement and any
amendment or supplement thereto will, at the date of mailing to stockholders and
at the time of the Company Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(c) Newco agrees to advise Nortel Networks, promptly
after Newco receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the shares
of Newco Common Stock for offering or sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose, or of any request
by the SEC for the amendment or supplement of the Registration Statement or for
additional information.
(d) Nortel Networks shall be entitled to participate in
all oral, and to provide prior comments on and receive copies of all written
communications with the SEC with regard to inclusion (or lack thereof) in the
Registration Statement and/or the Company Proxy Statement of audited financial
statements of the Existing Venture for periods prior to March 31, 1999 covering
the assets and business contributed to the Existing Venture by Nortel Networks
LLC pursuant to the Asset Sale and Contribution Agreement between them, dated as
of March 31, 1999. To the extent that Nortel Networks so elects, Nortel
Networks' counsel shall have the right to direct the SEC communications process
with respect to the matters described in the preceding sentence and, to the
extent that Nortel Networks' counsel elects to exercise such right, the Company
and its counsel shall cooperate therewith.
7.04. Press Releases. Nortel Networks and the Company shall jointly
agree on an initial press release with respect to the Transactions. The Company
will not, without the prior approval of Nortel Networks, issue any other press
release or written statement for general circulation (including any written
statement circulated to employees, customers or other third parties) relating to
the Transactions contemplated hereby, except, based on the advice of counsel,
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as otherwise required by applicable law or regulation or NASD rules and only
after consulting, or using its reasonable best efforts to consult, with Nortel
Networks.
7.05. Access; Information.
(a) Upon reasonable notice and subject to applicable
laws relating to the exchange of information, the Company and its Subsidiaries
shall afford to the officers, employees, counsel, accountants and other
authorized representatives of Nortel Networks, reasonable access, during normal
business hours throughout the period prior to the Effective Date, to all of its
properties, books, contracts, commitments and records and, during such period;
it shall furnish promptly to Nortel Networks (i) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of federal
or state securities laws, and (ii) all other information concerning the
business, properties and personnel of it as Nortel Networks may reasonably
request; provided that such information may not be used for any purpose
unrelated to the consummation of the Transactions. The Company shall promptly
inform Nortel Networks of any material litigation, claim or other proceeding
before any court or other governmental authority that arises following the date
of this Agreement and any material development in any such existing material
litigation, claim or other proceeding. The Company and its Subsidiaries shall
not be required to provide access to or to disclose information where such
access or disclosure would contravene any law, rule, regulation, order,
judgment, decree or agreement. Nortel Networks and the Company shall make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, the Existing Venture shall afford to
the officers, employees, counsel, accountants and other authorized
representatives of the Company and Nortel Networks, reasonable access, during
normal business hours throughout the period prior to the Effective Date, to all
of its properties, books, contracts, commitments and records and, during such
period; it shall furnish promptly to the Company and Nortel Networks (i) a copy
of each material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities laws, if any, and (ii) all other
information concerning the business, properties and personnel of it as the
Company may reasonably request; provided that such information may not be used
for any purpose unrelated to the consummation of the Transactions contemplated
by this Agreement. The Existing Venture shall promptly inform the Company and
Nortel Networks of any material litigation, claim or other proceeding before any
court or other governmental authority that arises following the date of this
Agreement and any material development in any such existing material litigation,
claim or other proceeding. The Existing Venture shall not be required to provide
access to or to disclose information where such access or disclosure would
contravene any law, rule, regulation, order, judgment, decree or agreement. The
Existing Venture, the Company and Nortel Networks shall make appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply.
(c) Subject to the requirements of applicable law, all
non-public information provided by the Company to Nortel Networks and Nortel
Networks to the Company and the
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Existing Venture pursuant to this Agreement or otherwise will remain subject to
the obligations of Nortel Networks and the Company under the Confidentiality
Agreement.
(d) No investigation by a party, pursuant to this Section
7.05 or otherwise, shall affect or be deemed to modify any representation or
warranty of the other party contained herein.
7.06. Affiliate Agreements. The Company shall use its reasonable
best efforts to cause each person who may be deemed to be an "affiliate" of it
(each, a "Company Affiliate") as that term is used in Rule 145 under the
Securities Act, to execute and deliver to Newco on or before the date of mailing
of the Company Proxy Statement (or, in the case of any person identified as a
possible Company Affiliate after such date, as promptly thereafter as possible)
an agreement in the form attached hereto as Exhibit B.
7.07. Takeover Laws. No party shall take any action that would cause
the Transactions contemplated by this Agreement to be subject to requirements
imposed by any Takeover Laws and each of them shall take all necessary steps
within its control to exempt (or ensure the continued exemption of), or minimize
the effect on, the Transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any applicable Takeover
Laws, as now or hereafter in effect, including, without limitation, Section 203
of the DGCL or any other Takeover Laws that purport to apply to this Agreement
or the Transactions contemplated hereby.
7.08. Shares Listed. Newco shall use its reasonable best efforts to
list, prior to the Effective Date, on the Nasdaq, subject to official notice of
issuance, the Newco Shares and shares of Newco Common Stock to be issued to the
holders of Company Common Stock in the Merger and upon exercise of Company Stock
Options to be assumed by Newco by reason of the Merger.
7.09. Regulatory Applications.
(a) Nortel Networks and the Company and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts
(i) to prepare all documentation, to effect all filings (including, without
limitation, filings under the HSR Act and applicable antitrust or other
competition laws of other jurisdictions) and to obtain all permits, consents,
approvals and authorizations of all third parties (at the sole expense of the
Company and Newco with respect to non-governmental filings) and Governmental
Authorities necessary to consummate the Transactions contemplated by this
Agreement and (ii) to cause the Merger and the Contribution to be consummated as
expeditiously as reasonably practicable, including, without limitation, seeking
an early termination of the HSR Act waiting period; provided, however, that,
notwithstanding anything to the contrary in this Agreement, a failure by Nortel
Networks or any of its Subsidiaries to disclose, in response to any "second
request" under the HSR Act, any information which Nortel Networks deems, in good
faith due to the confidential and material nature of such information, to be
inappropriate for such disclosure shall not constitute, or be
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deemed to constitute, a breach of this Section 7.09(a) if the relevant
Governmental Authority does not agree, prior to any such disclosure, to accord
confidential treatment to such information. Each of Nortel Networks and the
Company shall have the right to review in advance, and to the extent practicable
each will consult with the other, in each case subject to applicable laws
relating to the exchange of information, with respect to, all material written
information submitted to any third party or any Governmental Authority in
connection with the Transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto agrees to act reasonably and as
promptly as practicable. Each party hereto agrees that it will consult with the
other party hereto with respect to the obtaining of all material permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary or advisable to consummate the Transactions contemplated
by this Agreement and each party will keep the other party apprised of the
status of material matters relating to completion of the Transactions
contemplated hereby.
(b) Each party agrees, upon request, to furnish the other
party with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Authority; provided, however that nothing in this Section 7.09(b)
shall require the release by Nortel Networks or Nortel Networks LLC of internal
or otherwise confidential information.
(c) In furtherance and not in limitation of the covenants
of the parties contained in Sections 7.09(a) and (b), if any objections are
asserted with respect to the Transactions contemplated by this Agreement under
any Regulatory Law or if any suit is instituted or threatened by any
Governmental Authority or any private party challenging any of the Transactions
contemplated by this Agreement as violative of any Regulatory Law, each of
Nortel Networks and the Company shall use its reasonable efforts to resolve any
such objections or challenge as such Governmental Authority or private party may
have to such Transactions under such Regulatory Law so as to permit consummation
of the Transactions contemplated by this Agreement, and if any administrative or
judicial action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, each of
Nortel Networks and the Company shall cooperate in all respects with each other
and use its respective reasonable efforts to contest and resist any such action
or proceeding and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and prohibits, prevents or restricts consummation
of the Transactions contemplated by this Agreement. Notwithstanding the
foregoing or any other provision of this Agreement, nothing in this Section 7.09
shall limit a party's rights under Sections 8.01(b) and 9.01(d) so long as such
party has theretofore complied in all respects with its obligations under this
Section 7.09.
(d) Nothing contained in this Section 7.09 shall require
the Company or Newco or any of their respective Subsidiaries to sell or
otherwise dispose of, or to hold separately, or permit the sale or other
disposition of, any assets of Newco, the Company or their
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respective Subsidiaries, or require Newco to refrain from exercising full
authority over the Company and its Subsidiaries after the Effective Time,
whether as a condition to obtaining any approval from a Governmental Authority
or any other Person or for any other reason.
7.10. Indemnification.
(a) Following the Effective Date and until the expiration
of any applicable statutory limitations period, Newco shall indemnify, defend
and hold harmless the present and former directors and officers of the Company
and its Subsidiaries (including the Existing Venture) (each, an "Indemnified
Party") against all costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the Transactions contemplated by this Agreement)
to the fullest extent that the Company is permitted to indemnify its directors
and officers under the laws of the State of Delaware, the Company Certificate
and the Company's by-laws as in effect on the date hereof (and Newco shall also
advance expenses as incurred to the fullest extent permitted under applicable
law).
(b) Any Indemnified Party wishing to claim
indemnification under Section 7.10(a), upon learning of any claim, action, suit,
proceeding or investigation described above, shall promptly notify Newco
thereof; provided, that the failure so to notify shall not affect the
obligations of Newco under Section 7.10(a) unless and to the extent such failure
materially increases Newco's liability under such subsection (a).
(c) If Newco or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provision shall be made so that the successors and assigns of Newco shall assume
the obligations set forth in this Section 7.10.
