FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
of
ARRIS GROUP, INC.
(Formerly named Broadband Parent Corporation and successor
registrant to ANTEC Corporation)
A Delaware Corporation
IRS Employer Identification No. 58-2588724
SEC File Number 001-16631
11450 TECHNOLOGY CIRCLE
DULUTH, GA 30097
(678) 473-2000
ARRIS Group, Inc. (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.
As of October 31, 2001, 75,150,498 shares of the registrant's Common Stock, $0.01 par value, were outstanding.
ARRIS GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Balance Sheets as of
September 30, 2001 (unaudited) and December 31, 2000 3
b) Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2001 and 2000 (unaudited) 4
c) Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000 (unaudited) 5 - 6
d) Notes to the Consolidated Financial Statements (unaudited) 7 - 18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19 - 28
Item 3. Quantitative and Qualitative Disclosures on Market Risk 29
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 4,995 $ 8,788
Accounts receivable (net of allowance for doubtful accounts of $8,951 in 2001 and $6,686 in 2000) 115,995 138,537
Accounts receivable from AT&T 25,974 21,662
Inventories 248,123 263,683
Income taxes recoverable -- 17,895
Deferred income taxes 5,066 18,928
Investments held for resale 713 1,561
Other current assets 22,098 19,098
---------- ----------
Total current assets 422,964 490,152
Property, plant and equipment (net of accumulated depreciation of $56,850 in 2001 and $55,443
in 2000) 55,926 53,353
Goodwill (net of accumulated amortization of $57,966 in 2001 and $51,559 in 2000) 298,490 144,919
Investments 12,309 12,085
Deferred income taxes -- 6,773
Other assets 10,962 24,213
---------- ----------
$ 800,651 $ 731,495
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 51,748 $ 138,774
Accrued compensation, benefits and related taxes 34,188 17,350
Other accrued liabilities 58,557 28,107
---------- ----------
Total current liabilities 144,493 184,231
Long-term debt 142,263 204,000
Deferred income taxes -- 1,362
---------- ----------
Total liabilities 286,756 389,593
Membership interest - Nortel 100,000 --
---------- ----------
Total liabilities and membership interest 386,756 389,593
Stockholders' equity:
Preferred stock, par value $1.00 per share, 5 million shares authorized, none issued
and outstanding -- --
Common stock, par value $0.01 per share, 150 million shares authorized; 75.1 million and
38.1 million shares issued and outstanding in 2001 and 2000, respectively 754 383
Capital in excess of par value 493,381 266,216
(Accumulated deficit) retained earnings (76,602) 77,569
Unrealized holding loss on marketable securities (2,685) (1,668)
Unearned compensation (745) (678)
Cumulative translation adjustments (208) 80
---------- ----------
Total stockholders' equity 413,895 341,902
---------- ----------
$ 800,651 $ 731,495
========== ==========
|
See accompanying notes to the consolidated financial statements
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------- ----------- ----------- -----------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net sales $ 174,159 $ 281,413 $ 564,132 $ 821,000
Cost of sales 160,289 229,096 495,504 664,577
----------- ----------- ----------- -----------
Gross profit 13,870 52,317 68,628 156,423
Operating expenses:
Selling, general and administrative
and development 44,376 34,772 116,068 99,410
Restructuring and impairment charges 32,541 -- 32,541 --
Write-off of in-process R&D 18,800 -- 18,800 --
Amortization of goodwill 3,949 1,230 6,408 3,688
----------- ----------- ----------- -----------
99,666 36,002 173,817 103,098
----------- ----------- ----------- -----------
Operating (loss) income (85,796) 16,315 (105,189) 53,325
Interest expense 2,431 2,821 7,490 7,960
Membership interest expense 1,609 -- 1,609 --
Other expense, net 2,571 170 9,562 1,885
Loss (gain) on marketable securities 88 3,414 849 (2,486)
----------- ----------- ----------- -----------
(Loss) income before income taxes (92,495) 9,910 (124,699) 45,966
Income tax expense 38,117 4,050 27,619 18,785
----------- ----------- ----------- -----------
Net (loss) income before extraordinary loss (130,612) 5,860 (152,318) 27,181
Extraordinary loss 1,853 -- 1,853 --
----------- ----------- ----------- -----------
Net (loss) income $ (132,465) $ 5,860 $ (154,171) $ 27,181
=========== =========== =========== ===========
Net (loss) income per common share:
Basic: (Loss) income before extraordinary loss $ (2.10) $ 0.15 $ (3.29) $ 0.72
Extraordinary loss (0.03) -- (0.04) --
----------- ----------- ----------- -----------
Net (loss) income $ (2.13) $ 0.15 $ (3.33) $ 0.72
=========== =========== =========== ===========
Diluted: (Loss) income before extraordinary loss $ (2.10) $ 0.15 $ (3.29) $ 0.67
Extraordinary loss (0.03) -- (0.04) --
----------- ----------- ----------- -----------
Net (loss) income $ (2.13) $ 0.15 $ (3.33) $ 0.67
=========== =========== =========== ===========
Weighted average common shares:
Basic 62,110 38,100 46,305 37,886
=========== =========== =========== ===========
Diluted 62,110 39,849 46,305 44,629
=========== =========== =========== ===========
|
See accompanying notes to the consolidated financial statements.
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine Months Ended
September 30,
----------- -----------
2001 2000
----------- -----------
Operating activities:
Net (loss) income $ (154,171) $ 27,181
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation 12,743 10,052
Amortization of goodwill and intangibles 6,408 3,688
Amortization of deferred finance fees 1,085 861
Amortization of unearned compensation 907 707
Provision for doubtful accounts 4,096 980
Deferred income taxes 19,294 (874)
Loss (gain) on marketable securities 849 (2,486)
Loss from equity investment 8,607 --
Write-off of acquired in-process R & D 18,800 --
Impairment of goodwill 5,877 --
Impairment of fixed assets 14,722 --
Write-down of inventories 31,970 3,500
Gain on sale of building (448) --
Changes in operating assets and liabilities, net of effects of acquisition
Decrease (increase) in accounts receivable 16,076 (51,580)
Decrease in inventories 74,964 5,511
Decrease in income taxes recoverable 17,895 5,373
(Decrease) increase in accounts payable and accrued liabilities (3,201) 19,937
Decrease (increase) in other, net 2,778 (13,430)
----------- -----------
Net cash provided by operating activities 79,251 9,420
Investing activities:
Purchases of property, plant and equipment (7,441) (12,867)
Cash proceeds from sale of building 1,061 --
Cash paid for acquisition, net of cash acquired (7,693) --
Other investments (1,500) (4,570)
----------- -----------
Net cash used in investing activities (15,573) (17,437)
Financing activities:
Borrowings under credit facilities 193,767 267,000
Reductions in borrowings under credit facilities (255,504) (249,500)
Deferred financing costs paid (6,627) (7)
Proceeds from issuance of common stock 893 7,101
----------- -----------
Net cash (used in) provided by financing activities (67,471) 24,594
----------- -----------
Net (decrease) increase in cash and cash equivalents (3,793) 16,577
Cash and cash equivalents at beginning of period 8,788 2,971
----------- -----------
Cash and cash equivalents at end of period $ 4,995 $ 19,548
=========== ===========
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See accompanying notes to the consolidated financial statements.
ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(in thousands)
Nine Months Ended
September 30,
----------- -----------
2001 2000
----------- -----------
Noncash investing and financing activities:
Net tangible assets acquired, excluding cash $ 58,055 $ --
Intangible assets acquired, including goodwill 193,263 --
Noncash purchase price, including 37,000,000 shares of common stock (243,625) --
----------- -----------
Cash paid for acquisition, net of cash acquired $ 7,693 $ --
=========== ===========
Supplemental cash flow information:
Interest paid during the period $ 2,936 $ 3,531
=========== ===========
Income taxes paid during the period $ 270 $ 15,194
=========== ===========
|
See accompanying notes to the consolidated financial statements.
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
ARRIS Group, Inc., formerly known as ANTEC Corporation (together with its consolidated subsidiaries, except as the context otherwise indicates, "ARRIS" or the "Company") is an international communications technology company, headquartered in Duluth, Georgia. The Company specializes in the design and engineering of hybrid fiber-coax ("HFC") architectures and the development and distribution of products for broadband networks. The Company provides its customers with products and services that enable reliable, high-speed, two-way broadband transmission of video, telephony, and data.
ARRIS operates in one business segment, Communications, providing a range of customers with network and system products and services, primarily HFC networks and systems for the communications industry. This segment accounts for 100% of consolidated sales, operating profit and identifiable assets of the Company. ARRIS provides a broad range of products and services to cable system operators and telecommunications providers. The Company is a leading developer, manufacturer and supplier of telephony, optical transmission, construction, rebuild and maintenance equipment for the broadband communications industry. The Company supplies most of the products required in a broadband communication system including headend, distribution, drop and in-home subscriber products.
The consolidated financial statements furnished herein reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements for the periods shown. Additionally, certain prior year amounts have been reclassified to conform to the 2001 financial statement presentation. Interim results of operations are not necessarily indicative of results to be expected from a twelve-month period. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K/A for the Company's year ended December 31, 2000 (as restated).
NOTE 2. LANCITY TRANSACTION AND RESTATEMENT
During the first quarter of 1999, the Company and Nortel Networks ("Nortel") completed the combination of the Broadband Technology Division of Nortel Networks, referred to as LANcity, with Arris Interactive, L.L.C. ("Arris Interactive"), a joint venture between the Company and Nortel. This combination was effected by the contribution of the LANcity assets and business into Arris Interactive. The Company's interest in the joint venture was reduced from 25.0% to 18.75% with potential dilution to 12.50%, while Nortel's interest was increased from 75.0% to 81.25% with the potential to increase to 87.5%.
In connection with the transaction, as previously disclosed in the first quarter of 1999, the Company recorded a one-time, pre-tax, non-cash gain of $60.0 million, net of $2.5 million of transaction related expenses, based upon an independent valuation of LANcity. The transaction was accounted for, in effect, as if it were a gain on the sale of a 12.50% interest in Arris Interactive by the Company to Nortel in exchange for a 12.50% interest in LANcity. The Company elected to recognize gains or losses on the sale of previously unissued stock of a subsidiary or investee based on the difference between the carrying amount of the equity interest in the investee immediately before and after the transaction and deferred income taxes were provided on such gain.
The Company's interest in Arris Interactive was subject to further dilution based upon its performance over the eighteen-month period ended June 30, 2000. At the expiration of the eighteen-month period, no further dilution of the Company's share of the joint venture occurred, and, based upon the initial independent valuation, the Company previously recorded an additional one-time, pre-tax, non-cash gain of $31.25 million to reflect the Company's final ownership percentage in the joint venture of 18.75%.
The Company 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
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
year ended December 31, 1999. See the Company's restated consolidated financial statements in its amended Form 10-K/A. 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. Upon further review, in connection with the acquisition of Nortel's interest in Arris Interactive, the Company 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. Accordingly, the Company 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 the Company's accounting for the transaction is predicated on the accounting by Arris Interactive, the Company has eliminated its one-time, pre-tax, non-cash gains on the LANcity transaction. The effects of the restatement on the Company's financial statements as of December 31, 2000 and for the three and nine months ended September 30, 2000 are as follows (in thousands except for per share amounts):
Three Months Ended Nine Months Ended
December 31, 2000 September 30, 2000 September 30, 2000
---------------------------- --------------------------- ---------------------------
As Reported As Restated As Reported As Restated As Reported As Restated
----------- ----------- ----------- ----------- ----------- -----------
Investments $ 105,835 $ 12,085 * * * *
Non-current deferred
income tax assets 5,292 6,773 * * * *
Total assets 823,764 731,495 * * * *
Non-current deferred
income tax liabilities 36,912 1,362 * * * *
Total liabilities 425,143 389,593 * * * *
Retained earnings 134,288 77,569 * * * *
Income tax expense * * 3,741 4,050 31,410 18,785
Net income * * 6,169 5,860 45,807 27,181
Net income per common
share:
Basic * * $ 0.16 $ 0.15 $ 1.21 $ 0.72
Diluted * * $ 0.15 $ 0.15 $ 1.09 $ 0.67
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* These items are not reported in this Form 10-Q and, therefore, are not included in this table.
NOTE 3. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued FASB Statement No. 141, Business Combinations, and FASB Statement No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of Statement No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. The new accounting rules have been adopted for the goodwill and intangible assets acquired with the Arris Interactive, L.L.C. transaction, as the acquisition occurred on August 3, 2001 (See Note 12 of Notes to the Consolidated Financial Statements). The Company will apply the new accounting rules to goodwill and intangible assets acquired prior to July 1, 2001 at the beginning of fiscal year 2002. The Company is in the process of reviewing the effects that the adoption of FASB Statement No. 142 will have on the Company's results of operations and financial position.
In 2000, the Emerging Issues Task Force reached a consensus on EITF No. 00-10, Accounting for Shipping and Handling Fees and Costs ("EITF 00-10") that states all amounts billed to a customer in a sale transaction related to shipping and handling represent revenues earned for the goods provided and should
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
be classified as revenue. Historically, the Company had not included amounts billed to customers for shipping and handling as revenues. 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 the Company's customers. For the three and nine months ended September 30, 2001, shipping and handling costs, in aggregate, were approximately $1.6 million and $5.6 million, respectively, as compared to $6.9 million and $20.0 million for the same periods in 2000. All shipping and handling costs have been appropriately reflected in net sales and cost of sales.
In June 1998, the Financial Accounting Standards Board issued FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. FASB Statement No. 133 was originally effective for fiscal years beginning June 15, 1999. However, on May 19, 1999, the FASB voted to delay the effective date for one year, to fiscal years beginning after June 15, 2000 by issuing FASB Statement No. 137. The Statement requires the Company to disclose certain information regarding derivative financial instruments. The Company adopted FASB Statement No. 133 as of December 31, 2000 and, other than additional disclosure requirements, the effects were immaterial to the Company's financial statements.
NOTE 4. RESTRUCTURING AND OTHER CHARGES
In the third quarter of 2001, the Company announced a restructuring plan to outsource the functions of most of its manufacturing facilities. This decision to reorganize was due in part to the ongoing weakness in industry spending patterns. The plan entails the implementation of an expanded manufacturing outsourcing strategy and the related closure of the four factories located in El Paso, Texas and Juarez, Mexico. The closure of the factories is anticipated to be complete during the first half of 2002. As a result, the Company recorded restructuring and impairment charges of $66.2 million. Included in these charges was approximately $32.0 million related to the write-down of inventories and approximately $1.7 million related to the write-off of remaining warranty and purchase order commitments, which have been reflected in cost of sales. Also included in the restructuring and impairment charge was approximately $5.7 million related to severance and associated personnel costs, $5.9 million related to the impairment of goodwill, $14.8 million related to the impairment of fixed assets, and approximately $6.1 million related to lease termination and other shutdown expenses of factories and office space. The personnel-related costs included termination expenses for the involuntary dismissal of 807 employees, primarily engaged in production and assembly functions performed at the facilities. ARRIS offered terminated employees separation amounts in accordance with the Company's severance policy and provided the employees with specific separation dates. The severance and associated personnel costs will be paid upon closure of the factories. As of September 30, 2001, approximately $11.1 million of expenses relating to the restructuring and impairment charges remained to be paid.
In accordance with FASB Statement No. 109, Accounting for Income Taxes, a valuation reserve of $38.1 million against deferred tax assets was recorded. As a result of the restructuring and impairment charges described above, the Company was placed in a cumulative loss position for recent years, which provides significant negative evidence to recognize deferred tax assets.
NOTE 5. INVENTORIES
Inventories are stated at the lower of average, approximating first-in, first-out, cost or market. The components of inventory are as follows (in thousands):
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
Raw material $ 56,254 $ 62,458
Work in process 10,021 9,119
Finished goods 181,848 192,106
---------- ----------
Total inventories $ 248,123 $ 263,683
========== ==========
|
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost, consists of the following (in thousands):
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
Land $ 2,164 $ 2,549
Building and leasehold improvements 12,885 15,394
Machinery and equipment 97,727 90,853
----------- -----------
112,776 108,796
Less: Accumulated depreciation (56,850) (55,443)
----------- -----------
Total property, plant and equipment, net $ 55,926 $ 53,353
=========== ===========
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NOTE 7. LONG TERM DEBT
Long-term debt consists of the following (in thousands):
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
Revolving Credit Facility $ 27,263 $ 89,000
4.5% Convertible Subordinated Notes 115,000 115,000
---------- ----------
Total long term debt $ 142,263 $ 204,000
========== ==========
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In 1998, the Company issued $115.0 million of 4.5% Convertible Subordinated Notes ("Notes") due May 15, 2003. The Notes are convertible, at the option of the holder, at any time prior to maturity, into the Company's common stock ("Common Stock") at a conversion price of $24.00 per share. The Notes became redeemable, in whole or in part, at the Company's option, on May 15, 2001. If the Notes are redeemed prior to May 15, 2002, the Company will be required to pay a premium of 1.8% of the principal amount or approximately $2.1 million. As of September 30, 2001, the Company had not exercised its option to redeem these Notes.
