Amended S-4 filing by ARRIS International Limited

Amended S-4 filing by ARRIS International Limited
TABLE OF CONTENTS
As filed with the Securities and Exchange Commission on September 11, 2015
Registration No. 333-205442​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
​
ARRIS
International Limited
(Exact Name of Registrant as Specified in Its Charter)
​
​
England and Wales
(State or Other Jurisdiction of​
Incorporation or Organization)
3663
(Primary Standard Industrial
Classification Code Number)
98-1241619
​
(I.R.S. Employer
Identification Number)
​
3871 Lakefield Drive
Suwanee, Georgia 30024
(678) 473-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
​
Patrick W. Macken
ARRIS Group, Inc.
3871 Lakefield Drive
Suwanee, Georgia 30024
(678) 473-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
​
With copies to:
W. Brinkley Dickerson, Jr.
Heather M. Ducat
Troutman Sanders, LLP
600 Peachtree Street, Suite 5200
Atlanta, Georgia 30308-2216
(404) 885-3000
​
Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this
Registration Statement becomes effective and upon completion of the Merger described in the enclosed proxy statement/prospectus.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, check the following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
☒
☐ (Do not check if smaller reporting company)
Accelerated filer
Smaller reporting company
☐
☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
☐
​
TABLE OF CONTENTS
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered(1)
Ordinary Shares, nominal value £0.01 per share
Proposed
maximum
Amount to be
offering price
(2)
per share
​ ​ registered
​ ​
147,623,807
Not Applicable​
Proposed maximum
aggregate offering
price(3)
Amount of
registration fee(4) ​
$ 3,819,027,888
$ 443,772
(1)
This registration statement relates to ordinary shares, nominal value £0.01 per share, of ARRIS International Limited, a private limited company
incorporated under the laws of England and Wales (“New ARRIS”), to be issued to holders of common shares, $0.01 par value per share, of
ARRIS Group, Inc., a Delaware corporation (“ARRIS”) pursuant to the Agreement and Plan of Merger, dated as of April 22, 2015, by and among
New ARRIS, ARRIS, Archie U.S. Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of New ARRIS (“ARRIS
Holdings”), and Archie U.S. Merger LLC, a Delaware limited liability company and wholly-owned subsidiary of ARRIS Holdings.
(2)
Represents the proposed maximum number of the New ARRIS ordinary shares expected to be issued upon the completion of the merger
transaction described herein. Calculated based on an exchange ratio of one New ARRIS ordinary share for each ARRIS common share estimated
to be outstanding immediately prior to completion of the transaction.
(3)
Estimated solely for the purpose of calculating the registration fee. The registration fee is required by Section 6(b) of the Securities Act of 1933, as
amended (the “Securities Act”), and computed pursuant to Rules 457(f) and 457(c) under the Securities Act. Pursuant to Rule 457(f) under the
Securities Act, the proposed maximum aggregate offering price of the New ARRIS ordinary shares is equal to $3,819,027,888, which was
determined by multiplying (i) 147,623,807, the estimated maximum number of ARRIS shares to be exchanged for New ARRIS ordinary shares
(which is the sum of (i) 146,590,746 ARRIS shares outstanding as of August 31, 2015, (ii) 8,696 ARRIS shares potentially issuable pursuant to
stock options outstanding as of August 31, 2015 that are vested or that are expected to vest prior to completion of the merger and (iii) 1,024,365
ARRIS shares issuable pursuant to restricted stock awards and restricted stock units outstanding as of August 31, 2015 that are expected to vest
prior to completion of the merger), by (ii) $25.87, the average of the high and low prices for the ARRIS shares as reported on The NASDAQ
Stock Market LLC on September 4, 2015.
(4)
Determined in accordance with Section 6(b) of the Securities Act by multiplying the estimated aggregate offering price of the securities to be
registered by 0.0001162. New ARRIS previously paid a fee of $520,272 in connection with the original filing of this registration statement and,
therefore, no additional fee is due at the current time.
​
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such dates
as the Commission, acting pursuant to said Section 8(a), may determine.
TABLE OF CONTENTS
Information contained herein is subject to completion or amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not
constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under
the securities laws of any such jurisdiction.
PRELIMINARY — SUBJECT TO COMPLETION — DATED SEPTEMBER 11, 2015
Dear ARRIS Stockholder:
You are cordially invited to attend a special meeting of the stockholders of ARRIS Group, Inc. (“ARRIS”)
to be held on October 21, 2015 at 10:00 a.m. local time, at ARRIS’ corporate headquarters at 3871 Lakefield
Drive, Suwanee, Georgia, 30024, USA.