7.11. Certain Employee Benefit Matters.
To the extent applicable, Newco and the Company shall each
take such reasonable steps as are required to cause the disposition and
acquisition of equity securities (including derivative securities) pursuant to
Article III of this Agreement in connection with the consummation of the Merger
by each individual who is an officer or director of the Company to qualify for
exemption from Section 16(b) of the Exchange Act pursuant to Rule 16b-3(e)
promulgated under the Exchange Act.
7.12. Accountants' Letters. The Company shall use its reasonable
best efforts to cause to be delivered to Nortel Networks a letter of Ernst &
Young L.L.P., independent auditors ("E&Y"), and Nortel Networks shall use its
reasonable best efforts to cause to be delivered to the Company a letter of
Deloitte & Touche LLP, independent auditors ("Deloitte"), each dated a date
within two Business Days of the date on which the Registration Statement shall
become effective
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and addressed to such other party, and in form and substance customary for
"comfort" letters delivered by independent accountants in accordance with
Statement of Accounting Standards No. 72.
7.13. Notification of Certain Matters.
(a) Each of the Company and Nortel Networks shall give
prompt notice to the other of any fact, event or circumstance known to it that
would cause or constitute a material breach of any of its representations,
warranties, covenants or agreements contained herein. Without limiting the
generality of the foregoing, the Company shall keep Nortel Networks apprised of
the status of all discussions with the lenders with respect to the Contemplated
Financing (or any addition, deletion, amendment, modification, extension or
termination of the same or of any material term thereof), and shall provide
Nortel Networks with (i) a written status report relating to such discussions
not less frequently than every two weeks, and (ii) in any event, immediate
written notice of any fact, circumstance or development which may affect the
ability of the Company, Newco and the Existing Venture to consummate the
Contemplated Financing in accordance with its terms.
(b) Nortel Networks shall promptly notify the Company,
and the Company shall promptly notify Nortel Networks, in writing, of any notice
or other communication from any regulatory authority or self-regulatory
organization in connection with the Transactions contemplated by this Agreement.
(c) Each of Nortel Networks and the Company shall
promptly notify the other of any fact, event or circumstance known to it that
could reasonably be expected to, individually or taken together with all other
facts, events and circumstances known to it, cause the Merger to fail to qualify
as a "reorganization" within the meaning of Section 368(a) of the Code or the
Contribution to constitute an exchange under Section 351 of the Code.
7.14. Certain Tax Matters.
(a) Each of Nortel Networks, Nortel Networks LLC, Newco
and the Company will use its reasonable best efforts to cause (i) the Merger to
constitute a reorganization within the meaning of Section 368(a) of the Code and
to constitute an exchange under Section 351 of the Code (including without
limitation by refraining from taking any action inconsistent with such treatment
of the Contribution and the Merger after the Closing), (ii) the Contribution to
constitute an exchange under Section 351 of the Code (including without
limitation by refraining from taking any action inconsistent with such treatment
of the Contribution and the Merger after the Closing), and (iii) to timely
satisfy, or cause to be timely satisfied, all applicable tax reporting and
filing requirements contained in the Code and with respect to the Merger and the
Contribution. For the avoidance of doubt, the provisions of this Section 7.14
shall survive Closing.
(b) Prior to or after the Effective Time, the Company
will not engage in a
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transaction that, by itself or in combination with other transactions engaged in
by the Company, (i) would be integrated with the transactions contemplated by
this Agreement for U.S. federal income tax purposes (an "Integrated
Transaction") and (ii) would cause Nortel Networks LLC and the stockholders of
the Company immediately before the transactions contemplated by this Agreement
and any Integrated Transferors (as defined below) not to be in control (within
the meaning of Section 368(c) of the Code) of Newco immediately after the
transactions contemplated by this Agreement. For purposes of this Agreement, an
"Integrated Transferor" includes any Person who receives shares of Newco in an
Integrated Transaction and would be treated as a transferor of property to Newco
in such transaction for purposes of Section 351 of the Code.
7.15. Supplemental Indenture. Newco shall enter into a Supplemental
Indenture to the Indenture (the "Indenture") dated as of May 8, 1998, between
the Company and The Bank of New York, required by Article V thereof as a result
of the Merger. Newco shall take appropriate steps to ensure that shares of Newco
Common Stock shall be issued, in accordance with the terms of such Indenture,
upon the conversion after the Effective Time of Notes issued under the
Indenture.
7.16. Voting of Shares. The Company shall use reasonable efforts to
obtain, prior to the effectiveness of the Registration Statement, a commitment
from the Company's officers and directors, other than Mr. John Ian Craig, and
AT&T to vote their shares in favor of the Transactions.
7.17. Financing. Each of the Company and Newco shall use reasonable
best efforts to close on the financing (the "Contemplated Financing") referenced
in the commitment letters described in Section 6.01(u) above. Further, in the
event that the Company and Newco are not able to close on the financing
referenced in such commitment letters, each of the Company and Newco shall use
its respective reasonable best efforts, both prior to and after the Closing if
necessary, to close on a bank or other financing that would provide, on such
terms (including availability and duration) as the Company in good faith
believes are reasonable, working capital sufficient to fund their operations for
the period from the Closing Date and until December 31, 2002 in accordance with
the projections for such operations for such period which were provided by the
Company to Nortel Networks on March 12, 2001 (subject to adjustment of such
projections for changes in the business occurring between the date hereof and
the Closing Date which were not contemplated by such projections).
7.18 Restrictions on the Company's Business. The Company shall
provide Nortel Networks with written notice at least ten (10) days prior to the
Company's entering into any agreement or transaction that places a restriction
on the business of the Company (unless it is not able to give ten (10) days
prior notice in which event it will give as much notice as practicable) .
7.19 Existing Venture Employees. Company shall provide, at a
minimum, employment terms and conditions that are equal to, in all material
respects, those terms and conditions listed on Section 7.19 of the Company
Disclosure Schedule, and the attachments thereto, to Existing
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Venture employees. If the Company, using all reasonable best efforts, is unable
to provide any such term or condition of employment, Nortel Networks and Company
shall negotiate in good faith the replacement of such term or condition. Not
less than ten calendar days prior to the Effective Date, Company shall provide
evidence reasonably satisfactory to Nortel Networks that any term or condition
that is not in effect as of the date hereof shall be in effect as of the
Effective Time or, if later, such time provided in Section 7.19 of the Company
Disclosure Schedule.
7.20 No Solicitation or Employment by Nortel Networks. Unless
otherwise agreed by Company, during the twelve (12) month period immediately
following the Effective Date, Nortel Networks shall not solicit for employment
or hire any Existing Venture employees or former Existing Venture employees who
voluntarily terminate their employment with Existing Venture during such period;
provided, however, that nothing in this Section 7.20 shall prevent Nortel
Networks from (i) conducting generalized employment searches, by advertisements,
engaging firms to conduct searches, or by other means ("Employment Searches"),
that are not directed at such employees or former employees, or (ii) hiring any
such employees or former employees identified through such Employment Searches.
7.21 Remaining Ancillary Agreements. Each of the parties hereto
agrees to negotiate in good faith, prior to the Closing, the following
agreements and instruments:
(a) the Sales Representative/Distribution Agreement;
(b) the Transition Services Agreement;
(c) the Supply and Manufacturing Agreement;
(d) the Development Agreement;
(e) the exhibits and schedules to the Intellectual
Property Rights Agreement;
(f) the New Operating Agreement; and
(g) the Guaranty,
containing terms consistent with (i) with respect to the agreements listed in
clauses (a) through (d) above, the term sheet therefor attached hereto as
Exhibit I, as amended, as such terms may have been further developed and/or
modified by the parties in discussions occurring during the period from October
18, 2000 to and including April 9, 2001, (ii) with respect to the exhibits and
schedules listed in clause (e), the parties' discussions relating thereto during
the period from October 18, 2000 to and including April 9, 2001, and (iii) with
respect to the New Operating Agreement and the Guaranty, the other provisions of
this Agreement (including Exhibit H and Exhibit I-2).
In the event that the parties thereto have not agreed upon the terms of any of
the foregoing agreements listed in items (a) through (d) above by five days
before the Outside Closing Date, the parties to the such unresolved agreements
shall submit to binding arbitration with respect solely to the terms of the such
unresolved agreements in accordance with the following provisions:
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(i) The arbitration shall be conducted pursuant to the
rules of the American Arbitration Association ("AAA") before a single arbitrator
based upon written submissions and oral presentations but without any
depositions or other discovery. The arbitrator (A) shall be selected by AAA and
shall be experienced in commercial transactions and arrangements similar to
those comprising the subject matter of the arbitration, and (B) shall have no
authority to resolve, or to bind the parties with respect to, any matter or
issue not specifically submitted to him or her by the parties for arbitration
hereunder. The arbitration shall be conducted in New York, New York.
(ii) The arbitrator shall issue a written decision, which
decision shall be (A) no more favorable to the Existing Venture than the
Existing Venture's most generous written proposal prior to the commencement of
arbitration, and (B) no more favorable to each of the other parties than such
party's most generous written proposal prior to the arbitration.
(iii) The arbitrator's decision shall, to the greatest
extent practicable, be based on and incorporate the commercial practices
followed by the relevant parties, with respect to the subject matter being
considered by the arbitrator, prior to commencement of the arbitration.
(iv) Until the arbitrator's decision is rendered, the
parties shall continue conducting business consistent with their commercial
practices referenced in clause (iii) above.
7.22 Amendments. Newco shall amend the Newco certificate of
incorporation to contain terms identical to the Company's certificate of
incorporation as in effect on the date hereof except that there shall be
325,000,000 authorized shares of stock and except that Newco's name shall be
changed to "Arris Group, Inc."