The Company's bank indebtedness was refinanced on August 3, 2001, in connection with the Arris Interactive L.L.C. acquisition. (See Note 12 of Notes to the Consolidated Financial Statements.) The new facility is an asset-based revolving credit facility, which initially permitted the borrowers (including the Company and Arris Interactive) to borrow up to $175 million (which can be increased under certain conditions by up to $25 million), based upon availability under a borrowing base calculation. In general, the borrowing base is limited to 85% of net eligible receivables (with special limitations in relation to foreign receivables) and 80% of the orderly liquidation value of eligible inventory (not to exceed $80 million). The facility contains traditional financial covenants, including fixed charge coverage, senior debt leverage, minimum net worth, and minimum inventory turns ratios, and a $10 million minimum borrowing base availability covenant. The facility is secured by substantially all of the borrowers' assets. The facility expires August 3, 2004 and requires the Company to refinance its 4.5% Subordinated Convertible Notes due 2003, prior to December 31, 2002.
As of September 30, 2001, the Company had approximately $99.6 million of available borrowings under the Credit Facility.
NOTE 8. COMPREHENSIVE (LOSS) INCOME
Total comprehensive (loss) for the three and nine-month periods ended September 30, 2001 was $(131.2) million and $(152.8) million, respectively. Total comprehensive income for the three and nine-
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
month periods ended September 30, 2000 was $5.9 million and $27.3 million, respectively. The difference in the comprehensive income (loss) as compared to the net income (loss) for all periods was immaterial.
NOTE 9. SALES INFORMATION
A significant portion of the Company's revenue is derived from sales to AT&T (including MediaOne Group, which was acquired by AT&T during 2000), aggregating $42.5 million and $125.8 million for the quarters ended September 30, 2001 and 2000, respectively. Through the first nine months of 2001, revenue generated by sales to AT&T were approximately $188.0 million, as compared to the same period in 2000 when sales to AT&T totaled $381.5 million. Liberty Media Corporation owns approximately 10% of the Company's outstanding common stock on a fully diluted basis. The ownership includes options to acquire an additional 854,341 shares. Until August 2001, AT&T controlled Liberty Media Corporation.
The Company operates globally and offers products and services that are sold to cable system operators and telecommunications providers. ARRIS Group's products and services are summarized in three new product categories instead of the previous four categories: broadband (previously cable telephony and Internet access); transmission, optical, and outside plant; and supplies and services. All prior period revenues have been restated to conform to the new product categories. Consolidated revenues by principal products and services for the three and nine months ended September 30, 2001 and 2000, respectively were as follows (in thousands)(unaudited):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
PRODUCT CATEGORY
Broadband $ 87,562 $ 89,025 $ 258,690 $ 258,118
Transmission, Optical, and Outside Plant 52,804 119,515 182,876 356,000
Supplies and Services 33,793 72,873 122,566 206,882
---------- ---------- ---------- ----------
Total Revenue $ 174,159 $ 281,413 $ 564,132 $ 821,000
========== ========== ========== ==========
|
The Company sells its products primarily in the United States with its international revenue being generated from Asia Pacific, Europe, Latin America and Canada. The Asia Pacific market includes Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Sampan, Singapore, Taiwan, and Thailand. The European market includes France, Ireland, Italy, Netherlands, Portugal, Spain and the United Kingdom. International sales for the three and nine months ended September 30, 2001 and 2000 are as follows (in thousands) (unaudited):
Three Months Ended Nine Months Ended
September 30, September 30,
--------- --------- --------- ---------
2001 * 2000 2001 * 2000
--------- --------- --------- ---------
INTERNATIONAL REGION
Asia Pacific $ 8,306 $ 3,735 $ 15,832 $ 11,771
Europe 16,680 8,477 26,886 26,663
Latin America 4,534 11,924 15,488 25,255
Canada 1,852 1,191 2,915 3,450
--------- --------- --------- ---------
Total International Sales $ 31,372 $ 25,327 $ 61,121 $ 67,139
========= ========= ========= =========
|
*The periods in 2001 included approximately two months of Arris Interactive, L.L.C. revenue. Under the previous joint venture agreement with Nortel, the Company was not able to sell the Arris Interactive, L.L.C products internationally. This agreement terminated upon the Company's acquisition of Nortel's share of Arris Interactive, L.L.C. on August 3, 2001.
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for the periods indicated (in thousands except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- --------- ----------- ---------
Basic:
Net (loss) income before extraordinary loss $ (130,612) $ 5,860 $ (152,318) $ 27,181
Extraordinary loss 1,853 -- 1,853 --
----------- --------- ----------- ---------
Net (loss) income $ (132,465) $ 5,860 $ (154,171) $ 27,181
=========== ========= =========== =========
Weighted average shares outstanding 62,110 38,100 46,305 37,886
=========== ========= =========== =========
Basic (loss) earnings per share $ (2.13) $ 0.15 $ (3.33) $ 0.72
=========== ========= =========== =========
Diluted:
Net (loss) income before extraordinary loss $ (130,612) $ 5,860 $ (152,318) $ 27,181
Extraordinary loss 1,853 -- 1,853 --
----------- --------- ----------- ---------
Net (loss) income (132,465) 5,860 (154,171) 27,181
Add:
4.5% convertible subordinated notes interest
and fees, net of federal income tax effect -- -- -- 2,661
----------- --------- ----------- ---------
Total $ (132,465) $ 5,860 $ (154,171) $ 29,842
=========== ========= =========== =========
Weighted average shares outstanding 62,110 38,100 46,305 37,886
Dilutive securities net of income tax benefit:
Add options / warrants -- 1,749 -- 1,951
Add assumed conversion of
4.5 % convertible subordinated notes -- -- -- 4,792
----------- --------- ----------- ---------
Total 62,110 39,849 46,305 44,629
=========== ========= =========== =========
Diluted earnings per share $ (2.13) $ 0.15 $ (3.33) $ 0.67
=========== ========= =========== =========
|
The 4.5% Convertible Subordinated Notes were antidilutive for the three and nine month periods ended September 30, 2001, and for the three month period ended September 30, 2000. The effects of the options and warrants were not presented for the three and nine months ended September 30, 2001 as the Company incurred a net loss and inclusion of these securities would be antidilutive.
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11. SUMMARY QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
The following table summarizes the Company's quarterly consolidated financial information (in thousands, except share data):
Quarters ending in 2001
-----------------------------------------------
March 31 June 30 September 30
(restated) (restated)
----------- ----------- ------------
Net sales .............................. $ 212,788 $ 177,185 $ 174,159
Gross profit (5)(6)(9) ................. 32,090 22,668 13,870
Operating (loss) (5)(9)(10) ............ (4,345) (15,048) (85,796)
(Loss) before income taxes and
extraordinary loss (4)(13) .......... (10,420) (21,784) (92,495)
Net (loss) (11)(12) .................... $ (7,218) $ (14,488) $ (132,465)
Net (loss) per common share:
Basic ................................ $ (0.19) $ (0.38) $ (2.13)
Diluted .............................. $ (0.19) $ (0.38) $ (2.13)
|
Quarters ending in 2000
------------------------------------------------
March 31 June 30 September 30
---------- ---------- ------------
Net sales (7) .......................... $ 256,571 $ 283,016 $ 281,413
Gross profit (3)(5) .................... 51,280 52,826 52,317
Operating income (1) ................... 19,320 17,690 16,315
Income before income taxes and
extraordinary loss (2)(4) ........... 16,449 19,607 9,910
Net income (8)(11)(12) ................. $ 9,727 $ 11,594 $ 5,860
Net income per common share:
Basic ................................ $ 0.26 $ 0.31 $ 0.15
Diluted .............................. $ 0.24 $ 0.28 $ 0.15
|
SUPPLEMENTAL FINANCIAL INFORMATION (excluding the effects of non-recurring items in 2001 - closure of certain manufacturing facilities and offices, write-down of Powering product line assets, inventory write-offs, acquired in-process R&D write-off, deferred finance fees write-off, mark-to-market adjustments on investments, warranty expense, severance expenses, and valuation reserves for deferred taxes; and excluding the effects of non-recurring items in 2000 - pension curtailment gain, additional inventory write-off related to the restructuring charge, mark-to-market adjustments on investments, and accrual of LANcity transaction expense which was later reversed in the fourth quarter of 2000):
Quarters ending in 2001
--------------------------------------------
March 31 June 30 September 30
(restated) (restated)
---------- ---------- ------------
Gross profit (5)(6)(9) ................. $ 32,090 $ 28,643 $ 47,538
Operating (loss) (5)(9)(10) ............ (4,345) (5,317) (787)
(Loss) before income taxes
and extraordinary loss (4)(13) ...... (10,061) (11,651) (7,398)
Net (loss) (11)(12) .................... $ (7,013) $ (8,566) $ (7,398)
Net (loss) income per common share:
Diluted .............................. $ (0.18) $ (0.22) $ (0.12)
Weighted average diluted share ....... 38,252 38,290 62,110
|
Quarters ending in 2000
-----------------------------------------
March 31 June 30 September 30
--------- --------- ------------
Gross profit (3)(5) .................... $ 51,280 $ 56,326 $ 52,317
Operating income (1) ................... 17,212 21,190 16,315
Income before income taxes
and extraordinary loss (2)(4) ....... 14,341 18,457 13,324
Net income (8)(11)(12) ................. $ 8,392 $ 12,102 $ 7,806
Net income per common share:
Diluted .............................. $ 0.21 $ 0.29 $ 0.19
Weighted average diluted share ....... 44,513 44,733 39,849
|
ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) As of January 1, 2000, the Company froze the defined pension plan
benefits for 569 participants. These participants elected to
participate in the Company's enhanced 401(k) plan. Due to the cessation
of plan accruals for such a large group of participants, a curtailment
was considered to have occurred. As a result of the curtailment, as
outlined under FASB Statement No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, the Company recorded a $2.1 million pre-tax gain
on the curtailment during the first quarter 2000.
(2) During the second quarter of 2000, the Company accrued $1.25 million
for expenses relating to the LANcity transaction. This accrual was
reversed in the fourth quarter in 2000, due to a change in estimate for
costs related to the transaction.
(3) During the second quarter of 2000, the Company evaluated its powering
and RF products and recorded a pre-tax charge of $3.5 million to cost
of goods sold.
(4) Because the Company's investment of Lucent and Avaya stock are
considered trading securities held for resale, they are required to be
carried at their fair market value with any gains or losses being
included in earnings. In calculating the fair market value of the
Lucent and Avaya investments as of June 30 and September 30, 2000, the
Company recognized a pre-tax gain of $5.9 million and a pre-tax loss of
$3.4 million, respectively. As of March 31, June 30, and September 30,
2001, the Company recognized pre-tax write-downs of $0.3 million, $0.4
million, and $0.1 million, respectively, for each quarter.
(5) During the second quarter of 2001, a workforce reduction program was
implemented which significantly reduced the Company's overall
employment levels. This action resulted in a pre-tax charge to cost of
goods sold of approximately $1.3 million for severance and related
costs incurred at the factory level. Additionally, a pre-tax charge of
$3.7 million was recorded to operating expenses.
(6) During the second quarter of 2001, a one-time warranty expense relating
to a specific product was recorded, resulting in a pre-tax charge of
$4.7 million for the expected replacement cost of this product. The
Company does not anticipate any further warranty expenses to be
incurred in connection with this product.
(7) Net sales and cost of sales for the quarters ended March 31, June 30,
and September 30, 2000 differ from the amounts reported as net sales
and cost of sales in the respective Form 10-Q's, due to the adoption of
EITF No. 00-10, Accounting for Shipping and Handling Fees and Costs, in
the fourth quarter of 2000.
(8) During the year, the Company provides for income taxes using
anticipated effective annual tax rates. The rates are based on expected
operating results and permanent differences between book and tax
income. Due to the restatement of the consolidated financial statements
in 2000 to eliminate the LANcity gain (See Note 2), the Company also
restated income tax expense (benefit) for each of the quarters in the
year ended December 31, 2000 to reflect the Company's effective annual
tax rate after restatement. Therefore, the income tax expense (benefit)
amounts for the each of the quarters in the year ended December 31,
2000 were adjusted to maintain the Company's effective annual tax rate
of 40.9% for that year.
(9) In the third quarter 2001, in connection with the restructuring plan to
outsource most of its manufacturing functions, the Company recorded
restructuring and impairment charges of approximately $66.2 million.
Included in these charges was approximately $32.0 million related to
the write-down of inventories and $1.7 million related to the write-off
of remaining warranty and purchase order commitments, which have been
reflected in cost of sales. Also included in these charges was
approximately $5.7 million related to severance and associated
personnel costs, $5.9 million related to the impairment of goodwill,
$14.8 million related to the impairment of fixed assets, and
approximately $6.1 million related to lease termination of factories
and office space and other shutdown expenses.
(10) During the third quarter 2001, the Company wrote off in-process R&D of
$18.8 million in connection with the Arris Interactive L.L.C.
acquisition.
(11) During the third quarter 2001, unamortized deferred finance fees of
$1.9 million were written off and recorded as an extraordinary loss on
the extinguishment of debt. These fees related to a loan agreement,
which was replaced in connection with the Arris Interactive L.L.C.
acquisition.
(12) As a result of the restructuring and impairment charges during the
third quarter 2001, a valuation reserve of approximately $38.1 million
against deferred tax assets was recorded in accordance with FASB
Statement No. 109, Accounting for Income Taxes. (See Note 4 of Notes to
the Consolidated Financial Statements.)
(13) In accordance with APB No. 18, The Equity Method of Accounting for
Investments in Common Stock, the quarters ended March 31, 2001 and June
30, 2001 were restated as a result of the Arris Interactive, L.L.C.
acquisition. (See Note 12 of Notes to the Consolidated Financial
Statements.)
NOTE 12. ACQUISITION OF ARRIS INTERACTIVE, L.L.C.
On August 3, 2001, the Company completed the acquisition from Nortel Networks L.L.C of the portion of Arris Interactive, L.L.C. that the Company did not own. As part of this transaction:
- A new holding company, ARRIS Group, Inc., was formed,
- The Company merged with a subsidiary of ARRIS Group, Inc. and
the outstanding ANTEC common stock was converted, on a
share-for-share basis, into common stock of ARRIS Group, Inc.
- Nortel and the Company contributed to Arris Interactive
approximately $131.6 million in outstanding indebtedness and
adjusted their ownership percentages in Arris Interactive to
reflect these contributions,
- Nortel exchanged its remaining ownership interest in Arris
Interactive for 37 million shares of ARRIS Group, Inc. common
stock (approximately 49.2% of the total shares outstanding
following the transaction) and a subordinated redeemable
preferred interest in Arris Interactive with a face amount of
$100 million, and - ANTEC Corporation, now a wholly-owned
subsidiary of ARRIS Group, Inc., changed its name to Arris
International, Inc.
The preferred interest is redeemable in approximately four quarterly installments commencing February 3, 2002, provided that certain availability and other tests are met under the Company's credit facility as described in Note 7.
The following is a summary of the purchase price allocation to record the Company's purchase of Nortel Networks' ownership interest in Arris Interactive for 37,000,000 shares of ARRIS common stock on August 3, 2001 at $6.14 per share as quoted on the Nasdaq National Market System:
(in thousands)
----------------
37,000,000 shares of ARRIS $0.01 par value common stock at $6.14 per share $ 227,180
Acquisition costs (banking fees, legal and accounting fees, printing
costs) 8,457
Write-off of abandoned leases and related leasehold improvements 2,568
Fair value of stock options to Arris Interactive, L.L.C. employees 12,531
Other 1,346
---------------
Adjusted Purchase Price $ 252,082
===============
Allocation of Purchase Price:
Net tangible assets acquired* $ 58,819
Existing technology 51,500
In-process research and development 18,800
Goodwill 122,963
---------------
$ 252,082
===============
* Net tangible assets of Arris Interactive acquired ($74,762 @ 81.25%
owned by Nortel) $ (60,744)
Contribution to capital by Nortel Networks as part of the transaction 119,563
---------------
$ 58,819
===============
|
ARRIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 acquisition. The $18.8 million of in-process technology valued for the transaction related to two projects that were 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 included:
- 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. 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 a challenge. 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 July of 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. 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, the Company 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.
The following table identifies specific assumptions for the projects, in millions:
------------------ ------------------ -------------------- --------------- ------------------- ---------------
Project Fair value Estimated Expected Expected
at date of percentage of cost to date to Discount
valuation completion complete complete rate
------------------ -------------------- --------------- ------------------- ---------------
MSAS $16.9 68.9% $9.9 July 2002 32%
Packet $1.9 41.5% $11.3 March 2002 32%
Port II
|
ARRIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 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 Interactive 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 existing revenue streams. 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.