The boards of ARRIS and Pace plc (“Pace”) have reached agreement on the terms of a recommended
combination of Pace with ARRIS (the “Combination”) whereby (i) ARRIS International Limited (“New
ARRIS”), a newly formed company incorporated in England and Wales, will acquire all of the outstanding
shares of Pace by means of a court-sanctioned scheme of arrangement under English law and (ii) ARRIS will
merge (the “Merger”) with a subsidiary of New ARRIS, with ARRIS surviving the Merger (pursuant to the
Agreement and Plan of Merger dated as of April 22, 2015 (the “Merger Agreement”)). Under the terms of the
Combination, (a) Pace Scheme shareholders will receive 132.5 pence in cash and 0.1455 shares of New ARRIS
for each Pace share they hold and (b) ARRIS stockholders will receive one New ARRIS share for each share of
ARRIS common stock they hold. As a result of the Combination, both Pace and ARRIS will become whollyowned subsidiaries of New ARRIS. It is intended that shares of New ARRIS will be listed on The NASDAQ Stock
Market LLC under the symbol “ARRS” following the completion of the Combination. Based on the number of
ARRIS and Pace shares outstanding as of August 31, 2015, the total number of New ARRIS shares expected to
be issued in connection with the Combination is approximately 195.8 million.
ARRIS is holding a special meeting of stockholders to seek your adoption of the Merger Agreement, which
gives effect to the Merger and is a necessary component of the Combination. ARRIS stockholders also are being
asked to vote on a non-binding advisory proposal to approve certain compensation arrangements for ARRIS’
named executive officers in connection with the Merger and a proposal to adjourn the special meeting, if
necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the proposal to
adopt the Merger Agreement.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
ADOPTION OF THE MERGER AGREEMENT AND EACH OF THE PROPOSALS DESCRIBED ABOVE.
In considering this recommendation, you should be aware that non-employee directors and executive officers of
ARRIS will have interests in the Combination in addition to interests they might have as stockholders of ARRIS.
See “Interests of Certain Persons in Matters to be Acted Upon” beginning on page 93.
More information about the Combination and the proposals described above is contained in the
accompanying proxy statement/prospectus. We urge you to read this document, including the Annexes and the
documents incorporated by reference, carefully and in full. In particular, we urge you to read the section
captioned “Risk Factors” beginning on page 20.
The close of business on September 10, 2015 has been fixed as the record date for determining the ARRIS
stockholders entitled to receive notice of and to vote at the special meeting.
We are not asking for a proxy from Pace shareholders, and Pace shareholders are requested not to send
us a proxy. Pace shareholders are not entitled to vote on the matters described above. Pace shareholders are
expected to receive a separate circular and should read and respond to that document.
Your vote is very important. Whether or not you plan to attend the special meeting, please vote as soon
as possible by following the instructions in the accompanying proxy statement/prospectus. A failure to vote,
failure to instruct a bank, broker or nominee, or abstention from voting will have the same effect as a vote
“AGAINST” the proposal to adopt the Merger Agreement.
We look forward to seeing you at the special meeting and appreciate your support.
Sincerely,
ROBERT J. STANZIONE
Chairman and Chief Executive Officer
TABLE OF CONTENTS
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved
or disapproved any of the transactions described in this proxy statement/prospectus or the securities to be
issued under this document or passed upon the adequacy or accuracy of this document. Any representation
to the contrary is a criminal offense. The UK Financial Conduct Authority (“FCA”) has not approved or
disapproved any of the transactions described in this proxy statement/prospectus or the securities to be
issued under this document or passed upon the adequacy or accuracy of this document. This proxy
statement/​prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any
securities, or a solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to
make any such offer or solicitation in such jurisdiction. For the avoidance of doubt, this proxy
statement/prospectus does not constitute an offer to buy or sell securities or a solicitation of an offer to buy
or sell any securities in the UK or any other member state of the European Economic Area or a solicitation
of a proxy under the laws of England and Wales or the FCA’s Listing Rules, and it is not intended to be, and
is not, a prospectus or an offer document for the purposes of the FCA’s Prospectus Rules.
This proxy statement/prospectus has not been and will not be registered with the Financial Supervisory
Commission of Taiwan, the Republic of China (the “ROC”) pursuant to relevant securities laws and regulations
of Taiwan, the ROC; any securities to be issued as part of the proposals within this proxy statement/prospectus
may not be offered, sold, delivered or distributed within Taiwan, the ROC through a public offering or in
circumstances which constitute an offer within the meaning of the Securities and Exchange Act of Taiwan, the
ROC that requires the prior registration with or approval of the Financial Supervisory Commission of Taiwan,
the ROC. The ROC investors who purchase or are deemed to purchase any securities issued as part of the
proposals within this document shall comply with all relevant securities, tax and foreign exchange laws and
regulations in effect in Taiwan, the ROC.
Neither the securities to be issued under this proxy statement/prospectus nor this proxy statement/​
prospectus have been approved or registered in the administrative registries of the Spanish National Securities
Exchange Commission, or Comision Nacional del Mercado de Valores, or CNMV. Accordingly, the securities to
be issued under this document may not be offered in Spain except in circumstances which do not constitute a
public offer of securities in Spain within the meaning of articles 30bis of the Spanish Securities Market Law of
July 28, 1988 (Ley 24/1988, de 28 Julio, del Mercado de Valores), as amended and restated, and the
supplemental rules enacted thereunder.
The accompanying proxy statement/prospectus is dated [•], 2015, and is first being mailed to ARRIS
stockholders on or about [•], 2015.
TABLE OF CONTENTS
NOTICE OF SPECIAL MEETING
Important Notice Regarding the Special Meeting on October 21, 2015
A special meeting of stockholders of ARRIS Group, Inc. (“ARRIS”) will be held on October 21, 2015, at
10:00 a.m. local time at ARRIS corporate headquarters at 3871 Lakefield Drive, Suwanee, Georgia, USA for the
following purposes:
1.