7.23 Company Employee Savings Plan. The Company shall register its
Employee Savings Plan (the "Savings Plan") and interests thereunder with the SEC
on an appropriate registration statement under the Securities Act. The Company
shall take such steps as are reasonably necessary to close the Company Stock
Fund under the Savings Plan to any new investments until such registration
statement becomes effective and any required prospectus has been distributed to
all participants under the Savings Plan.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
8.01. Conditions to Each Party's Obligation to Effect the Merger and
the Contribution. The respective obligation of each of Nortel Networks, Nortel
Networks LLC, Newco, Transition and the Company to consummate the Merger and the
Contribution is subject to the fulfillment or written waiver by Nortel Networks,
Nortel Networks LLC, Newco, Transition and the Company prior to the Effective
Time of each of the following conditions:
(a) Stockholder Approvals. This "agreement of merger" (as
that term is used in Section 251 of the DGCL) and the Transactions (including,
without limitation, the
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Contribution) shall have been duly approved by the requisite vote of the
stockholders of the Company.
(b) Regulatory Approvals. All regulatory approvals
required to consummate the Transactions contemplated hereby shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired and no such approvals shall
contain any conditions, restrictions or requirements which would reasonably be
expected to (i) following the Effective Time, have a Material Adverse Effect on
Nortel Networks or on Newco and its Subsidiaries, taken as a whole, or (ii)
require the Company or Newco to take any action that it is not required to take
under Section 7.09(d) hereof.
(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and enjoins or prohibits
consummation of the Merger or the Contribution.
(d) Registration Statement. The Registration Statement
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and be in effect and no proceedings for that purpose shall have been
initiated or threatened by the SEC and not concluded or withdrawn.
(e) Listing. The shares of Newco Common Stock to be
issued in the Merger and as a part of the Contribution, upon exercise of Company
Stock Options to be assumed by Newco by reason of the Merger and upon conversion
of the Notes shall have received conditional approval for listing on the Nasdaq,
subject to official notice of issuance.
(f) Inventory. Certain matters relating to the return to
the Existing Venture of the inventory of Existing Venture products held by
Nortel Networks and its Affiliates as of the Closing, payment by the Existing
Venture for the same, and other matters relating to such inventory shall be
addressed and resolved by the parties as set forth in Schedule 8.01(f).
(g) New Operating Agreement and Guaranty. The Company and
Nortel Networks LLC shall have reached agreement on the form and substance of
the New Operating Agreement and the Guaranty.
8.02. Conditions to Obligation of the Company, Transition and Newco.
The obligation of the Company to consummate the Merger and the Contribution is
also subject to the fulfillment or written waiver by the Company prior to the
Effective Time of each of the following conditions:
(a) Representations and Warranties. All representations
and warranties of Nortel Networks, Nortel Networks LLC and the Existing Venture
set forth in this Agreement (without giving effect to any standard,
qualification or exception contained therein with respect to materiality or
Material Adverse Effect) shall be true and correct, as of the date of this
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Agreement and as of the Effective Date as though made on and as of the Effective
Date (except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as of
such date), except (i) as would not have or reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Nortel Networks,
Nortel Networks LLC or the Existing Venture, and the Company shall have received
a certificate, dated the Effective Date, signed on behalf of Nortel Networks by
an appropriate officer of Nortel Networks to such effect, or (ii) as may arise
or result from any action or omission contemplated by the proviso of Section
5.02(b)(i) and Schedule 5.02(b).
(b) Performance of Obligations. Nortel Networks and
Nortel Networks LLC shall have performed in all material respects (without
giving effect to any standard, qualification or exception contained therein with
respect to materiality or Material Adverse Effect) all obligations required to
be performed by them under this Agreement at or prior to the Effective Time, and
the Company shall have received a certificate, dated the Effective Date, signed
on behalf of Nortel Networks by an appropriate officer of Nortel Networks to
such effect.
(c) Opinion of the Company's Counsel. The Company shall
have received an opinion of Troutman Sanders LLP, counsel to the Company, dated
the Effective Date, to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, the Merger constitutes a
reorganization within the meaning of Section 368(a) of the Code, and taken
together with the Contribution will constitute an exchange under Section 351 of
the Code and, accordingly, without taking into consideration any aspects of the
Transactions other than those set forth in this Agreement (and not the Ancillary
Agreements), (i) no gain or loss will be recognized by the Company, Transition
or Newco as a result of the Merger and (ii) no gain or loss will be recognized
by a stockholder of the Company who receives Newco Shares in exchange for shares
of Company Common Stock, except with respect to cash received in lieu of
fractional share interests. In rendering its opinion, such counsel may require
and rely upon customary and reasonable representations contained in letters from
the Company, Transition, Nortel Networks, Nortel Networks LLC and Newco.
(d) No Action Seeking Injunction. No Governmental
Authority of competent jurisdiction shall have brought an action or proceeding
seeking to enjoin or prohibit consummation, or require the unwinding, of the
Merger, or to impose substantial penalties as a result of the Merger, which
action or proceeding is reasonably likely to succeed.
(e) Opinion of Nortel Networks' Secretary. The Company
shall have received an opinion of Nortel Networks' Secretary or Assistant
Secretary (which may, if Nortel Networks so elects, be based on an opinion of
another attorney, including an employee of Nortel Networks or one of its
Affiliates, reasonably satisfactory to the Company), dated the Effective Date,
in form and substance satisfactory to the Company and its counsel as to (i) with
respect to each of Nortel Networks and Nortel Networks LLC, (A) its valid
existence and good standing, and (B) its company and corporate power and
authority to execute, deliver and perform this Agreement and the Ancillary
Agreements (to the extent Nortel Networks or Nortel Networks LLC is a party
thereto), (ii) the sufficiency of the form of Instrument of Assignment and
Assumption; and (iii)
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due and valid authorization, and the valid and binding nature, of this Agreement
and the Ancillary Agreements.
(f) Financing. The Company, Newco, and Existing Venture
shall have obtained bank or other financing on terms no less favorable to Newco
and the Company than those described in Exhibit A hereto, or the Company, Newco
and Existing Venture shall have sufficient working capital and cash availability
(from cash on hand, operations, borrowings under the Company's current credit
facility or any replacement thereof, equity financings and/or asset sales, and
all other reasonably available sources), on such terms (including availability
and duration, if applicable) as the Company in good faith believes are
reasonable to fund their operations for the period from the Closing Date and
until December 31, 2002 in accordance with the projections for such operations
for such period which were provided by the Company to Nortel Networks on March
12, 2001 (subject to adjustment of such projections for any changes in the
business occurring between the date hereof and the Closing Date which were not
contemplated by such projections).
8.03. Conditions to Obligation of Nortel Networks and Nortel
Networks LLC. The obligations of Nortel Networks and Nortel Networks LLC to
consummate the Contribution are also subject to the fulfillment or written
waiver by Nortel Networks and Nortel Networks LLC prior to the Effective Time of
each of the following conditions:
(a) Representations and Warranties. All representations
and warranties of the Company, Newco and Transition set forth in this Agreement
(without giving effect to any standard, qualification or exception contained
therein with respect to materiality or Material Adverse Effect) shall be true
and correct, as of the date of this Agreement and as of the Effective Date as
though made on and as of the Effective Date (except that representations and
warranties that by their terms speak as of the date of this Agreement or some
other date shall be true and correct as of such date), except as would not have
or reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, Newco or Transition; and Nortel Networks shall
have received a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer or the Chief Financial Officer of the
Company to such effect.
(b) Performance of Obligations. The Company, Newco and
Transition shall have performed in all material respects (without giving effect
to any standard, qualification or exception contained therein with respect to
materiality or Material Adverse Effect) all obligations required to be performed
by them under this Agreement at or prior to the Effective Time, and Nortel
Networks shall have received a certificate, dated the Effective Date, signed on
behalf of the Company by the Chief Executive Officer or the Chief Financial
Officer of the Company to such effect.
(c) Opinion of Nortel Networks' Counsel. Nortel Networks
shall have received an opinion of Hale and Dorr LLP, counsel to Nortel Networks,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion,
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the Contribution will constitute an exchange under Section 351 of the Code. In
rendering its opinion, such counsel may require and rely upon customary and
reasonable representations contained in letters from the Company, Newco,
Transition, Nortel Networks and Nortel Networks LLC.
(d) Opinion of the Company's Counsel. Nortel Networks
shall have received an opinion of Troutman Sanders LLP, counsel to the Company,
dated the Effective Date, in form and substance reasonably satisfactory to
Nortel Networks and its counsel, as to (i) with respect to each of the Company,
Transition and Newco, (A) its due organization, valid existence and good
standing, and (B) its corporate power and authority to execute, deliver and
perform this Agreement and the Ancillary Agreements; (ii) the due authorization
and valid issuance of the Newco Shares; (iii) the due and valid authorization,
and the valid and binding nature, of this Agreement and the Ancillary
Agreements; (iv) the non-contravention of the Company's, Newco's and
Transition's charter and by-laws and applicable laws customarily opined on with
respect to transactions similar to the Transactions (other than securities laws)
as a result of the execution, delivery and performance of this Agreement and, to
the extent any of them is a party thereto, the Ancillary Agreements; and (v) the
effectiveness of the Merger.
(e) No Action Seeking Injunction. No Governmental
Authority of competent jurisdiction shall have brought an action or proceeding
seeking to enjoin or prohibit consummation, or require the unwinding, of the
Merger or the Contribution, or to impose substantial penalties as a result of
the Merger or the Contribution, which action or proceeding is reasonably likely
to succeed.