We present below summary unaudited pro forma combined financial information for the Company and Arris Interactive to give effect to the transaction. This summary unaudited pro forma combined financial information is derived from the historical financial statements of the Company and Arris Interactive. This information assumes the transaction was consummated at the beginning of the applicable period. This information is presented for illustrative purposes only and does not purport to represent what the financial position or results of operations of the Company, Arris Interactive or the combined entity would actually have been had the transaction occurred at the applicable dates, or to project the Company's, Arris Interactive's or the combined entity's results of operations for any future period or date.
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2001 2000
---------------- ---------------
Net sales $ 605,646 $ 1,036,590
Gross profit 93,165 298,438
Operating (loss) income(1)(3) (142,614) 107,897
(Loss) income before income taxes (167,670) 101,538
Net (loss) income (2) (195,289) 61,313
================ ===============
Net (loss) income per common share:
Basic $ (0.63) $ 0.82
================ ===============
Diluted $ (0.63) $ 0.78
================ ===============
Weighted average common shares:
Basic 75,271 74,886
================ ===============
Diluted 75,271 81,629
================ ===============
|
(1) In accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but reviewed annually for impairment. The provisions of Statement No. 142 state that goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not be amortized. The information presented above, therefore, does not include amortization expense on the goodwill acquired in this transaction.
(2) In accordance with FASB Statement No. 109, Accounting for Income Taxes, a valuation reserve against deferred tax assets was recorded as a result of the restructuring and impairment charges during the third quarter 2001. Therefore, no additional adjustment for tax expense (benefit) was reflected in the information presented above.
ARRIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(3) In accordance with SEC regulations, the in-process R&D write-off is not reflected as an adjustment to the unaudited pro forma combined statements of operations as it represents a non-recurring charge directly attributable to the transaction.
In connection with the Arris Interactive, L.L.C. acquisition, the quarters ended March 31, 2001 and June 30, 2001 were restated in accordance with Accounting Principles Board ("APB") No. 18, The Equity Method of Accounting for Investments in Common Stock. This APB states that an investment in common stock of an investee that was previously accounted for by the cost method becomes qualified for use of the equity method by an increase in the level of ownership. The Company adopted the use of the equity method upon acquisition of Nortel's portion of Arris Interactive, L.L.C., and all prior periods presented have been adjusted retroactively to reflect the equity method of accounting. During 2000, Arris Interactive, L.L.C. recorded net income. However, in the periods prior to 2000, Arris Interactive, L.L.C. incurred net losses, of which the Company did not recognize its proportionate share due to its investment in Arris Interactive, L.L.C being reduced to zero. APB No. 18 states that the Company should recognize gains only after its share of net income equals its share of net losses not recognized. The Company's share of Arris Interactive's net income in 2000 did not exceed the losses unrecognized in previous years, and therefore, these periods have not been restated. However, during the periods ending March 31, 2001 and June 30, 2001, Arris Interactive, L.L.C. recorded net losses and the Company has restated these periods to reflect its share of the losses under the equity method of accounting due to the Company's investment in and advances to Arris Interactive at December 31, 2000 being sufficient to record such losses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Net Sales. The Company's sales for the third quarter 2001 decreased by 38.1% to $174.2 million as compared to the third quarter 2000 sales of $281.4 million, and decreased $3.0 million from the previous quarter's sales of $177.2 million. For the nine-month periods ended September 30, 2001 and 2000, net sales were $564.1 million and $821.0 million, respectively, a decrease of 31.3% year-over-year. The reduced volumes recorded in the three and nine months ended September 30, 2001 were a result of the widespread slowdown in telecommunications infrastructure spending. The slowdown in spending began in the fourth quarter of 2000 and continued throughout 2001. Through the three and nine months ended September 30, 2001, reduced volumes in all product categories reflect the financial and market conditions that impacted the telecommunications industry in general.
The Company's products and services are summarized in three new product categories instead of the previous four categories: broadband (previously cable telephony and Internet access); transmission, optical, and outside plant; and supplies and services. All prior period revenues have been aggregated to conform to the new product categories.
- Broadband product revenues decreased by approximately 1.6% to $87.6 million in the third quarter 2001 as compared to $89.0 million in the same quarter last year. Broadband product revenues accounted for approximately 50.3% of sales in the third quarter 2001 as compared to 31.6% for the same quarter last year. Revenues for the first nine months of 2001 increased approximately 0.2% to $258.7 million as compared to $258.1 million for the same period in 2000. However, revenues in 2001 included approximately $30.0 million of sales to AT&T that were carried over from the fourth quarter in 2000.
- Transmission, optical and outside plant product revenues decreased by approximately 55.8% to $52.8 million in the third quarter 2001 as compared to $119.5 million in the same quarter last year. This revenue accounted for approximately 30.3% of sales in the third quarter 2001 as compared to 42.5% for the same quarter last year. Revenues for the first nine months of 2001 decreased 48.6% to $182.9 million as compared to $356.0 million for the same period in 2000. Although all product lines within this category experienced a decline in sales year-over-year for this nine-month period, the areas with the most significant decreases included optronics & nodes, RF, and taps, which decreased by approximately 53.0%, 69.7%, and 66.9%, respectively.
- Supplies and services product revenues decreased by approximately 53.6% to $33.8 million in the third quarter 2001 as compared to $72.9 million in the same quarter last year. Supplies and services product revenue accounted for approximately 19.4% of sales in the third quarter 2001, as compared to 25.9% for the same quarter last year. Revenues for the first nine months decreased 40.8% to $122.5 million as compared to $206.9 million for the same period in 2000. Engineering service revenue for the first nine months of 2001 grew approximately 57.1% as compared to the same period last year. However, this increase was entirely offset by reduced sales of other product lines within this category, including fiber optic cable, outside plant, and installation materials and tools, which decreased by approximately 49.0%, 51.6%, and 26.7%, respectively, as compared to the first nine months of 2000.
Sales to the Company's largest customer, AT&T (including MediaOne Group, which was acquired by AT&T during 2000), were approximately $42.5 million during the third quarter 2001, or approximately 24.4% of the total quarterly volume. This compares to third quarter 2000 when sales to AT&T (including MediaOne Group) were $125.8 million or 44.7% of the volume for the quarter. Year to date, sales to AT&T decreased 50.7% to $188.0 million in 2001 as compared to $381.5 million in 2000. This marks a $193.5 million year-over-year decrease in revenue from the combined AT&T entity when comparing the nine-month periods.
International sales for the three months ended September 30, 2001 increased 23.9% to $31.4 million as compared to the third quarter of last year, but decreased 9.0% for the nine months ended September 30, 2001 as compared to the same period last year. International sales of the Cornerstone product line for the months of August and September were approximately $16.9 million. Under the previous agreement with Nortel, the Company was not able to sell Cornerstone internationally. This agreement terminated upon the acquisition of Arris Interactive, L.L.C. on August 3, 2001. Exclusive of the Cornerstone revenue, international sales for the quarter of $14.5 million during the quarter ended September 30, 2001 marked a decrease of approximately 42.7% as compared to the same period last year. International revenue for the three and nine months ended September 30, 2001 represented approximately 18.5% and 16.2% of total sales, respectively, net of the Cornerstone product sales during the period from January through July 2001. This compares to international revenue of 13.6% and 12.1% of the Company's total revenue for the same periods during 2000, also net of the Cornerstone product sales for the entire period.
Gross Profit. Gross profit for the three and nine months ended September 30, 2001 were $13.9 and $68.6 million, respectively, as compared to $52.3 million and $156.4 million for the comparable periods of 2000. Gross profit margins for the first nine months of 2001 slipped 6.9 percentage points to 12.2% as compared to 19.1% for the same period in 2000. As a result of the planned restructuring of manufacturing operations, approximately $32.0 million of inventory related to the factories was written down in the third quarter of 2001, significantly impacting the gross margin. Additionally, remaining warranty and purchase order commitments of approximately $1.7 million were charged to cost of goods sold during the third quarter of 2001. During the second quarter of 2001, severance costs of approximately $1.3 million were incurred in connection with the workforce reduction program incurred at the factory level. Also negatively impacting gross margins during the second quarter of 2001 was a one-time warranty expense of $4.7 million for a specific product. During the second quarter of 2000, the Company recorded an additional $3.5 million charge for product discontinuation costs, as an increase to cost of goods sold, related to the reorganization that occurred in the fourth quarter of 1999. Excluding these charges, the gross profit margin for the first nine months of 2001 and 2000 would have been approximately 19.2% and 19.5%, respectively.
Selling, General, Administrative, and Development ("SGA&D") Expenses. SGA&D expenses for the three and nine-month periods ended September 30, 2001 were $44.4 million and $116.10 million, respectively, as compared to $34.8 million and $99.4 million during the comparable periods in 2000. SGA&D expenses for the first nine months of 2001 included approximately $3.7 million of severance costs related to workforce reductions. The SGA&D expenses for the first nine months of 2000 included a one-time pre-tax gain of $2.1 million realized as a result of employee elections associated with a new and enhanced benefit plan and the resultant effect on the Company's defined benefit pension plan. Excluding the effects of these unusual charges, the expenses for the first nine months of 2001 and 2000 would have been $112.4 million and $101.5 million, respectively. This year-over-year increase is primarily the result of the additional expenses for two months from the acquired Arris Interactive, L.L.C. (See Note 12 of Notes to the Consolidated Financial Statements).
Restructuring and Impairment Charges. In the third quarter of 2001, the Company announced a restructuring plan to outsource the functions of most of its manufacturing facilities. This decision to reorganize was due in part to the ongoing weakness in industry spending patterns. The plan entails the implementation of an expanded manufacturing outsourcing strategy and the related closure of the four factories located in El Paso, Texas and Juarez, Mexico. The closure of the factories is anticipated to be complete during the first half of 2002. As a result, the Company recorded restructuring and impairment charges of $32.5 million. Included in these charges was approximately $5.7 million related to severance and associated personnel costs, $5.9 million related to the impairment of goodwill, $14.8 million related to the impairment of fixed assets, and approximately $6.1 million related to lease termination and other shutdown expenses of factories and office space. The personnel-related costs included termination expenses for the involuntary dismissal of 807 employees, primarily engaged in production and assembly functions performed at the facilities. ARRIS offered terminated employees separation amounts in accordance with the Company's severance policy and provided the employees with specific separation dates. The severance and associated personnel costs will be paid upon closure of the factories. As of September 30, 2001, approximately $11.1 million of expenses relating to the restructuring and impairment charges remained to be paid.
In accordance with FASB Statement No. 109, Accounting for Income Taxes, a valuation reserve of $38.1 million against deferred tax assets was recorded. As a result of the restructuring and impairment charges described above, the Company was in a cumulative loss position for recent years, which provides significant negative evidence to recognize deferred tax assets.
Write-off of in-process R&D. In accordance with accounting principles generally accepted in the United States, acquired in-process research and development was written off in connection with the Arris Interactive, L.L.C. acquisition during the third quarter 2001 (See Notes 12 of Notes to the Consolidated Financial Statements).
Loss on Marketable Securities. In 2000, the Company made a $1.0 million strategic investment in Chromatis Networks, Inc., receiving shares of the company's preferred stock. On June 28, 2000, Lucent Technologies announced it had completed an acquisition of Chromatis, making it part of Lucent's Optical Networking Group. As a result of this acquisition, the Company's shares of Chromatis stock were converted into shares of Lucent stock. Additionally, as a result of Lucent's spin off of Avaya, Inc., during the third quarter of 2000, the Company was issued shares of Avaya stock.
Because these shares of Lucent and Avaya stock are considered trading securities held for resale, they are carried at their fair market value with any unrealized gains or losses being included in earnings. In calculating the fair market value of these investments on September 30, 2001, ARRIS recognized a $0.1 million pre-tax write down of the investments for the third quarter, resulting in a year-to-date market loss of $0.8 million as compared to the pre-tax gain of $2.5 million recorded during the first nine months of 2000.
As of September 30, 2001, the carrying value of the Lucent and Avaya stock was $0.7 million.
Interest Expense. Interest expense for the quarters ended September 30, 2001 and 2000 was $2.4 million and $2.8 million, respectively. Interest expense for the first nine months of 2001 was $7.5 million, as compared to $8.0 million recorded during the first nine months of 2000. Interest expense for all periods reflects the cost of borrowings on the Company's revolving line of credit and the interest paid on the 4.5% Convertible Subordinated Notes due 2003. As of September 30, 2001, the Company had a balance of $27.3 million outstanding under its Credit Facility in floating debt, as compared to $86.0 million outstanding at September 30, 2000. As of September 30, 2001, the average interest rate on its outstanding line of credit borrowings was 8.00% with an overall blended rate of approximately 5.17% including the subordinated notes. As of September 30, 2000, the average interest rate on the Company's outstanding line of credit borrowings was 8.22%, with an overall blended rate of approximately 6.10% including the subordinated notes.
Income Tax Expense. In accordance with FASB Statement No. 109, a valuation reserve of $38.1 million against deferred tax assets was recorded (See Note 4 of Notes to the Consolidated Financial Statements). This resulted in an income tax expense of $38.1 million for the quarter ended September 30, 2001 as compared to an expense of approximately $4.1 million for the same period during 2000. During the first nine months of 2001, a tax expense of $27.6 million was recorded as compared to an expense of approximately $18.8 million during the same period in 2000.
Net (Loss) Income. A net loss of $(132.5) million was recorded for the third quarter of 2001, as compared to net income of $5.9 million for the third quarter of 2000. The quarterly results for 2001 included restructuring and impairment expenses of approximately $32.5 million, inventory write-offs of $32.0 million, warranty and purchase order commitment write-offs of $1.7 million, income tax valuation charges of $38.1 million, an in-process R&D write-off of $18.8 million, a market adjustment of $0.1 million on the Company's investment in Lucent and Avaya, and an extraordinary loss of $1.9 million in connection with the write-off of the remaining deferred finance fees on the previous credit facility. The quarterly results for 2000 included a pre-tax loss of $3.4 million on the Company's investment in Lucent and Avaya, and a charge of $3.5 million in connection with product discontinuation costs reflected as an increase in cost of goods sold. Exclusive of the above transactions, the net loss recorded for the third quarter 2001 was $(7.4) million or a loss of $(0.12) per diluted share as compared to net income of $7.8 million or $0.19 per diluted share in the third quarter 2000. A net loss of $(154.2) million was recorded for the nine-month period ended September 30, 2001 as compared to net income of $27.2 million for the same period last year. In addition to the above-mentioned items, the year to date loss in 2001
included an additional pre-tax write down of $0.7 million on the Company's investment in Lucent and Avaya, severance expenses of approximately $5.0 million, and a one-time warranty expense of $4.7 million. The year to date income in 2000 included a pre-tax gain of $5.9 million on the Company's investment in Lucent and Avaya, and $1.3 million of LANcity transaction expenses, which were later reversed in the fourth quarter of 2000. Exclusive of these one-time items, the net loss for the nine months ended September 30, 2001 was $(23.0) million or $(0.50) per diluted share as compared to the net income of $28.3 million or $0.69 per diluted share for the comparable period in 2000.
Acquisition of Arris Interactive, L.L.C. On August 3, 2001, the Company completed the acquisition from Nortel Networks L.L.C of the portion of Arris Interactive L.L.C. that the Company did not own. As part of this transaction:
- A new holding company, ARRIS Group, Inc., was formed,
- The Company merged with a subsidiary of ARRIS Group, Inc. and
the outstanding ANTEC common stock was converted, on a
share-for-share basis, into common stock of ARRIS Group, Inc.
- Nortel and the Company contributed to Arris Interactive
approximately $131.6 million in outstanding indebtedness and
adjusted their ownership percentages in Arris Interactive to
reflect these contributions,
- Nortel exchanged its remaining ownership interest in Arris
Interactive for 37 million shares of ARRIS Group Inc. common
stock (approximately 49.2% of the total shares outstanding
following the transaction) and a subordinated redeemable
preferred interest in Arris Interactive with a face amount of
$100 million, and
- ANTEC Corporation, now a wholly-owned subsidiary of ARRIS
Group, Inc., changed its name to Arris International, Inc.
INDUSTRY CONDITIONS
The Company's performance is largely dependent on capital spending for constructing, rebuilding, maintaining or upgrading broadband communications systems. After a period of intense consolidation and rapid stock-price acceleration within the industry during 1999, the fourth quarter of 2000 brought a sudden tightening of credit availability throughout the telecom industry and a broad-based and severe drop in market capitalization for the sector during the period. This caused broadband system operators to become more judicious in their capital spending, adversely affecting the Company and other equipment providers, generally.