To adopt the Agreement and Plan of Merger, dated as of April 22, 2015 (the “Merger Agreement”), by
and among ARRIS, ARRIS International Limited, a private limited company incorporated under the
laws of England and Wales and a wholly-owned subsidiary of ARRIS (“New ARRIS”), Archie U.S.
Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of New ARRIS
(“ARRIS Holdings”), and Archie U.S. Merger LLC, a Delaware limited liability company and whollyowned subsidiary of ARRIS Holdings (“Merger Sub”);
2.
To approve, on a non-binding, advisory basis, the compensation that may be paid or become payable
to ARRIS’ named executive officers in connection with the completion of the merger (the “Merger”) of
Merger Sub with and into ARRIS, with ARRIS continuing as the surviving corporation, pursuant to
the Merger Agreement; and
3.
To approve any motion to adjourn the special meeting, or any postponement thereof, to another time
or place if necessary or appropriate (i) to solicit additional proxies if there are insufficient votes at the
time of the special meeting to adopt the Merger Agreement, (ii) to provide to ARRIS stockholders any
supplement or amendment to the proxy statement/prospectus and/or (iii) to disseminate any other
information which is material to ARRIS stockholders voting at the special meeting.
The ARRIS board of directors determined that the Merger Agreement and the transactions contemplated
thereby are in the best interests of ARRIS and approved the Merger Agreement. The ARRIS board of directors
unanimously recommends that ARRIS stockholders vote “FOR” the proposal to adopt the Merger Agreement,
“FOR” the non-binding advisory proposal to approve certain compensatory arrangements between ARRIS and
certain named ARRIS executive officers relating to the Merger and “FOR” the proposal to adjourn the special
meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the
proposal to adopt the Merger Agreement.
The ARRIS board of directors has fixed the close of business on September 10, 2015 as the record date for
determination of ARRIS stockholders entitled to receive notice of, and to vote at, the special meeting or any
adjournments or postponements thereof. Only holders of record of common stock, $0.01 par value per share, of
ARRIS (“ARRIS shares”) at the close of business on the record date are entitled to receive notice of, and to vote
at, the special meeting.
Your vote is very important. A failure to vote in person, grant a proxy for your shares, or instruct a bank,
broker or nominee how to vote at the special meeting will have the same effect as a vote “AGAINST” the
proposal to adopt the Merger Agreement. Whether or not you expect to attend the special meeting in person, we
urge you to submit a proxy to vote your shares as promptly as possible by either: (1) logging onto
www.voteproxy.com and following the instructions on your proxy card; (2) dialing 1-800-PROXIES (1-800-7769437) in the U.S. or 1-718-921-8500 from foreign countries and listening for further directions; or (3) signing
and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares may be
represented and voted at the special meeting. If your shares are held in the name of a broker, bank or other
nominee, please follow the instructions on the voting instruction card furnished by the plan administrator, or
record holder, as appropriate.
The enclosed proxy statement/prospectus provides a detailed description of the combination of Pace with
ARRIS and the Merger Agreement. We urge you to read this proxy statement/prospectus, including any
documents incorporated by reference, and the Annexes carefully and in their entirety. In particular, we urge you
to read the section captioned “Risk Factors” beginning on page 20.
TABLE OF CONTENTS
If you have any questions concerning the combination of Pace with ARRIS or this proxy statement/​
prospectus, would like additional copies of this proxy statement/prospectus or need help voting your shares of
ARRIS shares, please contact ARRIS’ proxy solicitor using the contact instructions included in this proxy
statement/prospectus.
Sincerely,
PATRICK W. MACKEN
Secretary
Suwanee, Georgia
[•], 2015
TABLE OF CONTENTS
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT ADDITIONAL
INFORMATION
The accompanying proxy statement/prospectus incorporates by reference important business and financial
information about ARRIS from documents that are not included in or delivered with the proxy
statement/prospectus. This information is available to you without charge upon your written or oral request. You
can obtain the documents incorporated by reference in the accompanying proxy statement/prospectus by
requesting them in writing or by telephone at the following address and telephone number.
ARRIS Group, Inc.
Attn: Secretary
3871 Lakefield Drive
Suwanee, Georgia 30024
678-473-2000
In addition, if you have questions about the Combination or the special meeting, or if you need to obtain
copies of the accompanying proxy statement/prospectus, proxy card or other documents incorporated by
reference in the proxy statement/prospectus, you may contact the company listed below. You will not be
charged for any of the documents you request.
Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Banks and Brokerage Firms, Please Call: (203) 658-9400
Holders Call Toll Free: (855)-223-1287
Email: [email protected]
If you would like to request documents, please do so by October 14, 2015, in order to receive them before
the special meeting.
For a more detailed description of the information incorporated by reference in the accompanying proxy
statement/prospectus and how you may obtain it, see the section captioned “Where You Can Find More
Information” beginning on page 170 of the accompanying proxy statement/prospectus.