(f) Financing. (i) The Company, Newco and Existing
Venture shall have obtained bank or other financing on terms no less favorable
to Newco and the Company than those described in Exhibit A, (ii) true, correct
and complete copies of the definitive documentation for such bank or other
financing shall have been provided to Nortel Networks, and (iii) no term or
provision of such bank or other financing shall be materially different from, or
in addition to, those set forth in Exhibit A, Exhibit H, or Exhibit I-2, as
applicable, in a manner that (A) restricts the ability of Nortel Networks to
sell or transfer shares of Newco common stock (it being understood that if the
definitive documentation for such financing provides that an acquisition by any
Person of shares of Newco common stock comprising less than 30% of the then
outstanding such shares, whether in one transaction or in a series of
transactions, constitutes a default or an event of default, such provision shall
be deemed to be "materially different" and to restrict the ability of Nortel
Networks to transfer such shares for the purposes of this clause (iii)(A)), or
(B) materially and adversely affects the ability of the Existing Venture to make
payments in redemption of the New Membership Interest as contemplated by Exhibit
H or any other payments due or to become due to Nortel Networks or its
Affiliates (whether under the Agreement or any Ancillary Agreement or
otherwise).
(g) New Membership Interest Balance. The New Membership
Interest Balance shall not exceed $100,000,000.00.
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8.04. Withholding. To the extent required by applicable U.S., state,
local or foreign laws, the parties to this Agreement agree and acknowledge that
Company and Newco shall withhold Taxes from the amounts otherwise required to be
paid or delivered to Nortel Networks, Nortel Networks LLC and their
Subsidiaries. If Nortel Networks, Nortel Networks LLC or their Subsidiaries
desire to avail themselves of an exemption from the otherwise applicable
withholding laws, or a reduced withholding rate, then Nortel Networks, Nortel
Networks LLC or their Subsidiaries shall be obligated to obtain and furnish to
Company and Newco, as the case may be, such appropriate certificates,
affidavits, rulings from Governmental Authorities, or other documents necessary
to establish or qualify for such exemption or reduced rate. Company and Newco
shall reasonably cooperate with Nortel Networks, Nortel Networks LLC and their
Subsidiaries in this regard. Nortel Networks, Nortel Networks LLC and their
Subsidiaries hereby agree to indemnify Company and Newco for any Costs that
arise from a failure to withhold Taxes, which failure was based on a good faith
interpretation of the law.
ARTICLE IX
TERMINATION
9.01. Termination. This Agreement may be terminated, and the Merger
and the Contribution may be abandoned:
(a) Mutual Consent. At any time prior to the Effective
Time, by the mutual consent of Nortel Networks and the Company.
(b) Breach. At any time prior to the Effective Time
(i) by Nortel Networks, in the event of either:
(x) a breach by the Company, Newco or Transition of any representation or
warranty contained herein which would result in the non-satisfaction of the
conditions set forth in Section 8.03(a), which breach is not capable of being
cured or has not been cured within 10 calendar days after the giving of written
notice to the breaching party of such breach; or (y) a material breach by the
Company, Newco or Transition of any of the covenants or agreements contained
herein, which breach is not capable of being cured or has not been cured within
10 calendar days after the giving of written notice to the breaching party of
such breach. Without limiting the foregoing, for all purposes of this Agreement,
any breach of the agreements contained in the first sentence of Section 7.02
shall constitute a breach which is not capable of being cured.
(ii) by the Company, in the event of either: (x)
a breach by Nortel Networks, Nortel Networks LLC or Existing Venture of any
representation or warranty contained herein which would result in the
non-satisfaction of the conditions set forth in Section 8.02(a), which breach is
not capable of being cured or has not been cured within 10 calendar days after
the giving of written notice to the breaching party of such breach; or (y) a
material breach by Nortel Networks, Nortel Networks LLC or Existing Venture of
any of the covenants or agreements contained herein, which breach is not capable
of being cured or has not been cured within 10 calendar days after the giving of
written notice to the breaching party of such breach.
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(c) Delay. At any time prior to the Effective Time, by
Nortel Networks, or the Company's Board of Directors so determines, by the
Company, in the event that the Transactions are not consummated by the Outside
Closing Date except to the extent that the failure of the Transactions then to
be consummated arises out of or results from the knowing action or inaction of
the party seeking to terminate pursuant to this Section 9.01(c) which action or
inaction is in violation of its obligations under this Agreement.
(d) No Approval.
(i) By the Company or Nortel Networks in the
event the approval of any Governmental Authority required for consummation of
the Merger and the other Transactions shall have been denied by final
non-appealable action of such Governmental Authority.
(ii) By Nortel Networks in the event any required
approval of a Governmental Authority contains any final nonappealable
conditions, restrictions or requirements which would reasonably be expected to
(A) following the Effective Time, have a Material Adverse Effect on Nortel
Networks or Newco or (B) require Nortel Networks, Nortel Networks LLC, and Newco
to take any action that it is not required to take under Section 7.09(d) hereof.
(iii) By the Company or Nortel Networks in the
event any required approval of a Governmental Authority contains any final,
nonappealable conditions, restrictions or requirements which would reasonably be
expected to, following the Effective Time, have a Material Adverse Effect on
Newco or require Newco to take any action that it is not required to take under
Section 7.09(d) hereof.
(iv) By Nortel Networks or the Company in the
event the approval of the Company's stockholders required by Section 8.01(a)
herein is not obtained at the Company Meeting by reason of the failure to obtain
the requisite vote required by Section 8.01(a).
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9.02. Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Transactions pursuant
to this Article IX, no party to this Agreement (nor any of their respective
officers, directors or agents) shall have any liability or further obligation to
any other party hereunder except that termination shall not relieve a party from
liability for any willful breach of this Agreement.
9.03. Survival. All representations, warranties, covenants, and
obligations in this and any other certificate or document delivered pursuant to
this Agreement will survive the Effective Time or, unless this Agreement is
terminated pursuant to Section 9.01(a), the date of termination; provided,
however, that in the event of a termination pursuant to Section 9.01(a), the
obligations set forth under Sections 4.07 and 10.04 shall survive such
termination.
9.04. Right to Indemnification Not Affected by Knowledge. The right
to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Effective Time, with respect to the
accuracy or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation (except to the extent that such representation,
warranty, covenant or obligation is expressly qualified by reference to such
Knowledge). The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations.
9.05. Indemnification and Payment of Damages by Newco, Transition
and the Company. Newco, Transition and the Company, jointly and severally, will
indemnify and hold harmless Nortel Networks, Nortel Networks LLC and their
controlling persons and Affiliates for, and will pay to such Indemnified Parties
the amount of, any loss, liability, claim, damage (including incidental and
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with:
(a) any breach of any representation or warranty made by
Newco, Transition or the Company in this Agreement or any other certificate or
document delivered by any of them pursuant to this Agreement;
(b) any breach by Newco, Transition or the Company of any
covenant or obligation of any of them in this Agreement; or
(c) any claim by any Person for brokerage or finder's
fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with by Newco,
Transition or the Company (or any Person acting on their behalf) in connection
with any of the Transactions.
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The remedies provided in this Section 9.05 will not be exclusive of or limit any
other remedies that may be available to Nortel Networks or Nortel Networks LLC
or the other Indemnified Parties.
9.06. Indemnification and Payment of Damages by Nortel Networks and
Nortel Networks LLC. Nortel Networks and Nortel Networks LLC, jointly and
severally, will indemnify and hold harmless Newco, Transition and the Company
and their controlling persons and Affiliates for, and will pay to such
Indemnified Parties the amount of, any Damages arising, directly or indirectly,
from or in connection with:
(a) any breach of any representation or warranty made
Nortel Networks or Nortel Networks LLC in this Agreement or any other
certificate or document delivered by any of them pursuant to this Agreement;
(b) any breach by Nortel Networks or Nortel Networks LLC
of any covenant or obligation of any of them in this Agreement;
(c) any claim by any Person for brokerage or finder's
fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with by Nortel
Networks or Nortel Networks LLC (or any Person acting on their behalf) in
connection with any of the Transactions; or
(d) if the Closing occurs, 81.25% of the Damages
resulting from any breach of any representation or warranty made by Existing
Venture in this Agreement or any other certificate or document delivered by it
pursuant to this Agreement.
The remedies provided in this Section 9.06 will not be exclusive of or limit any
other remedies that may be available to Newco, Transition or the Company or the
other Indemnified Parties.
9.07 Indemnification and Payment of Damages by Existing Venture. If
the Closing does not occur, Existing Venture will indemnify and hold harmless
Newco, Transition and the Company and their controlling persons and Affiliates
for, and will pay to such Indemnified Parties the amount of, 81.25% of any
Damages arising, directly and indirectly, from or in connection with any breach
of any representation or warranty made by Existing Venture in this Agreement or
any certificate or document delivered by it pursuant to this Agreement.
9.08. Time Limitations. If the Effective Time occurs, an
Indemnifying Party will have no liability (for indemnification or otherwise)
with respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Effective Time, other than those in
Sections 6.01(b), 6.01(m), 6.01(o), 6.01(q), 6.02(i), and 6.02(j) unless on or
before the second anniversary of the Effective Date the Indemnified Party
notifies Indemnifying Party of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by the Indemnified Party; a
claim with respect to Section 6.01(b), 6.01(m), 6.01(o), 6.01(q), 6.02(i) and
6.02(j), or a claim for indemnification or reimbursement not based upon any
representation
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or warranty or any covenant or obligation to be performed and complied with
prior to the Closing Date, may be made at any time.