In response to this downturn, the Company has significantly reduced expense levels, including workforce reductions during the first quarter of 2001 and the more significant reductions announced and implemented in early April 2001. The action taken in April resulted in a pre-tax charge of approximately $5.0 million in the second quarter of 2001 for severance and related separation costs in connection with the workforce reduction program, which reduced overall employment levels by approximately 545 employees. Additionally, ARRIS has evaluated underperforming assets to assess their long-term strategic role within the Company. As a result of the evaluation, the Company has made the decision to restructure the manufacturing operations and is in the process of implementing an outsourcing strategy. This manufacturing restructuring resulted in the closure of four factories in El Paso, Texas and Juarez, Mexico and the associated involuntary termination of 807 employees. The outsourcing plan is anticipated to be completed during the first half of 2002.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
FINANCING
In connection with the Arris Interactive L.L.C. acquisition, all of the Company's existing bank indebtedness was refinanced. The new facility is an asset-based revolving credit facility initially permitting the borrowers (including the Company and Arris Interactive) to borrow up to $175 million (which can be increased under certain conditions by up to $25 million), based upon availability under a borrowing base calculation. In general, the borrowing base is limited to 85% of net eligible receivables (with special
limitations in relation to foreign receivables) and 80% of the orderly liquidation value of eligible inventory (not to exceed $80 million). The facility contains traditional financial covenants, including fixed charge coverage, senior debt leverage, minimum net worth, and minimum inventory turns ratios, and a $10 million minimum borrowing base availability covenant. The facility is secured by substantially all of the borrowers' assets. The facility expires August 3, 2004 and requires the Company to refinance its 4.5% Subordinated Convertible Notes due in 2003 prior to December 31, 2002.
As of September 30, 2001, the Company had approximately $27.3 million outstanding under its Credit Facility and $99.6 million of available borrowings. The commitment fee on unused borrowings is approximately 0.2%. The average annual interest rate on these outstanding borrowings was approximately 8.00% at September 30, 2001 as compared to 8.22% at September 30, 2000.
FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company, from time to time, will enter into financing arrangements with customers. These financial instruments include letters of credit, commitments to extend credit and guarantees of debt. These agreements could include the granting of extended payment terms that result in a longer collection period for accounts receivable and slower cash inflows from operations and/or could result in the deferral of revenue.
INVESTMENTS
In the ordinary course of business, the Company may make strategic investments in the equity securities of various companies, both public and private. The Company holds investments in the common stock of Lucent Technologies and Avaya, Inc. totaling approximately $0.7 million at September 30, 2001. These investments are considered trading securities, and accounted for approximately 5% of the Company's total investments at September 30, 2001. Changes in the market value of these securities are recognized in income and resulted in a pre-tax loss of approximately $0.1 million and $0.8 million for the three and nine month periods ending September 30, 2001, respectively, as compared to the pre-tax (loss) gain of $(3.4) and $2.5 million recorded during the three and nine months ended September 30, 2000. The Company's remaining investments in marketable securities, totaling $0.9 million, are classified as available-for-sale and accounted for approximately 7% of the Company's total investments at September 30, 2001. The remaining 88% of the Company's investments at September 30, 2001 consist of securities that are not traded actively in a liquid market.
CAPITAL EXPENDITURES
The Company's capital expenditures were $3.0 million and $3.8 million in the three months ended September 30, 2001 and 2000, respectively. Capital expenditures were $7.4 million for the nine months of 2001 as compared to $12.9 million during the same period in 2000. The Company had no significant commitments for capital expenditures at September 30, 2001.
CASH FLOW
Cash levels decreased by approximately $3.8 million during the first nine months of 2001 as compared to an increase of approximately $16.6 million during the same period of the prior year. As discussed in more detail below, operating activities in 2001 provided approximately $79.3 million in positive cash flow while investing activities used approximately $15.6 million and financing activities used approximately $67.5 million in cash flow.
Operating activities provided cash of $79.3 million during the first nine months of 2001. A net loss used $154.2 million in cash flow during this period. Other non-cash items such as depreciation, amortization, deferred income taxes, provisions for doubtful accounts, and losses on marketable securities and equity investments accounted for positive cash flow of approximately $53.9 million during the first nine months of 2001. Additionally, the write-off of acquired in-process R&D provided $18.8 million, and the impairment of goodwill and fixed assets accounted for $20.6 million of positive cash flow. The write-
down of inventories provided approximately $32.0 million, while the gain recognized on the sale of a building used approximately $0.4 million. Decreases in accounts receivable and inventory, net of the effects of the acquisition, of approximately $16.1 million and $75.0 million, respectively, provided positive cash flow. A decrease in income taxes recoverable and other, net, also net of the effects of acquisition, provided cash of approximately $20.7 million, and a decrease in accounts payable and accrued liabilities, net, used approximately $3.2 million in cash through September 30, 2001.
Days sales outstanding ("DSO") was approximately 73 days at September 30, 2001 as compared to 75 days outstanding at the close of the third quarter 2000. Despite the marked decrease in revenue during 2001 along with the correlating decrease in receivable levels, the Company has maintained a relatively level number of days of uncollected sales in receivables.
Current inventory levels related to operating activities decreased by $75.0 million, net of the effects of the acquisition, during the nine months ended September 30, 2001. Inventory turns during the third quarter 2001 were 2.7 times as compared to 4.5 times in the third quarter 2000. This decrease was mainly driven by the reduction in sales volume when comparing the two periods.
A decrease in accounts payable and accrued liabilities, net of the effects of the acquisition, used approximately $3.2 million in cash during the first nine months of 2001. This decrease in the level of payables and accrued expenses is related to the timing of the processing of vendor invoices and the payment of same.
During the first nine months of 2000, net cash provided by operating activities was $9.4 million. Net income provided $27.2 million in cash flow during this period. Other non-cash items such as depreciation, amortization, deferred income tax, provisions for doubtful accounts and losses on marketable securities accounted for positive cash flow of approximately $12.9 million during the first nine months of 2000. The write-down of inventories provided approximately $3.5 million. Increases in accounts receivable and other, net, used cash of $51.6 million and $13.4 million, respectively. These operating cash outlays in 2000 were offset by decreases of $5.5 million in inventory, $5.4 million in income taxes recoverable, and $19.9 million in accounts payable and accrued liabilities.
Cash flows used in investing activities were $15.6 million and $17.4 million for the nine months ended September 30, 2001 and 2000, respectively. These investment amounts reflect $7.4 million and $12.9 million in purchases of capital assets during the respective periods. The Company also funded approximately $1.5 million and $4.6 million in strategic investments during the nine months ended September 30, 2001 and 2000, respectively. During the nine months of 2001, proceeds from the sale of a building provided cash of approximately $1.1 million. The funds paid for the Arris Interactive, L.L.C. acquisition, net of the cash acquired in the transaction, utilized cash of approximately $7.7 million for the nine months ended September 30, 2001.
Cash flows used in financing activities were $67.5 million for the nine months ended September 30, 2001 as compared to a cash inflow of $24.6 million for the same period in 2000. During the first nine months of 2001 the Company paid down approximately $61.7 million on its credit facility, as compared to net borrowings of $17.5 million during the same period in 2000. Deferred financing fees paid used approximately $6.6 million during the first nine months in 2001. The results for both 2001 and 2000 were also affected by the issuance of common stock that provided positive cash flows of approximately $0.9 million and $7.1 million, respectively.
Based upon current levels of operations, the Company expects that sufficient cash flow will be generated from operations so that, combined with other financing alternatives available, including bank credit facilities, the Company will be able to meet all of its current debt service, capital expenditure and working capital requirements. The Company also is in the process of exploring various alternatives to retire some or all of the 4.5% Convertible Subordinated Notes due in 2003.
FORWARD-LOOKING STATEMENTS
Certain information and statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report, including statements using terms such as "may," "expect," "anticipate," "intend," "estimate," "believe," "plan," "continue," "could be," or similar variations or the negative thereof are forward-looking statements, including statements that are based on current expectations, estimates, forecasts, and projections about the markets in which the Company operates, restructuring effects (estimated savings), and sufficiency of funding, The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. Important factors that could cause results or events to differ from current expectations are described in the risk factors below. These factors are not an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of the Company's business. In providing forward-looking statements, the Company expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise.
RISK FACTORS
THE COMPANY'S BUSINESS HAS MAINLY COME FROM TWO KEY 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 THE COMPANY'S BUSINESS.
The Company's two largest customers are AT&T and Cox Communications. For the nine-month period ended September 30, 2001, sales to AT&T (including sales to MediaOne Group, which was acquired by AT&T during 2000) accounted for approximately 33.3% of the Company's total sales, while Cox Communications accounted for approximately 14.9%. Other than Adelphia Communications Corp. and Insight Communications, which accounted for 8.4% and 6.1% of the Company's total revenues, respectively, for the first nine months of 2001, no other customer provided more than 5.0% of the Company's total sales for this period. The Company is the exclusive provider of all of Cox Communication's cable telephony products currently being deployed in nine metro areas. Additionally, the Company is the sole provider of cable telephony products for AT&T within nine additional metro markets. Although the Company's relationships with AT&T and Cox Communications are expected to continue, the loss of one or both of these customers, or a significant reduction in services provided to one or both of them, would have a material adverse impact on the Company.
Liberty Media Corporation, which had been a part of the Liberty Media Group of AT&T (whose financial performance was "tracked" by a separate class of AT&T stock), effectively controls approximately 10% of the Company's outstanding common stock on a fully diluted basis. In August of 2001, AT&T spun off Liberty Media to the holders of its tracking stock, and AT&T subsequently no longer indirectly owns that interest in the Company.
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 the Company, 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 the Company's business.
THE COMPANY'S BUSINESS IS DEPENDENT ON CUSTOMERS' CAPITAL SPENDING ON BROADBAND COMMUNICATIONS SYSTEMS, AND REDUCTIONS BY CUSTOMERS IN CAPITAL SPENDING COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS.
The Company's performance has been 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, the Company's sales and profits, including:
- general economic conditions,
- availability and cost of capital,
- other demands on and opportunities for capital,
- regulations,
- demands for network services,
- competition and technology, and
- real or perceived trends or uncertainties in these factors.
THE MARKETS IN WHICH THE COMPANY OPERATES ARE INTENSELY COMPETITIVE, AND COMPETITIVE PRESSURES MAY ADVERSELY AFFECT THE COMPANY'S RESULTS OF OPERATIONS.
The markets for broadband communications systems are extremely competitive and dynamic, requiring the companies that compete in these markets to react quickly and capitalize on change. This will require the Company to retain skilled and experienced personnel as well as deploy substantial resources toward meeting the ever-changing demands of the industry. The Company competes with national and international manufacturers, distributors and wholesales, including many companies larger than the Company. The Company's major competitors include:
- ADC Telecommunications, Inc.,
- C-COR.net Corporation,
- General Instrument Corporation, now a part of Motorola, Inc.,
- Harmonic Inc.,
- Philips, and
- Scientific-Atlanta, Inc.
The rapid technological changes occurring in the broadband markets may lead to the entry of new competitors, including those with substantially greater resources than the Company. Since the markets in which the Company competes are characterized by rapid growth and, in some 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 the Company's sales and profitability. The broadband communications industry is further characterized by rapid technological change. In the future, technological advances could lead to the obsolescence of some of the Company's current products, which could have a material adverse effect on the Company's business.
Further, many of the Company's larger 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 the Company's competitors have been in operation longer than the Company and therefore have more long-standing and established relationships with domestic and foreign broadband service users. The Company may not be able to compete successfully in the future, and competition may harm the Company's business.
PRODUCTS CURRENTLY UNDER DEVELOPMENT MAY FAIL TO REALIZE ANTICIPATED
BENEFITS.
Rapidly changing technologies, evolving industry standards, frequent new product introductions and relatively short product life cycles characterize the markets for the Company's products. The technology applications currently under development by the Company may not be successfully developed. Even if the developmental products are successfully developed, they may not be widely used or ARRIS Group, Inc. may not be able to successfully exploit these technology applications. To compete successfully, the Company must quickly design, develop, manufacture and sell new or enhanced products that provide increasingly higher levels of performance and reliability. However, the Company 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, the competitors may develop similar or alternative new technology solutions and applications that, if successful, could have a material adverse effect on the Company. The Company's strategic alliances are based on business relationships that 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 COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS.
The telecommunications industry has experienced the consolidation of many industry participants and this trend is expected to continue. The Company and one or more of its competitors may each supply products to businesses that have merged or will merge in the future. Consolidations could result in delays in purchasing decisions by merged businesses, with the Company 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 the Company'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 the Company 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 its product needs. These consolidated supplier companies could have a material adverse effect on the Company's business.
THE COMPANY'S SUCCESS DEPENDS IN LARGE PART ON ITS ABILITY TO ATTRACT
AND RETAIN QUALIFIED PERSONNEL IN ALL FACETS OF ITS OPERATIONS.
Competition for qualified personnel is intense, and the Company may not be successful in attracting and retaining key executives, marketing, engineering and sales personnel, which could impact its ability to maintain and grow its operations. The Company'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 the Company's employees and in the future, these attempts may continue. The loss of services of any key personnel, the inability to attract and retain qualified personnel in the future or delays in hiring required personnel, particularly engineers and other technical professionals, could negatively affect the Company's business.
THE COMPANY'S INTERNATIONAL OPERATIONS MAY BE ADVERSELY AFFECTED BY ANY DECLINE IN THE DEMAND FOR BROADBAND SYSTEMS DESIGNS AND EQUIPMENT IN INTERNATIONAL MARKETS.
Historically, sales of broadband communications equipment into international markets have been an important part of the Company's business, a trend that the Company expects to continue. In addition, United States broadband system designs and equipment are increasingly being deployed 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 the Company's future business, there can be no assurances that international markets will continue to develop or that the Company will receive additional contracts to supply equipment in these markets. The Company's international operations may be adversely affected by changes in the foreign laws or trade in the countries in which it has manufacturing or assembly plants. A significant portion of the Company's products are manufactured or assembled in Mexico and other countries outside the United States.
The Company's foreign operations are subject to risks inherent in conducting operations abroad, including risks with respect to:
- currency exchange rates between the United States and Mexico and other
countries in which the Company has operations;
- economic and political destabilization;
- restrictive actions and taxation by foreign governments in countries
where the Company has operations;
- difficulty in converting earnings to U.S. dollars or moving funds out
of the country in which they were earned;
- longer accounts receivable payment cycles and difficulties in
collecting these accounts receivable in countries where the Company
has operations;
- nationalization of the Company's businesses;
- the laws and policies of the United States affecting trade;
- foreign investment and loans; and
- foreign tax laws.
THE COMPANY'S PROFITABILITY HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE,
WHICH COULD ADVERSELY AFFECT THE PRICE OF THE COMPANY'S STOCK.
The Company has experienced years with significant operating losses. Although the Company has been profitable during recent years, the Company'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 the Company's stock price.
THE COMPANY 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, the Company evaluates 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. ARRIS currently is exploring whether to dispose of one of its minor product lines, although it has not entered into any sale agreements in connection therewith. In some instances, confidentiality agreements and other considerations might prohibit the Company from disclosing the terms of the divestitures until they close, if even then. Future acquisitions and divestitures entail various risks, including:
- the risk that the Company 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of the Company'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.
The Company is exposed to various market risks, including interest rates and foreign currency rates. Changes in these rates may adversely affect its results of operations and financial condition. To manage the volatility relating to these typical business exposures, the Company may enter into various derivative transactions, when appropriate. The Company does not hold or issue derivative instruments for trading or other speculative purposes. Taking into account the effects of interest rate changes on the Company's revolving debt facility, a hypothetical 100 basis point adverse change in interest rates would increase interest expense by approximately $0.6 million annually. As of September 30, 2001, the Company had no material contracts denominated in foreign currencies.
In the past, the Company has used interest rate swap agreements, with large creditworthy financial institutions, to manage its exposure to interest rate changes. These swaps would involve the exchange of fixed and variable interest rate payments without exchanging the notional principal amount. At September 30, 2001 the Company did not have any outstanding interest rate swap agreements.