ABOUT THIS PROXY STATEMENT/PROSPECTUS
This document constitutes a prospectus of New ARRIS under Section 5 of the Securities Act of 1933, as
amended with respect to the New ARRIS ordinary shares to be issued to ARRIS stockholders in the Merger
pursuant to the Merger Agreement. This document is also a proxy statement under the Securities Exchange Act
of 1934, as amended, and a notice of meeting under Delaware law with respect to the special meeting at which
ARRIS stockholders will be asked to consider and vote upon the proposal to adopt the Merger Agreement (as
defined in this proxy statement/prospectus) and certain related proposals.
No person has been authorized to provide you with information that is different from what is contained in,
or incorporated by reference into, this proxy statement/prospectus, and, if given or made, such information must
not be relied upon as having been authorized. This proxy statement/prospectus does not constitute an offer to
sell, or the solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any circumstances in
which such offer or solicitation is unlawful. The distribution or possession of this proxy statement/prospectus in
or from certain jurisdictions may be restricted by law. You should inform yourself about and observe any such
restrictions, and none of ARRIS, Pace or New ARRIS accepts any liability in relation to any such restrictions.
Neither the distribution of this proxy statement/prospectus nor the issuance by New ARRIS of New ARRIS
ordinary shares in connection with the Combination shall, under any circumstances, create any implication that
there has been no change in the affairs of ARRIS, Pace or New ARRIS since the date of this proxy
statement/prospectus or that the information contained in this proxy statement/prospectus is correct as of any
time subsequent to its date.
Information contained in this proxy statement/prospectus regarding Pace has been provided by Pace, and
information contained in this proxy statement/prospectus regarding ARRIS, New ARRIS, Archie U.S. Holdings
LLC, and Archie U.S. Merger LLC has been provided by ARRIS.
TABLE OF CONTENTS
TABLE OF CONTENTS
Page
Commonly Used Terms
Questions and Answers About the Combination
Summary
Risk Factors
Forward-Looking Statements
Selected Historical Financial Data of ARRIS
Selected Historical Financial Data of Pace
Selected Unaudited Pro Forma Financial Data
The Special Meeting
Proposal 1 — Adoption of the Merger
Agreement
Overview of the Combination
Companies Involved in the Combination
Background and Reasons for the
Combination
The Scheme of Arrangement
The Co-operation Agreement
The Merger and the Merger Agreement
Irrevocable Undertakings
Regulatory Approvals
Ownership of New ARRIS after Completion
of the Combination
Listing of New ARRIS Shares to Be Issued
in Connection with the Combination
Financing
Creation of Distributable Reserves of New
ARRIS
Material U.S. Federal Income Tax
Considerations
Certain United Kingdom Tax Considerations
Interests of Certain Persons in Matters to Be
Acted Upon
Proposal 2 — Advisory (Non-Binding) Vote on
Merger-Related Compensation for ARRIS’
Named Executive Officers
Page
Proposal 3 — Authority to Adjourn the Special
Meeting
Board of Directors and Management after the
Combination
Stock Ownership of Directors and Executive
Officers
Stock Ownership of Principal Stockholders
Unaudited Pro Forma Condensed Combined
Financial Information
Comparative per Share Market Price Data and
Dividend Information
Description of New ARRIS Shares
Comparison of the Rights of ARRIS
Stockholders and New ARRIS Shareholders
Legal Matters
Experts
Enforceability of Civil Liabilities
Directors’ Responsibility Statement Required
by the UK Takeover Code
Future Stockholder Proposals
No Delaware Appraisal Rights
Accounting Treatment of the Combination
Where You Can Find More Information
Incorporation of Certain Documents by
Reference
Management’s Discussion and Analysis of
Financial Condition and Results of
Operations of Pace
Index to Financial Statements of Pace
1
4
10
20
38
39
40
41
42
47
47
50
52
67
69
70
74
74
75
75
76
78
79
89
Annex A: Merger Agreement
Annex B: Rule 2.7 Announcement
Annex C: Co-operation Agreement
Annex D: Form of Articles of Association of
New ARRIS
Annex E: Fairness Opinion of Evercore
Annex G: Pace Interim Results
93
101
i
102
103
104
105
106
126
127
137
168
168
168
169
169
169
170
170
172
173
F-1
TABLE OF CONTENTS
COMMONLY USED TERMS
For your convenience, some of the terms that are commonly used in the proxy statement/prospectus have
the meanings set forth below unless otherwise indicated or the context otherwise requires:
•
“ARRIS” refers to ARRIS Group, Inc., a Delaware corporation.
•
“ARRIS Holdings” refers to Archie U.S. Holdings LLC, a Delaware limited liability company and
wholly-owned subsidiary of New ARRIS, which will be converted into a Delaware corporation prior to
the completion of the Merger.
•
“ARRIS shares” refers to outstanding common stock of ARRIS, $0.01 par value.
•
“ARRIS stockholders” refers to the holders of ARRIS shares.
•
“Board” refers to ARRIS’ board of directors, New ARRIS’ board of directors or Pace’s board of
directors, as the context suggests.
•
“Combination” refers to the combination of ARRIS and Pace by means of the Merger and the Pace
Acquisition.
•
“Companies Act” refers to the UK Companies Act 2006, as amended.