9.09. Limitations on Amount - Newco, Transition, and the Company.
Newco, Transition and the Company will have no liability (for indemnification
or, except with respect to claims based on fraud, otherwise) with respect to the
matters described in 9.05 until the total of all Damages with respect to such
matters exceeds $10,000,000 (at which point Newco, Transition and the Company
shall become liable for the aggregate Damages and not just the amount in excess
of $10,000,000). However, this Section 9.09 will not apply to any intentional
breach by Newco, Transition or the Company of any covenant or obligation, and
Newco, Transition and the Company will be jointly and severally liable for all
Damages with respect to such breaches.
9.10. Limitations on Amount - Nortel Networks and Nortel Networks
LLC. Nortel Networks and Nortel Networks LLC will have no liability (for
indemnification or, except with respect to claims based on fraud, otherwise)
with respect to the matters described in Section 9.06 until the total of all
Damages with respect to such matters exceeds $10,000,000 (at which point Nortel
Networks and Nortel Networks LLC shall become liable for the aggregate Damages
and not just the amount in excess of $10,000,000); provided that the aggregate
amount payable (i) by Nortel Networks and/or Nortel Networks LLC pursuant to
Section 9.06(d) and/or (ii) by the Existing Venture pursuant to Section 9.07 (in
any combination) shall in no event exceed $215,000,000. However, this Section
9.10 will not apply to any intentional breach by either Nortel Networks or
Nortel Networks LLC of any covenant or obligation, and Nortel Networks or Nortel
Networks LLC will be jointly and severally liable for all Damages with respect
to such breaches.
9.11 Limitations on Amount--Existing Venture. Neither Nortel
Networks (or any of its Subsidiaries) nor the Existing Venture will have any
liability (for indemnification or, except with respect to claims based on fraud,
otherwise) with respect to matters described in Section 9.06(d) or 9.07 until
the total of Damages with respect to such matters exceeds $10,000,000 (at which
point the Existing Venture shall become liable for the aggregate Damages and not
just the amount in excess of $10,000,000); provided that the aggregate amount
payable (i) by Nortel Networks and/or Nortel Networks LLC pursuant to Section
9.06(e) and/or (ii) by the Existing Venture pursuant to Section 9.07 (in any
combination) shall in no event exceed $215,000,000. However, this Section 9.11
will not apply to any intentional breach by Existing Venture of any covenant or
obligation.
9.12. Procedure for Indemnification - Third Party Claims.
(a) Promptly after receipt by an Indemnified Party under
Section 9.05 or 9.06 of notice of the making of any claim or the commencement of
any proceeding against it, such Indemnified Party will, if a claim is to be made
against an Indemnifying Party under such Section, give notice to the
Indemnifying Party of such claim or proceeding, but the failure to notify the
Indemnifying Party will not relieve the Indemnifying Party of any liability that
it may
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have to any Indemnified Party, except to the extent that the Indemnifying Party
demonstrates that the defense of such action is prejudiced by the Indemnifying
Party's failure to give such notice.
(b) If any proceeding referred to in Section 9.10(a) is
brought against an Indemnified Party and it gives notice to the Indemnifying
Party of the commencement of such proceeding, the Indemnifying Party will be
entitled to participate in such proceeding and, to the extent that it wishes, to
assume the defense of such proceeding with counsel satisfactory to the
Indemnified Party and, after notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such proceeding, the
Indemnifying Party will not, as long as it diligently conducts such defense, be
liable to the Indemnified Party under Section 9.05 or 9.06 for any fees of other
counsel or any other expenses with respect to the defense of such proceeding, in
each case subsequently incurred by the Indemnified Party in connection with the
defense of such proceeding, other than reasonable costs of investigation. If the
Indemnifying Party assumes the defense of a proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the Indemnifying
Party without the Indemnified Party's consent unless (A) there is no finding or
admission of any violation of applicable law or any violation of the rights of
any Person and no effect on any other claims that may be made against the
Indemnified Party, and (B) the sole relief provided is monetary Damages that are
paid in full by the Indemnifying Party; and (iii) the Indemnified Party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an Indemnifying Party of the
commencement of any proceeding and the Indemnifying Party does not, within ten
days after the Indemnified Party's notice is given, give notice to the
Indemnified Party of its election to assume the defense of such proceeding, the
Indemnifying Party will be bound by any determination made in such proceeding or
any compromise or settlement effected by the Indemnified Party.
(c) Notwithstanding the foregoing, if an Indemnified
Party determines in good faith that there is a reasonable probability that a
proceeding may adversely affect it or its Affiliates other than as a result of
monetary Damages for which it would be entitled to indemnification under this
Agreement, the Indemnified Party may, by notice to the Indemnifying Party,
assume the exclusive right to defend, compromise, or settle such proceeding, in
all cases at the expense of Indemnifying Party, but the Indemnifying Party will
not be bound by any determination of a proceeding so defended or any compromise
or settlement effected without its consent (which may not be unreasonably
withheld).
(d) The parties hereto hereby consent to the
non-exclusive jurisdiction of any court in which a proceeding is brought against
any Indemnified Party for purposes of any claim that an Indemnified Party may
have under this Agreement with respect to such proceeding or the matters alleged
therein, and agree that process may be served on their with respect to such a
claim anywhere in the world.
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9.13. Procedure for Indemnification - Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
ARTICLE X
MISCELLANEOUS
10.01. Amendment; Extension; Waiver.
(a) Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of the
Company; provided, however, that after any approval of the Transactions
contemplated by this Agreement by the stockholders of the Company, there may not
be, without further approval of such stockholders, any amendment of this
Agreement which by law requires such further approval by such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
(b) Prior to the Effective Time, the parties hereto,
Newco, the Company and Transition, as one party, and Nortel Networks and Nortel
Networks LLC, as one party, by action taken or authorized by their respective
Boards of Directors or Managing Member, as the case may be, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance by the other party
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
10.02. Counterparts. This Agreement may be executed in one or more
counterparts, each of which when executed shall be deemed to constitute an
original but all of which when taken together shall constitute one and the same
instrument.
10.03. Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Delaware, without
regard to the conflict of law principles thereof.
10.04. Expenses. Except as otherwise provided herein or in the
Registration Rights Agreement, each party hereto will bear all expenses incurred
by it in connection with this Agreement and the transactions contemplated
hereby, except that SEC filing fees payable to the extent necessary to
consummate the Transactions plus up to $75,000 of the printing and mailing
expenses relating to the Transactions (specifically excluding, for the avoidance
of doubt, any
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exercise of rights granted under the Registration Rights Agreement) actually and
reasonably incurred and paid by the Company and its Affiliates shall be shared
equally between the Company and Nortel Networks, and any such expenses and fees
in excess of the above amount shall be borne solely by the Company.
10.05. Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or three Business Days after being
mailed by registered or certified mail (return receipt requested) or one
Business Day after being delivered by overnight courier to such party at its
address set forth below or such other address as such party may specify by
notice to the parties hereto.
If to Nortel Networks or Nortel Networks LLC, to:
Nortel Networks Inc.
200 Athens Way
Nashville, Tennessee 37228
Attn: Legal Department
With a copy to:
Nortel Networks Inc.
2221 Lakeside Boulevard
Richardson, Texas 75082
Attn: Robert Fishman
Fax: (972) 684-3888
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Dimitri P. Racklin
Fax: (617) 526-5000
Phone: (617) 526-6748
If to the Company, Newco or Transition to:
ANTEC Corporation
11450 Technology Circle
Duluth, Georgia 30097
Attention: Lawrence Margolis
Fax: (678) 473-8470
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With a copy to:
Troutman Sanders LLP
600 Peachtree Street
Suite 5200
Atlanta, GA 30308
Attention: W. Brinkley Dickerson, Jr.
Fax: 404-885-3900
Phone: 404-885-3000
10.06. Entire Understanding. This Agreement (including the Disclosure
Schedules), the Ancillary Agreements and the Confidentiality Agreement represent
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and thereby supersede any and all other oral or
written agreements (other than the Confidentiality Agreement) heretofore made.
10.07. Assignment; No Third Party Beneficiaries. Neither this
Agreement, nor any of the rights, interests or obligations shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties; provided, however, that (i) Nortel
Networks LLC may, at any time prior to the Effective Time, transfer its Interest
(as such term is defined in the Existing Venture Operating Agreement) to any
other direct or indirect wholly-owned Subsidiary of Nortel Networks, with no
need for consent or approval of any other party hereto (other than Nortel
Networks), and (ii) in the event of such transfer, the transferee of the
Interest shall be substituted for Nortel Networks LLC herein and in each
Ancillary Agreement to which Nortel Networks LLC is, or is intended to be, a
party, as if such transferee were an original party hereto and thereto, mutatis
mutandis. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns. Nothing in this Agreement expressed or
implied, is intended to confer upon any person, other than the parties hereto or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
10.08. Disclosure Schedules.
(a) The inclusion of any matter on the disclosures made
on the Company and Nortel Networks Schedules (collectively, the "Disclosure
Schedules") with respect to any representation or warranty will not be deemed an
admission by any party that such listed matter is material or that such listed
matter has or would have a Material Adverse Effect on the Company, Newco or
Transition or a Material Adverse Effect on Nortel Networks or Nortel Networks
LLC, as applicable.