The Company is exposed to foreign currency exchange rate risk as a result of sales of its products in various foreign countries and manufacturing operations conducted in Juarez, Mexico. In order to minimize the risks associated with foreign currency fluctuations, most sales contracts are issued in U.S. dollars. The Company has previously used foreign currency contracts to hedge the risks associated from foreign currency fluctuations for significant sales contracts, however, no significant contracts were in place at September 30, 2001. The Company constantly monitors the exchange rate between the U.S. dollar and Mexican peso to determine if any adverse exposure exists relative to its costs of manufacturing. The Company does not maintain Mexican peso denominated currency. Instead, U.S. dollars are exchanged for pesos at the time of payment.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the stockholders of ANTEC Corporation, which is the predecessor registrant to ARRIS Group, Inc., held on July 25, 2001:
A proposal was made and adopted to approve and adopt the Agreement and Plan of Reorganization, by and among ARRIS Group, Inc., ANTEC Corporation (now known as Arris International, Inc.), Broadband Transition Corporation, Nortel Networks Inc., Nortel Networks LLC and Arris Interactive L.L.C., and the shares present were voted as follows:
Number of Number of Shares Number of
Shares Voted For Voted Against Shares Withheld
---------------- ---------------- ---------------
Approval and adoption of the Agreement and Plan
of Reorganization and related transactions 26,354,327 95,750 35,359
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A proposal was made and adopted to approve ARRIS Group's 2001 Stock Incentive Plan, and the shares present were voted as follows:
Number of Number of Shares Number of
Shares Voted For Voted Against Shares Withheld
---------------- ---------------- ---------------
Approval of the 2001 Stock Incentive Plan 21,780,275 4,091,719 613,442
|
A proposal was made and adopted to approve ARRIS Group's Management Incentive Plan, and the shares present were voted as follows:
Number of Number of Shares Number of
Shares Voted For Voted Against Shares Withheld
---------------- ---------------- ---------------
Approval of the Management Incentive Plan 25,977,273 5,881,721 613,278
|
A proposal was made and adopted to approve ARRIS Group's Employee Stock Purchase Plan, and the shares to present were voted as follows:
Number of Number of Shares Number of
Shares Voted For Voted Against Shares Withheld
---------------- ---------------- ---------------
Approval of the Employee Stock Purchase Plan 31,704,561 153,824 613,887
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Each management contract or compensation plan required to be filed as an exhibit is identified by an asterisk (*)
10.4 (g)* Form of Employee Stock Option Grant
10.4 (h)* Employee Stock Option Terms
10.4 (i)* Form of Employee Truncated Stock Option Grant
10.4 (j)* Form of Director Stock Option Grant
10.4 (k)* Director Stock Option Terms
10.4 (l)* Form of Director Truncated Stock Option Grant
10.10 (c)* Amended and Restated Employment Agreement, dated
August 6, 2001, with Robert J. Stanzione
10.10 (d)* Supplemental Executive Retirement Plan for Robert
J. Stanzione
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(b) Reports on Form 8-K
On August 13, 2001, ARRIS Group, Inc. filed a report on Form 8-K relating to Item 2, Acquisition or Disposition of Assets, in connection with the Arris Interactive transaction.
SIGNATURES
Pursuant to the requirements the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ARRIS GROUP, INC.
/s/ LAWRENCE A. MARGOLIS
Lawrence A. Margolis
Executive Vice President
(Principal Financial Officer, duly
authorized to sign on behalf of
the registrant)
Dated: November 14, 2001
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EXHIBIT 10.4 (G)
THIS DOCUMENT CONSTITUTES IS PART OF A
PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
STOCK OPTION GRANT
THIS GRANT is made as of the ___ day of _______, 20__, by ARRIS GROUP, INC., a Delaware corporation (the "Corporation) to ______________ ("Optionee").
1. INCORPORATION OF TERMS
This Grant shall be governed by the attached Arris Group, Inc. Stock Option Terms (the "Terms"), all of the provisions of which are hereby incorporated herein.
2. GRANT OF OPTIONS
On the terms and conditions stated herein and in the Terms, the Corporation hereby grants to Optionee the option to purchase ________ Shares as defined in the Terms for an exercise price of $_______ per Share.
3. RIGHT TO EXERCISE
Subject to the conditions and the exceptions set forth herein and in the Terms, or as otherwise expressly provided in any written employment agreement between Optionee and the Corporation, this Option shall become exercisable for one-fourth (1/4) of the Shares on [one year from grant], another one-fourth (1/4) on [two years from grant], another one fourth (1/4) on [three years from grant], and the remaining Shares on [four years from grant]. In addition, this Option shall be fully exercisable upon the death of Optionee or upon Optionee being determined to be fully and permanently disabled within the meaning of the Corporation's disability insurance policy then in effect.
4. TERM OF OPTION
This Option shall in any event expire in its entirety on [ten years from grant]. This Option shall further expire as set forth in the Terms.
5. EXERCISE CONSTITUTES AGREEMENT TO REFRAIN FROM COMPETITION
By exercising any portion of this Option, Optionee agrees that:
(a) for a period of four months from the date of the termination of Optionee's employment with the Corporation for any reason whatsoever, Optionee will not, directly or indirectly, compete with the Corporation by providing to any Corporation that is in a "Competing Business" services substantially similar to the services provided by Optionee at the time of termination. Competing Business shall be defined as any business that engages, in whole or in part, in the equipment and supply for broadband communications systems in the United States.
(b) for a period of two years after the termination or cessation of Optionee's employment with the Corporation for any reason whatsoever, Optionee shall not, on his own behalf or on behalf of any other person, partnership, association, corporation, or other entity, solicit or in any manner attempt to influence or induce any employee of the Corporation or its subsidiaries or affiliates (known by the Optionee to be such) to leave the employment of the Corporation or its subsidiaries or affiliates, nor shall Optionee use or disclose to any person, partnership, association, corporation or other entity any information obtained while an employee of the Corporation concerning the names and addresses of the Corporation's employees.
In the event that Optionee violates any of the provisions of paragraph
(a) or (b) hereof, the Corporation shall be entitled to receive from Optionee
the profits, if any, received by Optionee upon exercise of any Options to the
extent such Options were exercised subsequent to six months prior to the
termination of Optionee's employment.
IN WITNESS WHEREOF, the Corporation has caused this Grant to be executed on its behalf by its officer duly authorized to act behalf of the Corporation.
ARRIS GROUP, INC.,
a Delaware corporation
Its: Executive Vice President
EXHIBIT 10.4 (H)
August 6, 2001
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
ARRIS GROUP, INC.
STOCK OPTION TERMS
1. DEFINITIONS
(a) "AGREEMENT" shall mean a stock option grant made subject to these terms.
(b) "BOARD" shall mean the Board of Directors of the Corporation, as constituted from time to time, or any committee of that Board authorized to act on matters relating to stock options.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "CORPORATION" shall mean ARRIS GROUP, INC., a Delaware corporation.
(e) "DATE OF GRANT" shall mean the date as of which an agreement is effective as stated in the Agreement.
(f) "EMPLOYEE" shall mean an individual who is an employee (within the meaning of Section 3401(c) of the Code and the regulations thereunder) of the Corporation or of a Subsidiary or of a Parent or an individual who is an active consultant to the Corporation.
(g) "EMPLOYMENT TERMINATION" shall mean the termination of the Optionee's status as an Employee for any reason.
(h) "EXERCISE PRICE" shall mean the amount for which one (1) Share may be purchased upon exercise of an Option, as specified in the Agreement.
(i) "GOOD CAUSE" shall be as defined for purposes of any employment agreement Optionee may have with the Corporation, or, if there is no such agreement in effect, shall mean a reasonable basis, other than death or disability as provided in Paragraph 3(b), for an Employment Termination.
(j) "NON-STATUTORY STOCK OPTION" shall mean an option not described in Sections 422(b), 422A(b), 423(b) or 424(b) of the Code.
(k) "OPTION" shall mean a Non-Statutory Stock Option granted pursuant to an Agreement.
(l) "OPTION PERIOD" shall mean the term of an Option, as specified in an agreement.
(m) "PARENT" shall mean any corporation that owns at least fifty percent (50%) of the total combined voting power of all classes of stock in the Corporation or in another Parent.
(n) "PARTIAL EXERCISE" shall mean an exercise with respect to less than all of the remaining Shares exercisable pursuant to an Option.
(o) "TERMS" shall mean these ARRIS GROUP, INC. Stock Option Terms.
(p) "PURCHASE PRICE" shall mean the Exercise Price multiplied by the number of Shares with respect to which an Option is exercised.
(q) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(r) "SHARE" shall mean one (1) share of Stock as adjusted in accordance with Paragraph 4 of these Terms.
(s) "STOCK" shall mean the Common Stock of the Corporation.
(t) "SUBSIDIARY" shall mean any corporation, if the corporation and/or one or more Subsidiaries own at least fifty percent (50%) of the total combined voting power of all classes of outstanding stock in such corporation.
2. RIGHT TO EXERCISE
Subject to the conditions and exceptions set forth in these Terms, an Option shall become exercisable as set forth in the Agreement. No Partial Exercise of an Option may be made for a number of Shares having an aggregate value of less than $2,500.00.
3. TERM OF OPTION
An Option shall expire on the date specified in the Agreement. In addition, an Option shall expire upon termination of the Optionee's service as an Employee, if such termination occurs first, subject to the following provisions:
(a) If the Employment Termination is caused by the Optionee's death, then the Option (to the extent not previously exercised) may be exercised within twenty four (24) months after the Optionee's death by the Optionee's executors or administrators or by any person or persons who have acquired the Option directly from the Optionee by bequest or inheritance ("Optionee's Representative").
(b) If the Employment Termination is caused by the Optionee being determined to be fully and permanently disabled within the meaning of the Corporation's disability insurance policy then in effect, the Option (to the extent not previously exercised) may be exercised within twenty four (24) months after such Employment Termination.
(c) If the Employment Termination is caused by the Corporation without Good Cause, the Option (to the extent not previously exercised) may be exercised within twenty four (24) months after such Employment Termination, but only to the extent that the Option was exercisable under Paragraph 2 of these Terms on the date of the termination.
(d) If Employment Termination is caused by any reason other than as
provided in paragraphs (a), (b) and (c) above, the Option (to the
extent not previously exercised) may be exercised within sixty (60)
days after the termination, but only to the extent that the Option was
exercisable under Paragraph 2 of these Terms on the date of the
termination. If the Optionee dies within such period, the Option (to
the extent not previously exercised) may be exercised within twelve
(12) months after the Optionee's death by the Optionee's
Representative, but only to the extent that the Option was exercisable
under Paragraph 2 of these Terms on the date of the termination.
Any other provision of an agreement or these Terms to the contrary notwithstanding, an Option shall not be exercisable after the expiration date set forth in the Agreement.
For purposes of this Paragraph 3, the Employee relationship shall be deemed to continue while the Optionee is acting as a consultant, or is on military leave, sick leave or other bona fide leave of absence (to be determined in the sole discretion of the Board).
4. SHARES AND ADJUSTMENT
The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of an Option shall be subject to adjustment from time to time upon the happening of certain events, as follows:
(a) In case the Corporation shall (i) pay a dividend in Shares of Stock or make a distribution in Shares of Stock to its Stockholders, (ii) subdivide its outstanding Shares of Stock, (iii) combine its outstanding Shares of Stock into a smaller number of Shares of Stock, or (iv) issue by reclassification of its Shares of Stock other securities of the Corporation (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation), the number of Shares purchasable upon exercise of an Option immediately prior thereto shall be adjusted so that the Optionee shall be entitled to receive the kind and number of Shares or other securities of the Company which the Optionee would have owned or have been entitled to receive after the happening of any of the events described above, had the Option been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Paragraph (a) shall become effective immediately after the effective date of such event retroactive to immediately after the record date, if any, for such event.
(b) In case the Corporation shall issue rights, options or warrants to all holders of its Shares of Stock, without any charge to such holders, entitling them (for a period expiring within 45 days after the record date mentioned below in this Paragraph (b)) to subscribe for or purchase Shares of Stock at a price per share which is lower at the record date mentioned below than the then Current Market Price per Share of Stock (as defined in Paragraph (d) below), the number of Shares thereafter purchasable upon the exercise of an Option shall be determined by multiplying the number of Shares theretofore purchasable by a fraction, of which the numerator shall be the number of Shares of Stock outstanding on such record date plus the number of additional Shares of Stock offered for subscription or purchase, and of which the denominator shall be the number of Shares of Stock outstanding on such record date plus the number of shares which the
aggregate offering price of the total number of Shares of Stock so offered would purchase at the then Current Market Price per Share of Stock. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such rights, options or warrants.
(c) In case the Corporation shall distribute to all holders of Shares of Stock (i) shares of stock other than Stock, (ii) evidences of its indebtedness, (iii) assets or cash (excluding ordinary cash dividends payable out of consolidated earnings or retained earnings and dividends or distributions referred to in Paragraph (a) above), or (iv) rights, options or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Shares of Stock (excluding those referred to in Paragraph (b) above), then in each case the number of Shares thereafter purchasable upon the exercise of an Option shall be determined by multiplying the number of Shares theretofore purchasable upon the exercise of the Option, by a fraction, the numerator of which shall be the Current Market Price per Share of Stock on the record date mentioned below in this Paragraph (c), and the denominator of which shall be the Current Market Price per Share of Stock on such record date, less the then fair value of the portion of the shares of stock other than Stock or assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible or exchangeable securities applicable to one (1) Share of Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to immediately after the record date for the determination of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under Paragraphs (b) and (c) above, the Current Market Price per Share of Stock at any date shall be the average of the daily closing prices for 15 consecutive trading days commencing 20 trading days before the date of such computation. The closing price for each day shall be the last reported sale price or, in case of no such reported sale takes place on such day, the average of the closing bid and asked prices for such day, in either case on the principal national securities exchange on which the Shares are listed or admitted to trading, or if they are not listed or admitted to trading on any national securities exchange, but are traded in the over-the-counter market, the closing sale price of the Stock, or in case no sale is publicly reported, the average of the representative closing bid and asked quotations for the Stock on NASDAQ or any comparable system, or if the Stock is not listed on NASDAQ or a comparable system, the closing sale price of the Stock, or in case no sale is publicly reported, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose, or if there is no public market for the Stock, the fair market value of the Stock, as determined by Duff & Phelps Financial Consulting Company, or another independent appraisal firm selected as a replacement therefor by the Board.
(e) No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1 %) in the number of Shares purchasable upon the exercise of an Option; Provided, however, that any adjustments which by reason of this Paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment, but not later than three (3) years after the happening of the specified event or events. All
calculations shall be made to the nearest one thousandth of a Share. Anything in these provisions to the contrary notwithstanding, the Corporation shall be entitled, but shall not be required, to make such changes in the number of Shares purchasable upon the exercise of an Option, in addition to those required by this Paragraph 4, as it, in its discretion, shall determine to be advisable in order that any dividend or distribution in Shares of Stock, issuance of rights, warrants or options to purchase Stock, or distribution of shares of stock other than Stock, evidences of indebtedness or assets or cash (other than ordinary cash dividends out of consolidated earnings or retained earnings) or convertible or exchangeable securities hereafter made by the Corporation to the holders of Stock shall not result in any tax to the holders of Stock or securities convertible into Stock.
(f) Whenever the number of Shares purchasable upon the exercise of an Option is adjusted, as herein provided, the Exercise Price payable upon exercise of the Option shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of the Option immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter.
(g) In the event that at any time, as a result of any adjustment made pursuant to Paragraph (a) above, the Optionee shall become entitled to purchase any shares of capital stock of the Corporation other than Shares of Stock, thereafter the number of such other shares so purchasable upon exercise of this Option, and the Exercise Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in Paragraphs (a) through (f), inclusive, above, and Paragraphs (h) through (k) inclusive, below, and the provisions of these Terms with respect to Shares shall apply on like terms to such other shares.
(h) Upon the expiration of any rights, options, warrants or conversion or exchange privileges, if any thereof shall not have been exercised, the Exercise Price and the number of shares of Stock purchasable upon the exercise of an Option shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (x) the only Shares of Stock so issued were the Shares of Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange rights, and (y) such Shares of Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration, if any, actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange rights, whether or not exercised; provided, however, that no such readjustment shall have the effect of increasing the Exercise Price by an amount in excess of the amount of adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange rights.
(i) Whenever the number of Shares purchasable upon the exercise of an Option or the Exercise Price of an Option is adjusted, as herein provided, the Corporation shall promptly mail by first class mail, postage prepaid to the Optionee notice of such adjustment or adjustments. The Corporation may retain a firm of independent public accountants (who may be the regular accountants employed by the Corporation) to make
any computation required by these provisions and shall cause such accountants to prepare a certificate setting forth the number of Shares purchasable upon the exercise of the Option and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such certificate shall be conclusive of the correctness of such adjustment, and the Optionee shall have the right to inspect such certificate during reasonable business hours.
(j) Except as provided in these provisions, no adjustment in respect of any dividends shall be made during the term of an Option or upon the exercise of an Option.
(k) In case of any consolidation of the Corporation with or merger of the Corporation with or into another Corporation or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation or such successor or purchasing corporation (or an affiliate of such successor or purchasing corporation), as the case may be, agrees that the Optionee shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of an Option the kind and amount of shares and other securities and property (including cash) which the Optionee would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had the Option been exercised immediately prior to such action. The provisions of this Paragraph (k) shall similarly apply to successive consolidations, mergers, sales or conveyances.