•
“Contractual Offer” means the implementation of the Pace Acquisition by means of a takeover offer as
defined in section 974 of the Companies Act, rather than by means of the Scheme.
•
“Co-operation Agreement” means the Co-operation Agreement, dated as of April 22, 2015, among
ARRIS, New ARRIS and Pace.
•
“Court” refers to the High Court of Justice in England and Wales.
•
“Court Meeting” means the meeting(s) of Pace Scheme shareholders to be convened by an order of the
Court under section 896 of the Companies Act, notice of which will be set out in the Scheme Circular,
to consider and if thought fit approve the Scheme (with or without amendment) including any
adjournment thereof.
•
“DGCL” means the Delaware General Corporation Law.
•
“Dollars” or “$” refers to U.S. dollars.
•
“ESPP” means an employee stock purchase right.
•
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
•
“General Meeting” means the general meeting of Pace shareholders to be convened in connection with
the Scheme, notice of which will be set out in the Scheme Circular, to consider and if thought fit
approve various matters in connection with the implementation of the Scheme, including any
adjournment thereof.
•
“HSR Act” means the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the regulations promulgated thereunder.
•
“Internal Revenue Code” or “Code” means the U.S. Internal Revenue Code of 1986, as amended.
•
“IRS” means the U.S. Internal Revenue Service.
•
“LSE” means the London Stock Exchange plc.
•
“Merger” means the merger of Merger Sub with and into ARRIS, with ARRIS continuing as the
surviving corporation, pursuant to the Merger Agreement.
•
“Merger Agreement” means the Agreement and Plan of Merger, dated as of April 22, 2015, among New
ARRIS, ARRIS, ARRIS Holdings, and Merger Sub.
•
“Merger Sub” refers to Archie U.S. Merger LLC, a Delaware limited liability company and whollyowned subsidiary of ARRIS Holdings.
TABLE OF CONTENTS
•
“Named Executive Officers” refers to the chief executive officer, the chief financial officer, and the
three other most highly paid executive officers of ARRIS, being Robert J. Stanzione, David B. Potts,
Lawrence A. Margolis, Bruce McClelland and Lawrence Robinson.
•
“NASDAQ” means The NASDAQ Stock Market LLC.
•
“New ARRIS” refers to ARRIS International Limited, currently a private limited company
incorporated under the laws of England and Wales and a wholly-owned subsidiary of ARRIS, which
will be re-registered as a public limited company named ARRIS International plc prior to the
completion of the Scheme (or, if the Scheme is converted to a Contractual Offer, before or after the
completion of the Contractual Offer).
•
“New ARRIS group” means ARRIS, New ARRIS and their respective subsidiaries from time to time.
•
“New ARRIS shares” or “New ARRIS ordinary shares” refers to ordinary shares of New ARRIS,
nominal value £0.01 per share.
•
“New ARRIS shareholders” refers to the holders of New ARRIS ordinary shares.
•
“Option” means a stock option.
•
“Our,” “we” or “us” refers to ARRIS.
•
“Pace” refers to Pace plc, a public limited company incorporated under the laws of England and Wales.
•
“Pace Acquisition” means the acquisition by New ARRIS of the entire issued and to be issued share
capital of Pace, other than Pace ordinary shares held by or on behalf of New ARRIS or the New ARRIS
group or by Pace in treasury (if any), to be implemented by means of the Scheme or, if ARRIS so elects
(subject to the consent of the Takeover Panel (where necessary) and subject to the provisions of the
Co-operation Agreement), by means of the Contractual Offer, on the terms and subject to the
conditions of the Rule 2.7 Announcement.
•
“Pace ordinary shares” or “Pace shares” refers to outstanding ordinary shares of Pace, nominal value
£0.05 per share.
•
“Pace Scheme shareholder” means the holders of Pace shares:
(a) in issue at the date of the Scheme Circular and which remain in issue at the Scheme Record Time;
(b) (if any) issued after the date of the Scheme Circular but before the Voting Record Time and which
remain in issue at the Scheme Record Time; and
(c) (if any) issued at or after the Voting Record Time but at or before the Scheme Record Time on
terms that the holder thereof shall be bound by the Scheme or in respect of which the original or
any subsequent holders thereof are, or have agreed in writing to be, bound by the Scheme and, in
each case, which remain in issue at the Scheme Record Time,
excluding, in any case, any Pace shares of which New ARRIS is the holder or in which any member of
the New ARRIS group is beneficially interested.
•
“Pace shareholders” refers to the holders of Pace ordinary shares.
•
“Pounds” or “£” refers to UK pounds sterling.
•
“Restricted Share” means a restricted share.
•
“RSU” means a restricted stock unit.
•
“Rule 2.7 Announcement” means the announcement in respect of the Combination issued by ARRIS
on April 22, 2015 pursuant to Rule 2.7 of the Takeover Code.
2
TABLE OF CONTENTS
•
“Scheme” means the scheme of arrangement proposed to be made under Part 26 of the Companies Act
between Pace and the Pace Scheme shareholders, with or subject to any modification, addition or
condition approved or imposed.
•
“Scheme Circular” means the document to be sent to Pace shareholders setting out, amongst other
things, the Scheme and notices convening the Court Meeting and the General Meeting, and including
the particulars required by section 897 of the Companies Act.