(b) The Disclosure Schedules shall be deemed to
constitute an integral part of this Agreement and to modify the respective
representations, warranties, covenants or agreements of the parties contained
herein to the extent that such representations, warranties, covenants or
agreements expressly refer to the applicable Disclosure Schedule. Anything to
the
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contrary contained herein or in the Disclosure Schedules notwithstanding, any
and all statements, representations, warranties, or disclosures set forth in the
Disclosure Schedules delivered on or before the date hereof shall be deemed to
have been made on and as of the date hereof. From time to time prior to the
Closing, the parties shall promptly supplement or amend the Disclosure Schedules
with respect to any matter, condition or occurrence hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required to
be listed or described in the Disclosure Schedules. No supplement or amendment
shall be deemed to cure any breach or any representation or warranty made in
this Agreement or have any effect for the purpose of determining satisfaction of
the conditions set forth in this Agreement.
10.09. Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Disclosure Schedules, such reference shall be to
and Article or Section of, or Exhibit or Disclosure Schedule to, this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". Any reference to "herein" or "hereof" or similar terms shall refer
to the agreement as a whole rather than to the individual paragraph, Section or
Article.
10.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as it is enforceable.
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APPENDIX II
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
197
[Credit Suisse First Boston Letterhead]
February 5, 2001
Board of Directors
ANTEC Corporation
11450 Technology Circle
Duluth, Georgia 30097
Members of the Board:
You have asked us to advise you with respect to the fairness to ANTEC
Corporation (the "Company") and holders of Company Common Stock (as defined
below) from a financial point of view of the consideration to be paid by
Broadband Parent Corporation ("Newco"), a wholly-owned subsidiary of the
Company, pursuant to the terms of the Agreement and Plan of Reorganization,
dated as of October 18, 2000, to be amended by the First Amendment to Agreement
and Plan of Reorganization (as amended, the "Agreement"), among the Company,
Newco, Broadband Transition Corporation, a wholly-owned subsidiary of Newco
("Transition"), Nortel Networks Inc. ("Nortel"), Nortel Networks LLC, an
indirect wholly-owned subsidiary of Nortel ("Nortel Networks"), and Arris
Interactive L.L.C. ("Arris"), a joint venture owned by the Company and Nortel
Networks. The Agreement provides that (i) Transition will be merged with and
into the Company (the "Merger"), so that the Company is the surviving
corporation in the Merger and a wholly-owned subsidiary of Newco; (ii) each
outstanding share of the common stock of the Company, par value $0.01 per share
("Company Common Stock") (other than shares held by the Company or any
wholly-owned subsidiary of the Company as treasury shares), will be converted
into the right to receive one share of common stock of Newco, par value $0.01
per share ("Newco Common Stock") (the "Conversion"); (iii) both Nortel Networks
and the Company shall make capital contributions to Arris in the form of the
cancellation of approximately $124 million of indebtedness of Arris in favor of
Nortel Networks, approximately $10 million of which, in turn, is due to the
Company (the "Cancellation of Indebtedness"); and (iv) Nortel Networks will
contribute its entire interest in Arris (after giving effect to the Cancellation
of Indebtedness) to Newco in exchange for 37 million shares of Newco Common
Stock (the "Contribution", and together with the Merger, the Conversion and the
Cancellation of Indebtedness, the "Transaction").
In arriving at our opinion, we have reviewed certain business and financial
information relating to Arris and certain publicly available business and
financial information relating to the Company, as well as the draft dated
February 5, 2001 of the Agreement, and drafts of certain related documents. We
have also reviewed certain other information, including financial forecasts,
provided to or discussed with us by Arris and the Company relating to Arris, the
Company and Newco, and have met with the Company's management to discuss the
business and prospects of Arris, the Company and Newco.
We also have considered certain financial data of Arris and certain financial
and stock market data of the Company, and we have compared those data with
similar data for publicly held companies in businesses similar to those of Arris
and the Company and we have considered the financial terms of certain other
business combinations and other transactions which recently have been effected.
We also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of Arris, the
Company and Newco. You also have informed us, and we have assumed, that the
Merger will be treated as a tax-free reorganization for federal income tax
purposes. In addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Arris, nor have we been furnished with any such evaluations or
appraisals. We have also assumed that the Agreement and related documents, when
executed, will conform to the drafts reviewed by us in all respects material to
our analysis. Our opinion is necessarily based upon information available to us
and financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to the actual
value of Newco Common Stock when issued pursuant to the Transaction or the
prices at which such stock will trade at any time.
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We and/or our affiliate, Donaldson, Lufkin & Jenrette Securities Corporation,
have acted as financial advisor to the Company in connection with the
Transaction and will receive a fee for such services, a portion of which will be
payable in connection with the delivery of this opinion and the balance of which
is contingent upon the consummation of the Transaction. We or our affiliates may
also participate in certain financings by the Company at or around the time of
the Transaction for which we would receive compensation. In the past, we or our
affiliates have provided certain financial and investment banking services to
the Company and Nortel for which we have received compensation.
In the ordinary course of our business, we and our affiliates may actively trade
the debt and equity securities and obligations of the Company and Nortel for our
and such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities
and obligations.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the
Contribution and does not constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote or act on any matter relating to
the proposed Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be paid by Newco in the Contribution is fair to the
Company and holders of Company Common Stock from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ James T. Sington
-----------------------------------------
James T. Sington
Managing Director
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APPENDIX III
2001 STOCK INCENTIVE PLAN
200
BROADBAND PARENT CORPORATION
2001 STOCK INCENTIVE PLAN
1. PURPOSE AND EFFECTIVE DATE. Broadband Parent Corporation (the
"Company") has established this 2001 Stock Incentive Plan (the "Plan") to
facilitate the retention and continued motivation of key employees, consultants
and directors and to align more closely their interests with those of the
Company and its stockholders. The effective date of the Plan shall be the date
it is approved by the stockholders of ANTEC Corporation at a special meeting at
which the reorganization of ANTEC Corporation as a wholly owned subsidiary of
the Company is also approved.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors, or the Compensation Committee of the Company's Board of Directors or
such other Board committee as the Board may designate (the "Committee"). The
Committee has the authority and responsibility for the interpretation,
administration and application of the provisions of the Plan, and the
Committee's interpretations of the Plan, and all actions taken by it and
determinations made by it shall be binding on all persons. No Board or Committee
member shall be liable for any determination, decision or action made in good
faith with respect to the Plan.
3. SHARES SUBJECT TO PLAN. A total of 9,580,000 shares of Common Stock
of the Company ("Shares") may be issued pursuant to the Plan. The Shares may be
authorized but unissued Shares or Shares reacquired by the Company and held in
its treasury. Grants of incentive awards under the Plan will reduce the number
of Shares available thereunder by the maximum number of Shares obtainable under
such grants. If all or any portion of the Shares otherwise subject to any grant
under the Plan are not delivered for any reason including, but not limited to,
the cancellation, expiration or termination of any option right or unit, the
settlement of any award in cash, the forfeiture of any restricted stock, or the
repurchase of any Shares by the Company from a participant for the cost of the
participant's investment in the Shares, such number of Shares shall be available
again for issuance under the Plan. The number of Shares covered by or specified
in the Plan and the number of Shares and the purchase price for Shares under any
outstanding awards, may be adjusted proportionately by the Committee for any
increase or decrease in the number of issued Shares or any change in the value
of the Shares resulting from a subdivision or consolidation of Shares,
reorganization, recapitalization, spin-off, payment of stock dividends on the
Shares, any other increase or decrease in the number of issued Shares made
without receipt of consideration by the Company, or the payment of an
extraordinary cash dividend.
4. ELIGIBILITY. All key employees, active consultants and directors of
the Company and its subsidiaries are eligible to be selected to receive a grant
under the Plan by the Committee. The Committee may condition eligibility under
the Plan or participation under the Plan, and any grant or exercise of an
incentive award under the Plan on such conditions, limitations or restrictions
as the Committee determines to be appropriate for any reason. No person may be
granted in any period of two consecutive calendar years, awards covering more
than 750,000 Shares.
5. AWARDS. The Committee may grant awards under the Plan to eligible
persons in the form of stock options (including incentive stock options within
the meaning of section 422 of the Code), stock grants, stock units, restricted
stock, stock appreciation rights, performance shares and units and dividend
equivalent rights, and reload options to purchase additional Shares if Shares
are delivered in payment of any other options, and shall establish the number of
Shares subject to each such grant and the terms thereof, including any
adjustments for reorganizations and dividends, subject to the following:
(a) All awards granted under the Plan shall be evidenced by
agreements in such form and containing such terms and
conditions not inconsistent with the Plan as the Committee
shall prescribe.
(b) The exercise price of any option or stock appreciation right
shall not be less than the fair market value of a
corresponding number of Shares as of the date of grant, except
(i) options or stock appreciation rights being granted to
replace options or rights not initially granted by the Company
or ANTEC Corporation may be granted with exercise prices that
in the judgment of the Committee result in options or rights
having comparable value to the options or rights being
replaced, and (ii) up to 10% of the Shares may be granted
pursuant to options or stock appreciation rights that have
exercise prices of not less than 85% of the fair market value
of a corresponding number of Shares as of the date of grant.
(c) No more than 25% of the Shares may be awarded in a form other
than options or stock appreciation rights.
201
(d) No option may be repriced by amendment, substitution or
cancellation and regrant, unless authorized by the
stockholders. Adjustments pursuant to Section 3 above shall
not be considered repricing.
6. AMENDMENT OF THE PLAN. The Board of Directors or the Committee may
from time to time suspend, terminate, revise or amend the Plan or the terms of
any grant in any respect whatsoever, provided that, without the approval of the
stockholders of the Company, no such revision or amendment may increase the
number of Shares subject to the Plan, change the provisions of Section 5 above,
or expand those eligible for grants under the Plan.