5. EXERCISE OF OPTION
The Optionee or the Optionee's Representative may exercise an Option by giving written notice to the Secretary of the Corporation. The notice shall specify the election to exercise the Option, the number of Shares for which it is being exercised and the form of payment. The notice shall be signed by the person or persons exercising the Option. In the event that the Option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof satisfactory to the Corporation of the representative's right to exercise the Option. The Optionee or the Optionee's Representative shall deliver to the Secretary of the Corporation, at the time of giving the notice, payment in the form which conforms to the applicable sub-paragraph of Paragraph 15 of these Terms for the full amount of the Purchase Price.
The Corporation shall thereafter cause to be issued a certificate or certificates for the Shares as to which an Option has been exercised, registered in the name of the person exercising the Option (or in the names of such person and his or her spouse as community property or as joint tenants with right of survivorship).
6. WITHHOLDING TAXES
In the event that the Corporation determines that it is required to withhold Federal, state or local tax as a result of the exercise of an Option, the Optionee, as a condition to the exercise of the Option, shall make arrangements satisfactory to the Corporation to enable it to satisfy such withholding requirements. The Optionee shall also make arrangements satisfactory to the
Corporation to enable it to satisfy any withholding requirements that may arise in connection with the disposition of Shares purchased by exercising an Option.
7. RIGHTS AS A SHAREHOLDER
Neither the Optionee nor the Optionee's Representative shall have any rights as a shareholder with respect to any shares subject to the Option until the Option has been properly exercised and the Shares subject to the Option have been issued in the name of the Optionee or the Optionee's Representative.
8. LEGALITY OF ISSUANCE
No Shares shall be issued upon the exercise of an Option unless and until the Corporation has determined that:
(a) It and the Optionee have taken all actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange on which stock is listed has been satisfied; and
(c) Any other applicable provision of state or Federal law has been satisfied.
9. RESTRICTIONS ON TRANSFER OF SHARES
Regardless of whether the offering and sale of Shares have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Securities Act, the securities laws of any state or any other law.
In the event that the sale of Shares is not registered under the Securities Act but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree that the Shares to be acquired pursuant to the exercise of an Option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Corporation and its counsel.
Stock certificates evidencing Shares acquired under an agreement in an unregistered transaction shall bear the following restrictive legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (`ACT'). ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR, IN THE OPINION OF COUNSEL FOR THE ISSUER, SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
Any determination by the Corporation and its counsel in connection with any of the matters set forth in this Paragraph 9 shall be conclusive and binding on the Optionee and all other persons.
10. REGISTRATION OF SECURITIES
The Corporation may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Corporation shall not be obligated to take any affirmative action in order to cause the sale of Shares acquired under an Agreement to comply with any law.
11. REMOVAL OF LEGENDS
If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares sold under an agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.
12. NO TRANSFER OR ASSIGNMENT OF OPTION
Except as otherwise provided in Paragraph 3(a) of these Terms, or expressly permitted by the Board, an Option and the rights and privileges conferred thereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an Option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, the Option and the rights and privileges conferred hereby shall immediately become null and void.
13. NO EMPLOYMENT RIGHTS
Nothing in these Terms or an agreement shall be construed as giving the Optionee the right to be retained as an Employee or as impairing the right of the Corporation to terminate his or her service at any time, with or without cause.
14. DESIGNATION OF OPTION
All Options shall be Non-Statutory Stock Options.
15. PAYMENT FOR STOCK
(a) Payment in Cash The entire Purchase Price may be paid in US dollars.
(b) Surrender of Stock All or part of the Purchase Price may be paid by the surrender of Shares in good form for transfer. Such Shares must have been owned by the Optionee or the Optionee's Representative for six (6) months or more and must have a value (as determined pursuant to Paragraph 4(d) on the date of exercise of an Option which, together with any amount paid in a form other than Shares, is equal to the Purchase Price.
16. CHANGES AND INTERPRETATION
These Terms and an agreement may be modified only in writing authorized by the Committee and by either the Optionee to whom the modification is being applied or by holders of a majority of options to purchase Stock issued to Employees by the Corporation. Notwithstanding the foregoing, the Committee shall have the authority to interpret and administer the provisions of these Terms and an agreement, and such actions by the Committee shall be final and binding.
IN WITNESS WHEREOF, the Corporation has caused these Terms to be executed on its behalf of its officer duly authorized to act on behalf of the Corporation as of this 6TH day of August, 2001.
ARRIS GROUP, INC.,
a Delaware corporation
Its: Executive Vice President
EXHIBIT 10.4 (I)
THIS DOCUMENT CONSTITUTES IS PART OF A
PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
STOCK OPTION GRANT
THIS GRANT is made as of the ____ day of ______, 20__, by ARRIS GROUP, INC., a Delaware corporation (the "Corporation) to ______________ ("Optionee").
1. INCORPORATION OF TERMS
This Grant shall be governed by the attached Arris Group, Inc. Stock Option Terms (the "Terms"), all of the provisions of which are hereby incorporated herein.
2. GRANT OF OPTIONS
On the terms and conditions stated herein and in the Terms, the Corporation hereby grants to Optionee the option to purchase ________ Shares as defined in the Terms for an exercise price of $_______ per Share.
3. RIGHT TO EXERCISE
Subject to the conditions and the exceptions set forth herein and in the Terms, or as otherwise expressly provided in any written employment agreement between Optionee and the Corporation, this Option is exercisable for one-fourth [1/4] of the Shares as of the date of this grant and shall become exercisable for one-fourth (1/4) of the Shares on [one year from grant], another one-fourth (1/4) on [two years from grant], and the remaining Shares on [three years from grant]. In addition, this Option shall be fully exercisable upon (a) the death of Optionee, (b) Optionee being determined to be fully and permanently disabled within the meaning of the Corporation's disability insurance policy then in effect, or (c) the closing price of the Shares on the principal market in which they trade being at or above $_______ per Share for 20 consecutive trading days.
4. TERM OF OPTION
This Option shall in any event expire in its entirety on [ten years from grant], or, if earlier, six months and one day from the day the closing price of the Shares on the principal market in which they trade has been at or above $_______ per Share for 20 consecutive trading days. This Option shall further expire as set forth in the Terms.
5. EXERCISE CONSTITUTES AGREEMENT TO REFRAIN FROM COMPETITION
By exercising any portion of this Option, Optionee agrees that:
(a) for a period of four months from the date of the termination of Optionee's employment with the Corporation for any reason whatsoever, Optionee will not, directly or indirectly, compete with the Corporation by providing to any Corporation that is in a "Competing Business" services substantially similar to the services provided by Optionee at the time of
termination. Competing Business shall be defined as any business that engages, in whole or in part, in the equipment and supply for broadband communications systems in the United States.
(b) for a period of two years after the termination or cessation of Optionee's employment with the Corporation for any reason whatsoever, Optionee shall not, on his own behalf or on behalf of any other person, partnership, association, corporation, or other entity, solicit or in any manner attempt to influence or induce any employee of the Corporation or its subsidiaries or affiliates (known by the Optionee to be such) to leave the employment of the Corporation or its subsidiaries or affiliates, nor shall Optionee use or disclose to any person, partnership, association, corporation or other entity any information obtained while an employee of the Corporation concerning the names and addresses of the Corporation's employees.
In the event that Optionee violates any of the provisions of paragraph
(a) or (b) hereof, the Corporation shall be entitled to receive from Optionee
the profits, if any, received by Optionee upon exercise of any Options to the
extent such Options were exercised subsequent to six months prior to the
termination of Optionee's employment.
IN WITNESS WHEREOF, the Corporation has caused this Grant to be executed on its behalf by its officer duly authorized to act behalf of the Corporation.
ARRIS GROUP, INC.,
a Delaware corporation
Its: Executive Vice President
EXHIBIT 10.4 (J)
Form of stock option grant for directors
THIS DOCUMENT CONSTITUTES IS PART OF A
PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
STOCK OPTION GRANT
THIS GRANT is made as of the ___ day of ________, 20__, by ARRIS GROUP, INC., a Delaware corporation (the "Corporation) to ______________ ("Optionee").
1. INCORPORATION OF TERMS
This Grant shall be governed by the attached Arris Group, Inc. Stock Option Terms (the "Terms"), all of the provisions of which are hereby incorporated herein.
2. GRANT OF OPTIONS
On the terms and conditions stated herein and in the Terms, the Corporation hereby grants to Optionee the option to purchase ________ Shares as defined in the Terms for an exercise price of $________ per Share.
3. RIGHT TO EXERCISE
Subject to the conditions and the exceptions set forth herein and in the Terms, this Option shall become exercisable for one-fourth (1/4) of the Shares on [one year from grant], another one-fourth (1/4) on [two years from grant], another one fourth (1/4) on [three years from grant], and the remaining Shares on [four years from grant]. In addition, this Option shall be fully exercisable upon the termination of Optionee's service as a member of the Board of Directors of the Corporation because of (i) death, (ii) disability, (iii) retirement after serving at least a total of five continuous years (or such lesser period as may be agreed upon by the Board of Directors) as a member of the Board of Directors of the Corporation and any corporation acquired by the Corporation, or (iv) not being nominated for re-election as a director
4. TERM OF OPTION
This Option shall in any event expire in its entirety on [ten years from grant]. This Option shall further expire as set forth in the Terms.
IN WITNESS WHEREOF, the Corporation has caused this Grant to be executed on its behalf by its officer duly authorized to act behalf of the Corporation.
ARRIS GROUP, INC.,
a Delaware corporation
Its: Executive Vice President
EXHIBIT 10.4(K)
August 6, 2001
THIS DOCUMENT CONSTITUTES PART OF A
PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
ARRIS GROUP, INC.
TERMS FOR DIRECTOR STOCK OPTIONS
1. DEFINITIONS
(a) "AGREEMENT" shall mean a stock option grant made subject to these terms.
(b) "BOARD" shall mean the Board of Directors of the Corporation, as constituted from time to time, or any committee of that Board authorized to act on matters relating to stock options.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "CORPORATION" shall mean ARRIS GROUP, INC., a Delaware corporation.
(g) "DATE OF GRANT" shall mean the date as of which an Agreement is effective as stated in the Agreement.
(f) "DIRECTOR" shall mean an individual who is member of the Board.
[g] "EXERCISE PRICE" shall mean the amount for which one (1) Share may be purchased upon exercise of an Option, as specified in the Agreement.
(h) "NON-STATUTORY STOCK OPTION" shall mean an option not described in Sections 422(b), 422A(b), 423(b) or 424(b) of the Code.
(i) "OPTION" shall mean a Non-Statutory Stock Option granted pursuant to an Agreement.
(j) "OPTION PERIOD" shall mean the term of an Option, as specified in an Agreement.
(k) "PARTIAL EXERCISE" shall mean an exercise with respect to less than all of the remaining Shares exercisable pursuant to an Option.
(l) "TERMS" shall mean these ARRIS GROUP, INC. Stock Option Terms.
(m) "PURCHASE PRICE" shall mean the Exercise Price multiplied by the number of Shares with respect to which an Option is exercised.
(n) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(o) "SHARE" shall mean one (1) share of Stock as adjusted in accordance with Paragraph 4 of these Terms.
EXHIBIT 10.4(K)
(p) "STOCK" shall mean the Common Stock of the Corporation.
2. RIGHT TO EXERCISE
Subject to the conditions and exceptions set forth in these Terms, an Option shall become exercisable as set forth in the Agreement. No Partial Exercise of an Option may be made for a number of Shares having an aggregate value of less than $2,500.00.
3. TERM OF OPTION
An Option shall expire on the date specified in the Agreement. In addition, an Option shall expire three years after the termination of Optionee's service as a Director.
Any other provision of an Agreement or these Terms to the contrary notwithstanding, an Option shall not be exercisable after the expiration date set forth in the Agreement.
4. SHARES AND ADJUSTMENT
The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of an Option shall be subject to adjustment from time to time upon the happening of certain events, as follows:
(a) In case the Corporation shall (i) pay a dividend in Shares of Stock or make a distribution in Shares of Stock to its Stockholders, (ii) subdivide its outstanding Shares of Stock, (iii) combine its outstanding Shares of Stock into a smaller number of Shares of Stock, or (iv) issue by reclassification of its Shares of Stock other securities of the Corporation (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation), the number of Shares purchasable upon exercise of an Option immediately prior thereto shall be adjusted so that the Optionee shall be entitled to receive the kind and number of Shares or other securities of the Company which the Optionee would have owned or have been entitled to receive after the happening of any of the events described above, had the Option been exercised immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Paragraph (a) shall become effective immediately after the effective date of such event retroactive to immediately after the record date, if any, for such event.
(b) In case the Corporation shall issue rights, options or warrants to all holders of its Shares of Stock, without any charge to such holders, entitling them (for a period expiring within 45 days after the record date mentioned below in this Paragraph (b)) to subscribe for or purchase Shares of Stock at a price per share which is lower at the record date mentioned below than the then Current Market Price per Share of Stock (as defined in Paragraph (d) below), the number of Shares thereafter purchasable upon the exercise of an Option shall be determined by multiplying the number of Shares theretofore purchasable by a fraction, of which the numerator shall be the number of Shares of Stock outstanding on such record date plus the number of additional Shares of Stock offered for subscription or purchase, and of which the denominator shall be the number of
EXHIBIT 10.4(K)
Shares of Stock outstanding on such record date plus the number of shares which the aggregate offering price of the total number of Shares of Stock so offered would purchase at the then Current Market Price per Share of Stock. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such rights, options or warrants.
(c) In case the Corporation shall distribute to all holders of Shares of Stock (i) shares of stock other than Stock, (ii) evidences of its indebtedness, (iii) assets or cash (excluding ordinary cash dividends payable out of consolidated earnings or retained earnings and dividends or distributions referred to in Paragraph (a) above), or (iv) rights, options or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Shares of Stock (excluding those referred to in Paragraph (b) above), then in each case the number of Shares thereafter purchasable upon the exercise of an Option shall be determined by multiplying the number of Shares theretofore purchasable upon the exercise of the Option, by a fraction, the numerator of which shall be the Current Market Price per Share of Stock on the record date mentioned below in this Paragraph (c), and the denominator of which shall be the Current Market Price per Share of Stock on such record date, less the then fair value of the portion of the shares of stock other than Stock or assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible or exchangeable securities applicable to one (1) Share of Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to immediately after the record date for the determination of shareholders entitled to receive such distribution.
(d) For the purpose of any computation under Paragraphs (b) and (c) above, the Current Market Price per Share of Stock at any date shall be the average of the daily closing prices for 15 consecutive trading days commencing 20 trading days before the date of such computation. The closing price for each day shall be the last reported sale price or, in case of no such reported sale takes place on such day, the average of the closing bid and asked prices for such day, in either case on the principal national securities exchange on which the Shares are listed or admitted to trading, or if they are not listed or admitted to trading on any national securities exchange, but are traded in the over-the-counter market, the closing sale price of the Stock, or in case no sale is publicly reported, the average of the representative closing bid and asked quotations for the Stock on NASDAQ or any comparable system, or if the Stock is not listed on NASDAQ or a comparable system, the closing sale price of the Stock, or in case no sale is publicly reported, the average of the closing bid and asked prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose, or if there is no public market for the Stock, the fair market value of the Stock, as determined by Duff & Phelps Financial Consulting Company, or another independent appraisal firm selected as a replacement therefor by the Board.
(e) No adjustment in the number of Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1 %) in the number of Shares purchasable upon the exercise of an Option; Provided, however, that any adjustments which by reason of this Paragraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment, but not
EXHIBIT 10.4(K)
later than three (3) years after the happening of the specified event or events. All calculations shall be made to the nearest one thousandth of a Share. Anything in these provisions to the contrary notwithstanding, the Corporation shall be entitled, but shall not be required, to make such changes in the number of Shares purchasable upon the exercise of an Option, in addition to those required by this Paragraph 4, as it, in its discretion, shall determine to be advisable in order that any dividend or distribution in Shares of Stock, issuance of rights, warrants or options to purchase Stock, or distribution of shares of stock other than Stock, evidences of indebtedness or assets or cash (other than ordinary cash dividends out of consolidated earnings or retained earnings) or convertible or exchangeable securities hereafter made by the Corporation to the holders of Stock shall not result in any tax to the holders of Stock or securities convertible into Stock.
(f) Whenever the number of Shares purchasable upon the exercise of an Option is adjusted, as herein provided, the Exercise Price payable upon exercise of the Option shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Shares purchasable upon the exercise of the Option immediately prior to such adjustment, and of which the denominator shall be the number of Shares so purchasable immediately thereafter.
(g) In the event that at any time, as a result of any adjustment made pursuant to Paragraph (a) above, the Optionee shall become entitled to purchase any shares of capital stock of the Corporation other than Shares of Stock, thereafter the number of such other shares so purchasable upon exercise of this Option, and the Exercise Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Shares contained in Paragraphs (a) through (f), inclusive, above, and Paragraphs (h) through (k) inclusive, below, and the provisions of these Terms with respect to Shares shall apply on like terms to such other shares.