•
“Scheme Record Time” means the time and date specified in the Scheme Circular by reference to
which the Scheme will be binding on holders of Pace shares at such time.
•
“SEC” means the U.S. Securities and Exchange Commission.
•
“Securities Act” means the U.S. Securities Act of 1933, as amended.
•
“Special Meeting” means the special meeting of the ARRIS stockholders to be held on October 21,
2015.
•
“Takeover Code” refers to the City Code on Takeovers and Mergers.
•
“Takeover Panel” refers to the UK Panel on Takeovers and Mergers.
•
“U.S. Treasury” means the U.S. Department of Treasury.
•
“Voting Record Time” means the time and date specified in the Scheme Circular by reference to which
entitlement to vote at the Court Meeting will be determined, expected to be 6.00pm (London time
(BST)) on the day which is two days before the date of the Court Meeting or if the Court Meeting is
adjourned, 6.00pm (London time (BST)) on the day which is two days before such adjourned meeting.
3
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE COMBINATION
The following questions and answers are intended to address briefly some commonly asked questions
regarding the proposed Combination and the Special Meeting (each as defined below). These questions and
answers only highlight some of the information contained in this proxy statement/prospectus. They may not
contain all of the information that is important to you. You should read carefully this entire proxy statement/​
prospectus, including the annexes and the documents incorporated by reference into this proxy statement/​
prospectus, to understand fully the proposed Combination and the voting procedures for the Special Meeting.
See the section captioned “Where You Can Find More Information” beginning on page 170.
Q: Whose proxies are being solicited?
A:
Only proxies from holders of ARRIS shares are being solicited. We are not soliciting any proxies or votes
from Pace shareholders.
If you are a Pace shareholder and not an ARRIS stockholder, and you have received or gained access to this
proxy statement/prospectus, you should disregard it completely and should not treat it as any solicitation
of your proxy, vote or support on any matter. If you are both an ARRIS stockholder and a Pace shareholder,
you should treat this proxy statement/prospectus as soliciting only your proxy with respect to the ARRIS
shares held by you and should not treat it as a solicitation of your proxy, vote or support on any matter with
respect to your Pace shares. Pace shareholders will receive a separate circular and should read and respond
to such circular.
Q: When and where is the Special Meeting?
A:
ARRIS will hold a special meeting on October 21, 2015, at 10:00 a.m. local time at ARRIS corporate
headquarters at 3871 Lakefield Drive, Suwanee, Georgia, USA.
Q: What am I being asked to vote on at the Special Meeting?
You are being asked to consider and vote on the following proposals:
(1) to adopt the Merger Agreement, as described in the section captioned “Proposal 1 — Adoption of the
Merger Agreement” beginning on page 47 (the “Merger Agreement Proposal”);
(2) to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable
to ARRIS’ Named Executive Officers in connection with the completion of the Merger as described in
the section captioned “Proposal 2 — Advisory (Non-Binding) Vote on Merger-Related Compensation
for ARRIS’ Named Executive Officers” beginning on page 101 (the “Non-Binding Compensation
Proposal”); and
(3) to approve any motion to adjourn the Special Meeting, or any postponement thereof, to another time
or place if necessary or appropriate (i) to solicit additional proxies if there are insufficient votes at the
time of the Special Meeting to adopt the Merger Agreement, (ii) to provide to ARRIS stockholders any
supplement or amendment to the proxy statement/prospectus and/or (iii) to disseminate any other
information which is material to ARRIS stockholders voting at the Special Meeting (the
“Adjournment Proposal”).
Approval of the Non-Binding Compensation Proposal and approval of the Adjournment Proposal are not
conditions to completion of the Combination.
Q: Does the ARRIS Board recommend approval of the proposals?
A:
YES. ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
ADOPTION OF THE MERGER AGREEMENT AND EACH OF THE PROPOSALS DESCRIBED ABOVE.
Q: When is the Combination expected to be completed?
A: As of the date of this proxy statement/prospectus, the Combination is expected to be completed in late
2015. However, no assurance can be provided as to when or if the Combination will be completed. The
4
TABLE OF CONTENTS
required vote of Pace shareholders and ARRIS stockholders to approve the relevant shareholder proposals
at their respective meetings, as well as the sanction and confirmation of the Court and the necessary
regulatory consents and approvals, must be obtained and the other conditions specified in Appendix 2 of
the Rule 2.7 Announcement included as Annex B to this proxy statement/prospectus must be satisfied or, to
the extent applicable, waived.
Q: Why am I being asked to vote on the Non-Binding Compensation Proposal?
A:
The Exchange Act entitles stockholders to vote on an advisory (non-binding) basis on the compensation
that may be paid or become payable in connection with a merger such as the one disclosed in this proxy
statement/prospectus. Approval by the ARRIS stockholders of the compensation that may be paid or
become payable to the ARRIS Named Executive Officers in connection with the Merger is not a condition
to completion of the Merger, and the advisory vote is not binding on ARRIS. Regardless of the outcome of
this advisory vote, such compensation will be payable, subject only to the terms and conditions applicable
thereto, if the Merger is completed. See “Interests of Certain Persons in Matters to be Acted Upon” on page
93 and “Proposal 2 — Advisory (Non-Binding) Vote on Merger-Related Compensation for ARRIS’ Named
Executive Officers” on page 101.