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APPENDIX IV
MANAGEMENT INCENTIVE PLAN
203
BROADBAND PARENT CORPORATION
MANAGEMENT INCENTIVE PLAN
1. PURPOSE AND EFFECTIVE DATE. Broadband Parent Corporation (the
"Company") has established this Management Incentive Plan (the "Plan") to
provide awards to the executives of the Company for the achievement of goals of
the Company for a specified period. The effective date of the Plan shall be the
date it is approved by the Stockholders of ANTEC Corporation at a special
meeting at which the reorganization of ANTEC Corporation as a wholly owned
subsidiary of the Company is also approved.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors, or the Compensation Committee of the Company's Board of Directors or
such other Board committee as the Board may designate (the "Committee"). The
Committee has the authority and responsibility for the interpretation,
administration and application of the provisions of the Plan, and the
Committee's interpretations of the Plan, and all actions taken by it and
determinations made by it shall be binding on all persons. No Board or Committee
member shall be liable for any determination, decision or action made in good
faith with respect to the Plan.
3. AWARDS UNDER THE PLAN. The Committee shall assign a target expressed
as a percentage of salary for the period selected by the Committee. The targets
may be as high as 200% and as low as 20% of salary.
At least 51% of the target shall be dependent on the achievement of
financial objectives such as (i) operating, pretax, or net earnings of the
Company, a subsidiary, a business unit thereof, or an other entity where there
is a significant investment by the Company and opportunity to influence the
performance of that entity; (ii) earnings per share of the Company; (iii) cash
flow of any of these entities; (iv) return on capital, tangible or total,
employed by any of these entities as measured by any of these earnings; (v)
achievement of specified revenues or proceeds from specified activities, in or
out of the ordinary course of business; or (vi) other similar financial
objectives that the Committee determines to be in the interest of the Company.
Up to 49% of the target of a participant may be dependent on the subjective
determination of the Committee (or in the case of participants other than the
Chief Executive Officer and the Chairman, of an executive officer) of the
achievement of qualitative goals. In the case of John Egan, his target shall be
dependent on goals that are in accordance with his employment agreement.
The actual awards may range from zero to 200% of the assigned targets
depending on the achievement of the objectives established by the Committee (or
in the case of qualitative goals of participants, other than the Chief Executive
Officer or the Chairman, by an executive officer) during the first quarter of
the period.
4. ELIGIBILITY. All executive officers of the Company and the other
executives of the Company and its subsidiaries, who report directly to the Chief
Executive Officer of the Company are eligible to be selected to receive an award
under the Plan by the Committee. The Committee may condition eligibility under
the Plan or participation under the Plan, and any award under the Plan on such
conditions, limitations or restrictions as the Committee determines to be
appropriate for any reason and consistent with the terms of the Plan. No person
may be awarded, for any one year, more than $2,000,000, as this amount is
adjusted for inflation in the Consumer Price Index after December 31, 2001.
5. PAYMENT OF AWARDS. Amounts earned under the Plan shall be determined
and be paid as soon as practical after the end of each year or if based on
multiple years, the end of the last year of that period. The Committee, in
establishing the targets and goals for a year, may determine that all or a
portion of an award payable under the Plan to certain participants shall or may
be paid in stock or phantom stock of the Company that may or may not be
restricted. The computation of the amount of stock may be based on the average
market price of the stock over a period, up to one year, selected by the
Committee, or based on a percentage, not to be less than 75%, of the market
price of the stock at the end of the year for which the award was earned or
during a period during the last month of that year selected by the Committee.
6. AMENDMENT OF THE PLAN. The Committee may amend or terminate the Plan
at any time, provided however, that in no event can the Committee, after the
period for establishing the objectives for a year, adjust for that year any
targets, objectives, or the percentage of target earned by levels of achievement
of each objective in a manner that would increase the amount of compensation
that would be payable under the Plan without such adjustment.
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APPENDIX V
EMPLOYEE STOCK PURCHASE PLAN
205
BROADBAND PARENT CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of the Employee Stock Purchase Plan (the "Plan") of
Broadband Parent Corporation (the "Company") is to furnish to eligible employees
an incentive to advance the best interests of the Company by providing a method
whereby they voluntarily may purchase shares of Common Stock, $.0l par value, of
the Company ("Common Stock") at a favorable price and upon favorable terms.
2. ELIGIBILITY
All employees of the Company and those of any present or future direct
or indirect subsidiary of the Company, except for employees whose customary
employment is 20 hours or less per week, shall be eligible to participate in the
Plan; provided, however, no option shall be granted to an employee if such
employee, immediately after the option is granted, owns stock (as defined by
Sections 423(b) (3) and 425(d) of the Internal Revenue Code of 1986, as amended
(the "Code")) possessing five percent or more of the total combined voting power
or value of all classes of stock of the Company or of a subsidiary. No option
shall be granted to any executive officer who is a highly compensated employee
(within the meaning of Section 414(g) of the Code) of the Company or any of its
principal subsidiaries unless the Committee for administration of the Plan shall
otherwise provide. No option shall be granted to any employee where, in the
judgment of the Compensation Committee of the Board of Directors of the Company,
such grant would be unlawful or impractical under the laws of any local or
foreign jurisdiction, provided, however, that such decision not to grant an
option would not otherwise violate Section 423 of the Code.
3. STOCK SUBJECT OF THE PLAN.
Subject to the provisions of paragraph 10, the stock which may be sold
pursuant to options under the Plan shall not exceed in the aggregate 800,000
shares of the authorized Common Stock of the Company (the "Shares"). The Shares
may be authorized but unissued Shares or Shares reacquired by the Company and
held in its treasury. Options issued under the Plan will reduce the number of
Shares available under the Plan by the number of Shares subject to the issued
option. If unexercised options expire or terminate for any reason, in whole or
in part, the number of Shares subject to the unexercised portion of such options
will be available again for issuance under the Plan.
4. GRANT OF OPTIONS.
(a) General statement; "date of grant"; "option period"; "date of
exercise." Following the effective date of the Plan and continuing while the
Plan remains in force, the Company will offer options under the Plan to all
eligible employees to purchase shares of Common Stock. These options shall be
granted twice each year on a date to be determined by the Committee for
administration of the Plan (each of which dates is hereinafter referred to as
"date of grant"). The term of each option is 6 months (the "option period")
ending on the last day of the option period (each of which dates is hereinafter
referred to as "date of exercise"). The number of shares subject to each option
shall be the quotient of the payroll deductions authorized by each participant
in accordance with subparagraph (b) extended for the option period divided by
85% of the fair market value of the Common Stock on the date of grant, as
defined by subparagraph 5(b), rounded down to the closest whole number.
(b) Election to participate: payroll deduction authorization.
Except as provided in subparagraph (f), an eligible employee may participate in
the Plan only by means of payroll deduction. Each eligible employee who elects
to participate in the Plan shall deliver to the Company during the calendar
month next preceding the date of grant a written payroll deduction authorization
in a form prepared by the Company whereby the employee gives notice of the
employee's election to participate in the Plan as of the next following date of
grant, and whereby the employee designates a stated amount to be deducted from
the employee's compensation on each payday during the option period and paid
into the Plan for the employee's account. The stated amount may not be less than
a sum which will result in the payment into the Plan of at least $2.00 each
payday or such different amount not to exceed $5.00 per payday as the Committee
for administration of the Plan may select. The stated amount may not exceed
either of the following: (i)10% (or such other percentage as the
206
Committee for administration of the Plan may specify) of the amount of "eligible
compensation" ( as defined in subparagraph (d) from which the deduction is
made); or (ii) an amount which will result in noncompliance with the $25,000
limitation stated in subparagraph (e).
(c) Changes in payroll authorization. The payroll deduction
authorization referred to in subparagraph (b) may not be changed during the
option period.
(d) "Eligible compensation" defined. The term "eligible
compensation" means regular rate of pay on the date of grant. In the case of
salespeople, regular rate of pay includes regular commissions. "Eligible
compensation" does not include management incentives and bonuses, overtime,
extended work-week premiums, or other special payments, fees, or allowances.
(e) $25,000 limitation. No employee shall be permitted to purchase
stock under the Plan or under any other employee stock purchase plan of the
Company or of any of its subsidiaries or related corporations at a rate which
exceeds $25,000 in fair market value of stock (determined at the time the option
is granted) for each calendar year in which any such option granted to such
employee is outstanding at any time.
(f) Leaves of absence. During leaves of absence approved by the
Company and meeting the requirements of Regulation l.421--7(h)(2) of the
Internal Revenue Service, a participant may continue participation in the Plan
by cash payments to the Company on the participant's normal paydays equal to the
reduction in the participant's payroll deductions caused by such leave.
5. EXERCISE OF OPTIONS.
(a) General statement. Each eligible employee who is a participant
in the Plan automatically and without any act on the employee's part will be
deemed to have exercised the employee's option on each date of exercise to the
extent that the balance then in the employee's account under the Plan is
sufficient to purchase at the "option price" (as defined in subparagraph (b))
whole shares of the Company's stock subject to the employee's option. Any
balance remaining in the employee's account after payment of the purchase price
of those whole shares shall be refunded to the employee promptly.
(b) "Option price" defined. The option price per share shall be a
sum equal to 85% of the fair market value of the Company's stock subject to the
Plan on the date of exercise or on the date of grant, whichever amount is
lesser. Fair market value of the Company's stock on the date of exercise or, as
the case may be, on the date of grant, shall be the per share price of the last
sale of such stock prior to such date as reported by NASDAQ or, if listed on a
United States stock exchange, as reported in the composite transactions for the
principal such exchange on which the common stock is traded, or if such stock
has been the subject of a public offering, the preceding trading day, the
initial per share public offering price.