(h) Upon the expiration of any rights, options, warrants or conversion or exchange privileges, if any thereof shall not have been exercised, the Exercise Price and the number of shares of Stock purchasable upon the exercise of an Option shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (x) the only Shares of Stock so issued were the Shares of Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange rights, and (y) such Shares of Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise plus the aggregate consideration, if any, actually received by the Corporation for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange rights, whether or not exercised; provided, however, that no such readjustment shall have the effect of increasing the Exercise Price by an amount in excess of the amount of adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange rights.
(i) Whenever the number of Shares purchasable upon the exercise of an Option or the Exercise Price of an Option is adjusted, as herein provided, the Corporation shall promptly mail by first class mail, postage prepaid to the Optionee notice of such adjustment or adjustments. The Corporation may retain a firm of independent public
EXHIBIT 10.4(K)
accountants (who may be the regular accountants employed by the Corporation) to make any computation required by these provisions and shall cause such accountants to prepare a certificate setting forth the number of Shares purchasable upon the exercise of the Option and the Exercise Price of such Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such certificate shall be conclusive of the correctness of such adjustment, and the Optionee shall have the right to inspect such certificate during reasonable business hours.
(j) Except as provided in these provisions, no adjustment in respect of any dividends shall be made during the term of an Option or upon the exercise of an Option.
(k) In case of any consolidation of the Corporation with or merger of the Corporation with or into another Corporation or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation or such successor or purchasing corporation (or an affiliate of such successor or purchasing corporation), as the case may be, agrees that the Optionee shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of an Option the kind and amount of shares and other securities and property (including cash) which the Optionee would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had the Option been exercised immediately prior to such action. The provisions of this Paragraph (k) shall similarly apply to successive consolidations, mergers, sales or conveyances.
5. EXERCISE OF OPTION
The Optionee or the Optionee's Representative may exercise an Option by giving written notice to the Secretary of the Corporation. The notice shall specify the election to exercise the Option, the number of Shares for which it is being exercised and the form of payment. The notice shall be signed by the person or persons exercising the Option. In the event that the Option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof satisfactory to the Corporation of the representative's right to exercise the Option. The Optionee or the Optionee's Representative shall deliver to the Secretary of the Corporation, at the time of giving the notice, payment in the form which conforms to the applicable sub-paragraph of Paragraph 14 of these Terms for the full amount of the Purchase Price.
The Corporation shall thereafter cause to be issued a certificate or certificates for the Shares as to which an Option has been exercised, registered in the name of the person exercising the Option (or in the names of such person and his or her spouse as community property or as joint tenants with right of survivorship).
6. WITHHOLDING TAXES
In the event that the Corporation determines that it is required to withhold Federal, state or local tax as a result of the exercise of an Option, the Optionee, as a condition to the exercise of the Option, shall make arrangements satisfactory to the Corporation to enable it to satisfy such
EXHIBIT 10.4(K)
withholding requirements. The Optionee shall also make arrangements satisfactory to the Corporation to enable it to satisfy any withholding requirements that may arise in connection with the disposition of Shares purchased by exercising an Option.
7. RIGHTS AS A SHAREHOLDER
Neither the Optionee nor the Optionee's Representative shall have any rights as a shareholder with respect to any shares subject to the Option until the Option has been properly exercised and the Shares subject to the Option have been issued in the name of the Optionee or the Optionee's Representative.
8. LEGALITY OF ISSUANCE
No Shares shall be issued upon the exercise of an Option unless and until the Corporation has determined that:
(a) It and the Optionee have taken all actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;
(b) Any applicable listing requirement of any stock exchange on which stock is listed has been satisfied; and (c) Any other applicable provision of state or Federal law has been satisfied.
9. RESTRICTIONS ON TRANSFER OF SHARES
Regardless of whether the offering and sale of Shares have been registered under the Securities Act or have been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Securities Act, the securities laws of any state or any other law.
In the event that the sale of Shares is not registered under the Securities Act but an exemption is available which requires an investment representation or other representation, the Optionee shall represent and agree that the Shares to be acquired pursuant to the exercise of an Option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Corporation and its counsel.
Stock certificates evidencing Shares acquired under an Agreement in an unregistered transaction shall bear the following restrictive legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (`ACT'). ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A
EXHIBIT 10.4(K)
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR, IN THE OPINION OF COUNSEL FOR THE ISSUER, SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
Any determination by the Corporation and its counsel in connection with any of the matters set forth in this Paragraph 9 shall be conclusive and binding on the Optionee and all other persons.
10. REGISTRATION OF SECURITIES
The Corporation may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law. The Corporation shall not be obligated to take any affirmative action in order to cause the sale of Shares acquired under an Agreement to comply with any law.
11. REMOVAL OF LEGENDS
If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares sold under an Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.
12. NO TRANSFER OR ASSIGNMENT OF OPTION
Except as otherwise provided in Paragraph 3(a) of these Terms, or expressly permitted by the Board, an Option and the rights and privileges conferred thereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an Option, or of any right or privilege conferred hereby, contrary to the provisions hereof, or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, the Option and the rights and privileges conferred hereby shall immediately become null and void.
13. DESIGNATION OF OPTION
All Options shall be Non-Statutory Stock Options.
14. PAYMENT FOR STOCK
(a) Payment in Cash The entire Purchase Price may be paid in US dollars.
EXHIBIT 10.4(K)
(b) Surrender of Stock All or part of the Purchase Price may be paid by the surrender of Shares in good form for transfer. Such Shares must have been owned by the Optionee or the Optionee's Representative for six (6) months or more and must have a value (as determined pursuant to Paragraph 4(d) on the date of exercise of an Option which, together with any amount paid in a form other than Shares, is equal to the Purchase Price.
15. CHANGES AND INTERPRETATION
These Terms and an Agreement may be modified only in writing authorized by the Committee and by either the Optionee to whom the modification is being applied or by holders of a majority of options to purchase Stock issued to Employees by the Corporation. Notwithstanding the foregoing, the Committee shall have the authority to interpret and administer the provisions of these Terms and an Agreement, and such actions by the Committee shall be final and binding.
IN WITNESS WHEREOF, the Corporation has caused these Terms to be executed on its behalf of its officer duly authorized to act on behalf of the Corporation as of this 6TH day of August, 2001.
ARRIS GROUP, INC.,
a Delaware corporation
Its: Executive Vice President
EXHIBIT 10.4 (L)
Form of truncated stock option grant for directors
THIS DOCUMENT CONSTITUTES IS PART OF A
PROSPECTUS COVERING SECURITIES THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933
STOCK OPTION GRANT
THIS GRANT is made as of the ___ day of _________, 20__, by ARRIS GROUP, INC., a Delaware corporation (the "Corporation) to ______________ ("Optionee").
1. INCORPORATION OF TERMS
This Grant shall be governed by the attached Arris Group, Inc.
Stock Option Terms (the "Terms"), all of the provisions of which are hereby incorporated herein.
2. GRANT OF OPTIONS
On the terms and conditions stated herein and in the Terms, the Corporation hereby grants to Optionee the option to purchase ______ Shares as defined in the Terms for an exercise price of $________ per Share.
3. RIGHT TO EXERCISE
Subject to the conditions and the exceptions set forth herein and in the Terms, this Option is exercisable for one-fourth [1/4] of the Shares as of the date of this grant and shall become exercisable for one-fourth (1/4) of the Shares on [one year from grant], another one-fourth (1/4) on [two years from grant], and the remaining Shares on [three years from grant]. In addition, this Option shall be fully exercisable upon the closing price of the Shares on the principal market in which they trade being at or above $_______ per Share for 20 consecutive trading days or upon the termination of Optionee's service as a member of the Board of Directors of the Corporation because of (i) death, (ii) disability, (iii) retirement after serving at least a total of five continuous years (or such lesser period as may be agreed upon by the Board of Directors) as a member of the Board of Directors of the Corporation and any corporation acquired by the Corporation, or (iv) not being nominated for re-election as a director
4. TERM OF OPTION
This Option shall in any event expire in its entirety on [ten years from grant], or, if earlier, six months and one day from the day the closing price of the Shares on the principal market in which they trade has been at or above $_______ per Share for 20 consecutive trading days. This Option shall further expire as set forth in the Terms.
IN WITNESS WHEREOF, the Corporation has caused this Grant to be executed on its behalf by its officer duly authorized to act behalf of the Corporation.
ARRIS GROUP, INC.,
a Delaware corporation
Its: Executive Vice President
EXHIBIT 10.10 (C)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, initially made as of the 16th of October, 1995 and subsequently amended and restated on the 29th day of April, 1999, by and between ANTEC Corporation and Robert Stanzione ("Executive"), is amended and restated as of the 6th day of August, 2001 (the "Effective Date"), by and between Arris Group, Inc., a Delaware corporation ("Company"), and Executive.
WHEREAS, Company and Executive desire to modify their current contractual relationship to substitute Company for its subsidiary, ANTEC Corporation, and to make certain other changes;
WHEREAS, Company recognizes Executive's knowledge and experience in its industry and business and Executive's desire to assure Executive's continued employment; and
WHEREAS, Executive is desirous of serving Company on the terms herein provided, including those restricting Executive's ability to compete in the future;
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Company will employ Executive and Executive will work for Company in the Atlanta area as follows: Executive will serve as President and Chief Executive Officer until Executive reaches the age of 62 or this Agreement is terminated as provided in Section 5 (the "Termination Date"). As President and Chief Executive Officer, Executive will perform on a full-time basis the normal executive services of a chief executive officer consistent with Executive's education, training and business experience.
2. COMPENSATION. Company will pay Executive for the performance of Executive's duties as President and Chief Executive Officer (a) a salary ("Base Compensation"), at the rate of $600,000 a year as of July 1, 2001, adjusted minimally thereafter for annual inflation and any significant increase in the complexity of Company, and (b) a bonus ("Bonus") for each year and partial year in an amount determined by Company using such criteria as it deems fair and equitable in accordance with past practices, allowing up to 200% of planned Bonus for performance above target goals. The amount of the planned Bonus shall be 100% of total Base Compensation for the year or partial year for which the Bonus is being paid. Executive's Base Compensation shall be payable semi-monthly, and the Bonus shall be payable as soon after the end of each calendar year as it can be determined, but in any event within ninety (90) days thereafter.
3. ADDITIONAL BENEFITS.
(a) Executive will be entitled to participate in and receive benefits under any retirement plan, health plan, disability plan and life insurance plan or other similar executive benefit plan or arrangement (collectively "Benefit Plans") generally made available by Company from time to time to its senior executives. Company will not substantially reduce the aggregate amount it is currently incurring to provide Benefit Plans to Executive. Executive will be entitled to such
other benefits, including vacation, fringe benefits and expense reimbursement as generally made available by Company from time to time to its senior executives.
(b) Executive will be provided a supplemental pension equal to (i) the amount of pension he would have had under Company's defined benefit retirement plan and related excess benefit plan if period of Executive's service under those plans were tripled for all purposes including without limitation for purposes of eligibility for a pension, less (ii) the amount of pension to which Executive is entitled under Company's defined benefit retirement plan and related excess benefit plan. This additional benefit will be paid in accordance with the provisions of the excess benefit plan as they read on the Effective Date.
4. STOCK OPTIONS. Executive will be periodically granted options to purchase shares of Company as determined by the Board or its Compensation Committee in its good faith judgment to be appropriate. These options will be granted at the same time options are granted generally to other senior executives of Company. The exercise price of these options will be the market price of the shares at time of grant.
5. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated by Company by written notice to Executive only by adoption by the Board of Directors of a resolution approved by directors constituting a majority of all of the directors then holding office. The termination will not be effective until two years after written notice of termination is given Executive unless termination is for "Good Cause." "Good Cause" shall mean (i) Executive's conviction of any embezzlement or any felony involving fraud or breach of trust relating to the performance of Executive's duties for Company, (ii) Executive continues in material breach of this Agreement for more than thirty (30) days after being notified in writing by Company of such breach, or intentionally repeats such breach after such thirty day period, provided Company has given such notice to Executive within thirty (30) days of first becoming aware of the facts constituting such breach, (iii) Executive's death, or (iv) permanent disability which materially impairs Executive's performance of Executive's duties and qualifies Executive for full benefits under Company's long term disability insurance policy.
(b) Executive may terminate this Agreement by giving Company written notice of termination. The termination will not be effective until two years after written notice is given Company unless termination is for "Good Reason." "Good Reason" shall exist if (i) Company continues in material breach of this Agreement for more than thirty (30) days after being notified in writing by Executive of such breach, or intentionally repeats such breach after such thirty day period, provided Executive has given such notice to Company within thirty (30) days of first becoming aware of the facts constituting such breach, (ii) Company gives Executive a notice of termination without "Good Cause" as specified above, provided Executive terminates this Agreement within 30 days of receiving such notice, or (iii) a "Change of Control" occurs, and Executive's employment hereunder is terminated by Company other than for "Good Cause" or by Executive because there has been a material diminution in Executive's position after a Change of Control that exists at any time after 6 months after the Change of Control. No longer being the chief executive officer of a significant public company at any time after 6 months after the Change of Control shall be considered a material diminution of Executive's position. A "Change of Control" shall mean any person, as such term is used in section 13(d) of and 14(d) of the Securities Exchange Act of 1934, amended (the "Exchange Act"), is or
becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act) of securities of Company representing more than 25% (65% in the case of Nortel Networks Corporation and its affiliates) of the combined voting power of Company's then outstanding voting securities or the occurrence of a transaction that has substantially the same effect. Examples of such a transaction are a merger with another person (unless the stockholders of that person are substantially the same as the stockholders of the Company prior to the merger), a sale of substantially all the assets of the Company and its subsidiaries, considered as a whole, directly or by merger, to another person (unless the stockholders of that person are substantially the same as the stockholders of the Company at the time of such sale or merger), or a merger or purchase of assets in which although the Company is the surviving corporation, there is a change in the majority of the Board of Directors of the Company as the result of the transaction.
(c) If Executive terminates this Agreement and simultaneously therewith his employment by Company for Good Reason, all of Executive's stock options outstanding and unexercised at the Termination Date shall become immediately and fully exercisable as of the Termination Date, and Company for a period of three years from such termination (the period during which Executive is entitled to severance benefits is the "Severance Period") shall continue to provide to Executive (a) his Base Compensation, at the rate most recently determined, (b) a bonus for each fiscal year (and a pro rata amount for each partial year) in an amount equal his Typical Annual Bonus at the Termination Date, and (c) the Benefit Plans as provided by Section 3 (subject in the case of long-term disability to the availability of such coverage under Company's insurance policy). Executive's Typical Annual Bonus at the Termination Date shall be the annual average of the three highest full year Bonuses received by Executive for the five full years (or such lesser number of years) after 2001 preceding the Termination Date. To the extent that the full years falling within this period are less than three, then Executive's Typical Annual Bonus shall be computed by averaging such full year Bonuses, if any, falling within this period with 100% of Executive's Base Compensation at the Termination Date times the number of years necessary to bring the number of years being considered to three. (Examples: if the Termination Date should occur prior to December 31, 2002, his Typical Annual Bonus would be 100% of his then Base Compensation; if the Termination Date should occur during the year 2003, his Typical Annual Bonus would be the average of the Bonus he received for 2002 and twice 100% of his then Base Compensation.)
(d) During the Severance Period, Executive will serve Company as a consultant on matters within Executive's expertise or knowledge as may be reasonably requested by Company. All such consultation will be arranged by Company so as to not interfere with the other activities of Executive. Executive will be reimbursed by Company for any expenses incurred by Executive at the direction of Company. As a consultant, Executive's options to purchase stock of Company will continue in accordance with their terms while he is a consultant to Company. At the end of this period, all such options, to the extent they have not previously expired pursuant to their specified expiration dates, shall expire notwithstanding any other provision to the contrary, except, subject to the specified expiration dates, Executive's executor or administrator shall have the period provided by the options to exercise them after the death of Executive while he is a consultant to Company.
(e) The parties agree that the payments and benefits provided for in subsection (c) of this Section shall be deemed to constitute liquidated damages for Company's breach or constructive breach of this Agreement and payment for the non-competition provisions of this Agreement, and Company agrees that (i) Executive shall not be required to mitigate his
damages by seeking other employment or otherwise, and (ii) Company's payments and other obligations under this Agreement shall not be reduced in any way by reason of any compensation received by Executive from sources other than Company after the Termination Date. The obligations of this Agreement to be performed by the parties following the termination of this Agreement will survive the termination of this Agreement.