Q: Who is entitled to vote at the Special Meeting?
A:
The close of business on September 10, 2015 has been fixed as the record date for determining the ARRIS
stockholders entitled to receive notice of and to vote at the Special Meeting (the “Record Date”). Each
ARRIS stockholder as of the Record Date is entitled to one vote per ARRIS share that he holds on each
matter to be voted upon at the Special Meeting. If you are a non-record (beneficial) holder of ARRIS shares,
to vote you must instruct your broker or other intermediary how to vote.
Q: What if I sell my ARRIS shares before the Special Meeting?
A:
The Record Date is earlier than the date of the Special Meeting and the date that the Combination is
expected to be completed. If you transfer your ARRIS shares after the Record Date but before the Special
Meeting, unless you make arrangements to the contrary with your transferee you will retain your right to
vote at the Special Meeting, but will have transferred the right to receive New ARRIS ordinary shares
pursuant to the Merger. In order to receive the New ARRIS ordinary shares, you must hold your shares
through the completion of the Merger.
Q: What constitutes a quorum at the Special Meeting?
A:
A quorum of ARRIS stockholders is necessary to validly hold the Special Meeting. A quorum will be
present if a majority of the outstanding ARRIS shares on the Record Date are represented at the Special
Meeting, either in person or by proxy. Your shares will be counted for purposes of determining a quorum if
you vote:
•
via the Internet;
•
by telephone;
•
by submitting a properly executed proxy card or voting instruction form by mail; or
•
in person at the Special Meeting.
Abstentions and broker non-votes will be counted for determining whether a quorum is present for the
Special Meeting.
Q: What vote is needed to approve each of the proposals?
A: Approval of the Merger Agreement Proposal requires an affirmative vote of the holders of a majority of
the outstanding ARRIS shares. Approval of each of the Non-Binding Compensation Proposal and the
Adjournment Proposal requires approval by a majority of the votes cast by the holders of ARRIS shares
entitled to vote at the Special Meeting.
5
TABLE OF CONTENTS
As of the Record Date, ARRIS directors and executive officers owned and were entitled to vote 1,768,883
ARRIS shares, representing approximately 1.2% of the ARRIS shares outstanding on the Record Date. It is
expected that the ARRIS directors and executive officers who are ARRIS stockholders will vote “for” the
Merger Agreement Proposal, “for” the Non-Binding Compensation Proposal, and “for” the Adjournment
Proposal, although none of them has entered into any agreement requiring them to do so.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
EACH OF THE PROPOSALS.
Q: What is the effect if I do not cast my vote?
A:
If a stockholder of record does not cast his vote by proxy or in any other permitted fashion, no votes will be
cast on behalf of such stockholder of record on any of the items of business at the Special Meeting. If a nonrecord (beneficial) stockholder does not instruct its broker or other intermediary on how to vote on any of
the proposals at the Special Meeting, no votes will be cast on behalf of such non-record (beneficial)
stockholder with respect to such items of business.
If you fail to submit a proxy or vote in person at the Special Meeting, or you vote to abstain, or you do not
provide your bank, brokerage firm or other nominee or intermediary with instructions, as applicable, this
will have the same effect as a vote “against” the Merger Agreement Proposal.
Your vote is very important. Whether or not you plan to attend the Special Meeting, please vote as soon
as possible by following the instructions in this proxy statement/prospectus.
Q: What is the difference between holding ARRIS shares as a stockholder of record and holding ARRIS
shares as a non-record (beneficial) holder?
A:
If your ARRIS shares are owned directly in your name with our transfer agent, American Stock Transfer &
Trust Company LLC, you are considered a “stockholder of record” of those shares.
If your ARRIS shares are held in a brokerage account or by a bank or other nominee, you hold those shares
in “street name” and are considered a “non-record (beneficial) stockholder.”
Q: How do I vote my shares?
A:
The voting process differs depending on whether you are a stockholder of record or a non-record
(beneficial) stockholder:
Stockholder of record
If you are a stockholder of record, a proxy card is enclosed with this proxy statement/prospectus to enable
you to vote, or, more technically, to appoint a proxyholder to vote on your behalf, at the Special Meeting.
Whether or not you plan to attend the Special Meeting, you may vote your ARRIS shares by proxy by any
one of the following methods:
•
by mail: Mark, sign and date your proxy card and return it in the postage paid envelope. Your proxy
card must be received no later than 11:59 p.m. (Eastern Time) on October 20, 2015 in order for your
vote to be counted;
•
by telephone: Call 1-800-PROXIES (1-800-776-9437) in the U.S. or 1-718-921-8500 from foreign
countries. Have your proxy card available when you call. The telephone voting service is available
until 11:59 p.m. (Eastern Time) on October 20, 2015; and
•
via the Internet: Go to www.voteproxy.com and follow the instructions on the website and complete
your proxy voting prior to 11:59 p.m. (Eastern Time) on October 20, 2015. We provide Internet proxy
voting to allow you to vote your ARRIS shares online, with procedures designed to ensure the
authenticity and correctness of your proxy vote instructions.