(c) Delivery of share certificates. The Company will deliver to
each optionee a certificate issued in the optionee' s name for the number of
shares with respect to which the optionee`s option was exercised and for which
the optionee has paid the option price. The certificate will be delivered as
soon as practicable following the date of exercise. In the event the Company is
required to obtain from any commission or agency authority to issue any such
certificate, the Company will seek to obtain such authority. Inability of the
Company to obtain from any such commission or agency authority which counsel for
the Company deems necessary for the lawful issuance of any such certificate
shall relieve the Company from liability to any participant in the Plan except
to return to the optionee the amount of the balance in the optionee's account.
6. WITHDRAWAL FROM THE PLAN.
(a) General statement. Any participant may withdraw in whole from
the Plan at any time. A participant who wishes to withdraw from the Plan must
deliver to the Company a notice of withdrawal in a form prepared by the Company.
The Company, promptly following the time when the notice of withdrawal is
delivered, will refund to the participant the amount of the balance in the
participant's account under the Plan; and thereupon, automatically and without
any further act on the participant's part, the participant's payroll deduction
authorization, the participant's interest in the Plan, and the participant's
option under the Plan shall terminate.
207
(b) Eligibility following withdrawal. A participant who withdraws
from the Plan shall be eligible to participate again in the Plan upon expiration
of the option period during which the participant withdrew.
7. TERMINATION OF EMPLOYMENT.
(a) Termination of employment other than by retirement or death.
If the employment of a participant terminates other than by retirement or death,
the participant's interest in the Plan automatically and without any act on the
participant's part shall terminate as of the date of the termination of the
participant's employment. The Company promptly will refund to the participant
the amount of the balance in the participant's account under the Plan, and
thereupon the participant's interest in the Plan and option under the Plan shall
terminate.
(b) Termination by retirement. A participant who retires on the
participant's normal retirement date, or earlier or later with the consent of
the Company, may, at the participant's election, either (i) by written notice to
the Company exercise the participant's option as of the participant's retirement
date, in which event the Company shall apply the balance in the participant's
account under the Plan to the purchase at the option price of whole shares of
the Company's stock and refund the excess, if any, or (ii) by written notice to
the Company request payment of the balance in the participant's account under
the Plan, in which event the Company promptly shall make such payment, and
thereupon the participant's interest in the Plan and the participant's option
under the Plan shall terminate, If the participant elects to exercise the
participant's option, the date of the participant's retirement shall be deemed
to be a date of exercise for the purpose of computing the amount of the purchase
price of the Company's stock.
(c) Termination by death. If the employment of a participant is
terminated by the participant's death, the executor of the participant's will or
the administrator of the participant's estate by written notice to the Company
may either (i) exercise the participant's option as of the date of the
participant's death, in which event the Company shall apply the balance in the
participant's account under the Plan to the purchase at the option price of
whole shares of the Company's stock and refund the excess, if any, or (ii)
request payment of the balance in the participant's account under the Plan, in
which event the Company promptly shall make such payment, and thereupon the
participant's interest in the Plan and the participant's interest in the
participant's option under the Plan shall terminate, If the option is exercised,
the date of the participant's death shall be deemed to be a date of exercise for
the purpose of computing the amount of the purchase price of the Company's
stock. If the Company does not receive such notice within 90 days of the
participant's death, the participant's representative shall be conclusively
presumed to have elected alternative (ii) and requested the payment of the
balance of the participant's account.
8. RESTRICTION UPON ASSIGNMENT.
An option granted under the Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, and is exercisable during
the optionee's lifetime only by optionee. An option may not be exercised to any
extent except by the Optionee. The Company will not recognize and shall be under
no duty to recognize assignment or purported assignment by an optionee of an
option or of any rights under an option.
9. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUED.
With respect to shares subject to an option, an optionee shall not be
deemed to be a stockholder and shall not have any of the rights or privileges of
a stockholder. An optionee shall have the rights and privileges of a stockholder
when, but not until, a certificate for shares has been issued to the optionee
following exercise of an option.
10. CHANGES IN STOCK ADJUSTMENTS.
Whenever any change is made in the stock subject to the Plan to options
outstanding under the Plan, by reason of stock dividend on such stock or by
reason of subdivision, combinations, or reclassification of shares of such
stock, appropriate action will be taken by the Committee for administration of
the Plan to adjust accordingly the number of shares subject to the Plan and the
number and option price of shares subject to options outstanding under the Plan.
208
11. USE OF FUNDS; NO INTEREST PAID.
All funds received or held by the Company under the Plan will be
included in the general funds of the Company free of any trust or other
restriction, and may be used for any corporate purpose.
No interest will be paid or credited to any participant under the Plan.
12. AMENDMENT OF THE PLAN.
The Board of Directors or the Committee for administration of the Plan
may from time to time suspend, terminate, revise or amend the Plan in any
respect whatsoever except that, without the approval of stockholders of the
Company, no such revision or amendment may increase the number of shares subject
to the Plan, reduce the exercise price below that provided in the Plan, or cause
the Plan not to be in conformance with the requirements of Section 423 of the
Code. No suspension, discontinuation, revision or amendment may adversely affect
any award theretofore made, without the consent of the optionee, unless
necessary to comply with applicable law.
Any reference to any Section or provision of the Code shall include any
successor provision thereto.
13. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS.
The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company, which shall be composed of not less than two
directors of the Company, none of whom shall be eligible to serve on the
Committee unless such person is then a Non-Employee Director within the meaning
of the rules adopted by the Securities and Exchange Commission under Section 16
of the Securities Exchange Act of 1934, if and as such rules are then in effect.
Each member shall serve for a term commencing on a date specified by the Board
of Directors and continuing until such member dies or resigns or is removed from
office by the Board of Directors.
The Committee shall have the power to make, amend and repeal rules and
regulations for the interpretation and administration of the Plan.
14. EFFECTIVE DATE.
The effective date of the Plan shall be the date it is approved by the
stockholders of ANTEC Corporation at a special meeting at which the
reorganization of ANTEC Corporation as a wholly owned subsidiary of the Company
is also approved.
209
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of such corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation or enterprise. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation may indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its favor
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where a present or former officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify such person against the expenses (including
attorneys' fees) which such person actually and reasonably incurred in
connection therewith. The indemnification provided is not deemed to be exclusive
of any other rights to which an officer or director may be entitled under any
corporation's by-laws, agreement, vote or otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
A list of the exhibits included as part of this registration statement
is set forth on the Exhibit Index immediately preceding such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, amounts which would otherwise be required to be shown
with respect to any item are not material, are inapplicable or the required
information has already been provided elsewhere in the registration statement.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change in such information in the
registration statement;
210
(2) That, for the propose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired or involved therein,
that was not the subject of and included in the registration statement when it
became effective.
211
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
2.1+ Agreement and Plan of Reorganization dated as of October 18, 2000, as amended Included in Appendix I to
by that First Amendment to Agreement and Plan of Reorganization dated as of Proxy Statement/
April 9, 2001 Prospectus
3.1 Certificate of Incorporation of Broadband Parent
3.2 Bylaws of Broadband Parent
4.1 Form of Common Stock Certificate
5.1 Opinion of Troutman Sanders LLP regarding legality of the shares of common
stock being offered
8.1 Opinion of Troutman Sanders LLP regarding certain tax matters
10.1 Form of Intellectual Property Rights Agreement ***
10.2 Amended and Restated Investor Rights Agreement ***
10.3 Form of Registration Rights Agreement (Nortel Networks) **
10.4 Termination Agreement **
10.5 First Amendment to Termination Agreement ***
10.6 Release and Amendment Agreement ***
23.1 Consent of Troutman Sanders LLP Included in Exhibit 5.1
23.2 Consent of Ernst & Young LLP
23.3 Consent of Deloitte & Touche LLP
99.1 Form of Proxy Card
99.2 Opinion of Credit Suisse First Boston Corporation Included in Appendix II to
Proxy Statement/ Prospectus
99.3 Consent of John M. Egan ****
99.4 Consent of Robert J. Stanzione ****
99.5 Consent of John (Ian) Anderson Craig ****
99.6 Consent of Rod F. Dammeyer ****
99.7 Consent of James L. Faust ****
99.8 Consent of Craig Johnson
99.9 Consent of William H. Lambert ****
99.10 Consent of Vickie Yohe
99.11 Consent of John R. Petty ****
99.12 Consent of Larry Romrell ****
99.13 Consent of William T. Schleyer ****
99.14 Consent of Samuel K. Skinner ****
99.15 Consent of Bruce Van Wagner ****
---------------
** Incorporated by reference to the Exhibits filed with the Form 8-K
filed by ANTEC Corporation (File No. 000-22336) on October 25, 2000.
*** Incorporated by reference to the Exhibits filed with the Form 8-K
filed by ANTEC Corporation (File No. 000-22336) on April 13, 2001.
**** Previously filed.
+ The Registrant agrees to furnish supplementally a copy of any omitted
schedule to this agreement to the Securities and Exchange Commission
upon its request.
PART II-3
212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Duluth, State of Georgia, on July 2, 2001.
BROADBAND PARENT CORPORATION
By: /s/ Robert J. Stanzione
-------------------------------
Robert J. Stanzione
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on July 2, 2001.
SIGNATURE TITLE
--------- -----
/s/ Robert J. Stanzione President, Principal Executive
----------------------------- Officer and Director
Robert J. Stanzione
/s/ Lawrence A. Margolis Vice President, Secretary, Principal
----------------------------- Accounting Officer and Principal
Lawrence A. Margolis Financial Officer