6. NON-COMPETITION COVENANT. Executive agrees that throughout his employment hereunder and during the Severance Period he will not directly or indirectly, alone or as a member of partnership, association or joint venture or as an employee, officer, director or stockholder of any corporation or in any other capacity:
(a) engage in any activity which is competitive with the business of Company (which for purposes of this Section 6 shall include any subsidiary) in the United States or in any foreign county in which Company is carrying on such business, provided that the foregoing provision shall not be deemed to prohibit Executive from purchasing for investment any securities or interest in any publicly-owned organization which is competitive with the business of Company so long as his investment in any such organization does not exceed one percent of its total equity; or
(b) solicit in connection with any activity which is competitive with Company, any customers or suppliers which he solicited on behalf of Company or on behalf of the business of Company; or
(c) solicit or in any manner attempt to influence or induce any employee of Company to leave the employment of Company or use or disclose to any person any information obtained while employed by the Company concerning the names and addresses of Company employees.
7. TAXES. Company will timely pay to Executive the amount of any excise taxes imposed on Executive under Section 4999 of the Internal Revenue Code as currently written by reason of payments or benefits under the provisions of this Agreement, including this provision, and the amount of any federal and state income taxes imposed on Executive by reason of payments to Executive under this Section.
8. NOTICE. Any Notices given hereunder shall be in writing and shall be given by personal delivery or by certified or registered mail, return receipt requested, addressed to:
If to Company: If to Executive: Arris Group, Inc. Current address in 11450 Technology Circle the records of the Duluth, Georgia 30097 Company |
or such other address as shall be furnished in writing by one party to the other.
9. SEVERABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision has been omitted.
10. ASSIGNMENT. Company's obligations hereunder shall be binding legal obligations of any successor to all or substantially all the business of the Company and its subsidiaries, considered as a whole, by purchase, merger, consolidation or otherwise. Company and/or its subsidiaries may not sell or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries, considered as a whole, or merge or consolidate with any other entity without making adequate provision for its obligations hereunder. Except in accordance with foregoing, neither party may assign this Agreement, provided that upon Executive's death, this Agreement shall be binding upon and inure to the benefit of Executive's heirs, legatees and the legal representative of each.
11. APPLICABLE LAW. This Agreement shall be construed and interpreted pursuant to the laws of Georgia.
12. AMENDMENT. This Agreement may be amended only by a written document signed by both parties.
13. PRIOR AGREEMENTS. This Agreement supersedes any agreements relating to the option granted Executive on February 10, 1998 that are not set forth in that option.
14. LEGAL FEES. The prevailing party in any litigation concerning this Agreement shall be reimbursed by the party found to be in breach of this Agreement for all reasonable costs, including attorney fees, incurred by the prevailing party in enforcing this Agreement.
15. STOCK UNITS. The 24,077 stock units granted to Executive on January 31, 2000, shall convert to common stock of the Company on June 30, 2004, or such earlier date Executive is not employed by Company. 4,815 of these units and distributions on these units will be forfeited if prior to June 30, 2004, Executive gives Company notice of termination of this Agreement without Good Reason.
16. SUPPLEMENTAL RETIREMENT BENEFITS. Subject to and conditioned upon Company not having terminated this Agreement pursuant to Section 3(a)(i) or (ii), Executive will be provided the supplemental retirement benefits set forth in the attached Supplemental Pension Plan.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written.
ARRIS GROUP, INC.
By:
---------------------------- ---------------------------
Its:
---------------------------- ---------------------------
|
EXHIBIT 10.10 (D)
ROBERT STANZIONE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
DEFINITIONS
1.01 Actuarial Equivalent
A benefit of equivalent actuarial present value when computed using the UP-94 Mortality Table and an interest rate equivalent to the 30-year Treasury rate proscribed by the IRS pursuant to Internal Revenue Code Section 417 (e) (3), but not to be lower than 6% or higher than 7%.
1.02 Board
The Board of Directors of the Corporation.
1.03 Committee
The Compensation Committee of the Board, or any successor committee.
1.05 Continuous Service
Continuous Service shall be determined by multiplying by three the period of Participant's employment with the Corporation, its subsidiaries and affiliates, including Arris Interactive, and the Severance Period provided by his Employment Agreement. Participant's employment began on October 16, 1995.
1.05 Corporation
Arris Group, Inc., and its successors and assigns.
1.06 Early Retirement Date
The Participant's fifty-fifth (55th) birthday.
1.07 Effective Date
August 6, 2001.
1.08 Employment Agreement
The Amended and Restated Employment Agreement between Participant and Corporation effective August 6, 2001. All defined terms from the Employment Agreement not defined in this Plan shall have the same meaning in this Plan as in the Employment Agreement.
1.09 Final Average Compensation
One-twelfth (1/12th) of Participant's annual salary at the time of Termination of Service plus one twelfth (1/12th) of Participant's typical annual bonus at the time of Termination of Service. Participant's typical annual bonus at the time of Termination of Service shall be the annual average of the three highest full year bonuses received by Participant for the five full years (or such lesser number of years) after 2001 preceding the time of Termination of Service. To the extent that the full years falling within this period are less than three, then Participant's typical annual bonus shall be computed by averaging such full year bonuses, if any, falling within this period with 100% of Participant's annual salary at the time of Termination of Service times the number of years necessary to bring the number of years being considered to three. ( Examples: if Participant's Termination of Service should occur prior to December 31, 2002, his typical annual bonus would be 100% of his then annual salary; if his Termination of Service should occur during the year 2003, his typical annual bonus would be the average of the bonus he received for 2002 and twice 100% of his then annual salary.)
1.10 Participant
Robert Stanzione
1.11 Normal Retirement Date
The Participant's sixty-second (62nd ) birthday.
1.12 Other Retirement Programs
See Appendix A.
1.13 Plan
The Robert Stanzione Supplemental Executive Retirement Plan.
19 Severance Period
The three-year period under the Employment Agreement during which Participant is entitled to receive severance benefits. If Participant is not entitled to receive such benefits then the Severance Period is zero.
1.15 Surviving Spouse
The person to whom Participant is married at the time of his death or election to receive a Joint and Survivor Annuity if Participant was married to that person for at least twelve (12) months prior to his Termination of Service. If that person is not Participant's Spouse at the Effective Date of this Plan, appropriate adjustments shall be made by the Committee to the table Appendix C to reflect any difference between the ages of Participant's current spouse and Participant's Surviving Spouse.
1.16 Termination of Service
Participant's separation from the active employment of the Corporation, its subsidiaries and affiliates, whether by resignation, discharge, death, disability, retirement or otherwise.
ARTICLE II
BENEFITS TO PARTICIPANT
2.01 Eligibility for Benefits
No benefits will be payable pursuant to the Plan if the Corporation terminates the Employment Agreement pursuant to Section 5(a) (i) or (ii) of that agreement or if Participant dies before his Early Retirement Date. Otherwise, Participant will be eligible for benefits upon Termination of Service as provide below.
2.02 Normal Retirement Benefits
Upon Termination of Service on his Normal Retirement Date, Participant shall receive a Normal Retirement Benefit payable as a monthly, single life annuity equal to
the smaller of
(a) the Life Annuity provided by the ANTEC Corporation Pension Plan and the ANTEC Corporation Supplemental Retirement Plan, (i) assuming continued participation in those plans as in existence at December 31, 2000, (ii) substituting Final Average Compensation and Continuous Service as defined in this Plan for the definitions of these terms in those plans, and (iii) determining the benefit without regard to the 30 year limit on Continuous Service in those plans; or
(b) 50% of Participant's Final Average Compensation;
less, in either case, the benefits payable to Participant from the Other Retirement Programs, including the benefits that would have been payable to him if he had not elected to accept other benefits in lieu of the benefits provided by the Other Retirement Programs (expressed as Actuarial Equivalent monthly benefits payable as single life annuities commencing on the first day of the month coincident with or next following his Normal Retirement Date).
Benefit payments shall commence on the first day of the month coincident with or next following the Participant's Normal Retirement Date. Participant may delay the commencement of Benefit payments, but such delay shall not affect the amount of Participant's Normal Retirement Benefit.
2.03 Late Retirement Benefits
If Participant incurs a Termination of Service after his Normal Retirement Date, he shall receive a Late Retirement Benefit equal to his Normal Retirement Benefit, calculated as of his Normal Retirement Date in accordance with Section 2.02 without regard to changes in benefits payable from Other Retirement Programs. Benefit payments shall commence on the first day of the month coincident with or next following Participant's Termination of Service.
2.04 Early Retirement Benefits
If Participant terminates the Employment Agreement with Good Reason prior to his
Normal Retirement Date or incurs a Termination of Service after his Early
Retirement Date, but prior to his Normal Retirement Date not due to the
termination by the Corporation of the Employment Agreement pursuant to Section
5(a) (i) or (ii) of that agreement, Participant shall receive a benefit,
calculated in accordance with Section 2.02, commencing on the first day of the
month coincident with or next following his Normal Retirement Date or, if later,
the conclusion of the Severance Period if there is such a period. Alternately
Participant may elect to receive a reduced monthly benefit commencing on the
first day of any month following the conclusion of the Severance Period under
the Employment Agreement or if there is no such period, the Termination of
Service.
The reduced benefit shall be determined applying the appropriate early retirement factor from the Appendix B to a monthly, single life annuity equal to the smaller of
(a) the Life Annuity provided by the ANTEC Corporation Pension
Plan and the ANTEC Corporation Supplemental Retirement Plan,
(i) assuming continued participation in those plans as in
existence at December 31, 2000, (ii) substituting Final
Average Compensation and Continuous Service as defined in this
Plan for the definitions of these terms in those plans, and
(iii) determining the benefit without regard to the 30 year
limit on Continuous Service in those plans; or
(b) 50% of Participant's Final Average Compensation;
less, in either case, the benefits payable to Participant from the Other Retirement Programs, including the benefits that would have been payable to him if he had not elected to accept other benefits in lieu of the benefits provided by the Other Retirement Programs (expressed as Actuarial Equivalent monthly benefits payable as single life annuities commencing on the first day of the month coincident with or next following the end of the Severance Period or if there is no such period, the Termination of Service).
In the event Termination of Service is by Participant for Good Reason as defined in clause (iii) of Section 5 (b) of the Employment Agreement, the benefit pursuant to this Section 2.04 shall not be lower than $33,333, less the benefits payable to Participant from the Other Retirement Programs, including the benefits that would have been payable to him if he had not elected to accept other benefits in lieu of the benefits provided by the Other Retirement Programs
(expressed as Actuarial Equivalent monthly benefits payable as single life annuities commencing on the first day of the month coincident with or next following the end of the Severance Period or if there is no such period, the Termination of Service).
2.05 Joint and Survivor Annuities
In lieu of a single life annuity, Participant may elect, at any time during the ninety day period ending on the date benefit payments commence, to receive a reduced benefit payable during his lifetime with 50%, 66-2/3%, 75% or 100% of such reduced amount automatically continuing to his Surviving Spouse (a 50%, 66-2/3%, 75% or 100% Joint and Survivor Annuity) upon his death. The reductions to Participant's single life benefit shall be made in accordance with the appropriate annuity factor from Appendix C.
2.06 Death Benefits
If Participant, while eligible for benefits under this Plan, dies after his Early Retirement Date but before he has commenced receiving his benefits from the Plan, death benefits shall be distributed in the form of monthly payments to his Surviving Spouse, continuing for her lifetime. Payment of such benefits shall commence on the first day of the month coincident with or next following the date of his death. The monthly benefit to which the Surviving Spouse shall be entitled shall be the Actuarial Equivalent of the benefits to which the Participant would have been entitled if he had retired on the day prior to his death.
If Participant dies prior to his Early Retirement Date or does not have a Surviving Spouse, no benefits shall be payable under the Plan.
2.07 Lump Sum Settlement
In lieu of the benefits to which Participant or Surviving Spouse would otherwise be entitled under the foregoing provisions of this Article II, the Participant or Surviving Spouse may elect to receive an Actuarial Equivalent lump sum payment, subject to the following:
(a) Participant's election of a lump sum payment must be filed with the Committee (i) at least one year prior to the date of the Participant's Termination of Service, (ii) in the case of a Termination of Service by Corporation without Good Cause, within 15 days of notice of such termination being received, or (iii) in the case of Termination of Service by Participant with Good Reason, prior to the earlier of the notice of breach or notice of such termination being given.
(b) A lump sum payment elected by Participant under paragraph (a) above shall be paid to him as soon as practicable after his Termination of Service, but in no event less than 45 days after Termination of Service.
(c) If Participant dies prior to his Termination of Service, any election filed by the Participant under this Section 2.07 shall be void unless there is a Surviving Spouse. If there is
a Surviving Spouse, an election filed by Participant in accordance with this Section 2.07 shall be effective. A Participant's Surviving Spouse may request the Corporation to permit the withdrawal of such election; provided, however, that no such election shall be withdrawn without the authorization of the Committee, in its sole discretion.
(d) Any election or request by Participant or Surviving Spouse under this Section 2.07 shall be in writing, in such form as the Committee may require, and, once filed with the Committee, may be withdrawn only by a written notice of withdrawal filed with the Committee within the time limits for making an election provided above.
ARTICLE III
ADMINISTRATION
3.01 Duties of the Committee
The Committee shall have full responsibility for the management, operation, interpretation and administration of the Plan in accordance with its terms, and shall have such authority as is necessary or appropriate in carrying out its responsibilities.
3.02 Liabilities of the Committee
Neither the Committee nor its individual members shall be deemed to be a fiduciary with respect to this Plan, nor shall any of the foregoing individuals or entities be liable to any Participant, former Participant, beneficiary or other interested party in connection with the management, operation, interpretation or administration of the Plan, any such liability being solely of the Corporation.
3.03 Expenses
Any expenses incurred in the management, operation, interpretation or administration of the Plan shall be paid by the Corporation. In no event shall the benefits otherwise payable under this Plan be reduced to offset the expenses incurred in managing, operating, interpreting or administering the Plan.
3.04 Unfunded Character of the Plan
The Plan shall be unfunded. Neither the Corporation nor the Committee nor its individual members shall segregate or otherwise identify specific assets to be applied to the purposes of the Plan, nor shall any of them be deemed to be a trustee of any amounts to be paid under the Plan. Any liability of the Corporation to any person with respect to benefits payable under the Plan shall be based solely upon such contractual obligations, if any, as shall be created by the Plan,
and shall give rise only to a claim against the general assets of the Corporation. No such liability shall be deemed to be secured by any pledge or any encumbrance on any specific property of the Corporation.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 Operation as Unfunded Supplemental Executive Retirement Plan
The Plan is intended to be a deferred compensation plan as contemplated by
Section 3(2) of ERISA for the purpose of providing supplemental retirement
benefits to selected members of management. The Plan is not intended to comply
with the qualification requirements of the Internal Revenue Code of 1986. The
plan shall be administered and construed so as to effectuate this intent.
4.02 Construction of Language
Wherever appropriate in the Plan, words used in the singular may be read in the
plural, words in the plural may be read in the singular, and words importing the
masculine gender shall be deemed equally to refer to the feminine and the
neuter. Any reference to any Article or Section shall be to an Article or
Section of this Plan, unless otherwise indicated.
4.03 No Assignment of Benefits
Neither the Participant, a Surviving Spouse nor any beneficiary of either may assign (other than by will or the laws of inheritance) any rights they may have to benefits under this Plan.
APPENDIX A
OTHER RETIREMENT PROGRAMS
ANTEC Corporation Pension Plan
ANTEC Corporation Supplemental Retirement Benefits Plan as modified by the Employment Agreement (but only in the case Participant and his spouse have not waived to the satisfaction of the Committee all interest in any benefits under that plan)
APPENDIX B
SCHEDULE OF EARLY RETIREMENT FACTORS
EARLY
RETIREMENT
AGE AT START OF PAYMENTS FACTOR
----------------------- ----------
55 0.47285
56 0.52327
57 0.58002
58 0.64408
59 0.71660
60 0.79895
61 0.89277
62 1.00000
63 1.00000
64 1.00000
65 1.00000
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Above factors will be pro-rated for fraction years.
APPENDIX C
SCHEDULE OF JOINT AND SURVIVOR ANNUITY FACTORS
50% 66.66% 75% 100%
----------------------------------------------------------------------------------------
AGE AT START JOINT & JOINT & JOINT & JOINT &
OF PAYMENTS SURVIVOR SURVIVOR SURVIVOR SURVIVOR
------------ -------- -------- -------- --------
m
55 94.1% 92.3% 91.4% 88.8%
56 93.8% 91.9% 90.9% 88.3%
57 93.4% 91.4% 90.5% 87.7%
58 93.1% 91.0% 90.0% 87.1%
59 92.7% 90.6% 89.5% 86.5%
60 92.4% 90.1% 89.0% 85.8%
61 92.0% 89.6% 88.5% 85.2%
62 91.6% 89.1% 87.9% 84.5%
63 91.2% 88.7% 87.4% 83.9%
64 90.9% 88.2% 86.9% 83.2%
65 90.5% 87.7% 86.4% 82.6%
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BASED ON:
- 7.50% discount rate
- UP1994 mortality (sex-distinct)