6
TABLE OF CONTENTS
If the Special Meeting is adjourned or postponed, our transfer agent must receive your proxy card or your
vote via telephone or Internet not later than 11:59 p.m. (Eastern Time) on the business day immediately
preceding the date of any rescheduled meeting.
Voting your ARRIS shares by proxy does not prevent you from attending the Special Meeting in person
and voting in person.
Non-record (beneficial) stockholders
If you are a non-record (beneficial) stockholder, your intermediary (or its agent) will send you a voting
instruction form or proxy form with this proxy statement/prospectus. Properly completing such form and
returning it to your intermediary (or its agent) will instruct your intermediary how to vote your ARRIS
shares at the Special Meeting on your behalf. You should carefully follow the instructions provided by
your intermediary (or its agent) and contact your intermediary (or its agent) promptly if you need help.
If you do not intend to attend the Special Meeting and vote in person, mark your voting instructions on the
voting instruction form or proxy form, sign it, and return it as instructed by your intermediary (or its agent).
Your intermediary (or its agent) also may have provided you with the options of voting by telephone or
Internet, similar to those applicable to stockholders of record set forth above.
If you wish to vote in person at the Special Meeting, follow the instructions provided by your intermediary
(or its agent).
In addition, your intermediary (or its agent) will need to receive your voting instructions in sufficient time
in advance for your intermediary to act on them prior to the deadline for the deposit of proxies of 11:59
p.m. (Eastern Time) on October 20, 2015, or, in the case of any adjournment or postponement of the Special
Meeting, 11:59 p.m. (Eastern Time) on the business day immediately preceding the date of any rescheduled
meeting.
Q: If my ARRIS shares are held in a brokerage account or in “street name” will my broker or other
intermediary vote them for me?
A:
If you own your ARRIS shares through a bank, trust company, securities broker or other intermediary, you
will receive instructions from your intermediary on how to instruct them to vote your ARRIS shares,
including by completing a voting instruction form, or providing instructions by telephone or fax or
through the Internet. If you do not receive such instructions, you may contact your intermediary to request
them. In accordance with rules of the New York Stock Exchange, most intermediaries who hold ARRIS
shares in “street name” for customers may not exercise their voting discretion with respect to the proposals.
This is discussed more fully below under “What if I return a proxy card or otherwise vote but do not make
specific choices?”
Accordingly, if you do not provide your intermediary with instructions on how to vote your street name
shares, your intermediary will not be permitted to vote them at the Special Meeting.
Q: How will my shares be voted if I give my proxy?
A:
On the proxy card, you can indicate how you want your proxyholder to vote your ARRIS shares, or you can
let your proxyholder decide for you by signing and returning the proxy card without indicating a voting
preference for one or more of the proposals. If you have specified on the proxy card how you want to vote
on a particular proposal (by marking, as applicable, “for” or “against”), then your proxyholder must vote
your ARRIS shares accordingly.
Q: What if I return a proxy card or otherwise vote but do not make specific choices?
A:
Stockholder of Record
If you are a stockholder of record and you submit your proxy through the Internet or by telephone without
indicating your vote, or if you sign and return an ARRIS proxy card without giving specific voting
instructions, then the proxyholders will vote your shares in the manner recommended by the
7
TABLE OF CONTENTS
ARRIS Board on all matters presented in this proxy statement/prospectus and as the proxyholders may
determine in their discretion with respect to any other matters properly presented for a vote at the Special
Meeting. However, no proxy with instructions to vote against the Merger Agreement Proposal will be voted
in favor of the Adjournment Proposal.
Non-record (Beneficial) Stockholders
If you are a non-record (beneficial) stockholder and you do not provide the organization that holds your
ARRIS shares with specific instructions, generally the organization that holds your ARRIS shares may vote
on routine matters but cannot vote on non-routine matters. We expect the Merger Agreement Proposal and
the Non-Binding Compensation Proposal to be non-routine matters for this purpose. If the organization that
holds your ARRIS shares does not receive instructions from you on how to vote your ARRIS shares on
these two proposals, it is likely that it will inform the inspector for the Special Meeting that it does not have
the authority to vote on these matters with respect to your ARRIS shares. This generally is referred to as a
“broker non-vote.” When ARRIS’ inspector of elections tabulates the votes for any particular matter, broker
non-votes will be counted for purposes of determining whether a quorum is present, will have the same
effect as a vote “against” the Merger Agreement Proposal, and will not have any effect with regard to the
vote on the Non-Binding Compensation Proposal and the Adjournment Proposal. ARRIS encourages you
to provide voting instructions to the organization that holds your ARRIS shares to ensure that your vote is
counted on all three proposals.
Q: What is “householding”?
A: The SEC has adopted rules that permit companies and intermediaries (such as brokers or banks) to satisfy
the delivery requirements for proxy statements with respect to two or more security holders sharing the
same address by delivering a single notice or proxy statement addressed to those security holders. This
process, which is commonly referred to as “householding,” potentially provides extra convenience for
security holders and cost savings for companies. Once you have received notice from your broker that it
will be “householding” communications to your address, “householding” will continue until you are
notified otherwise or until you revoke your consent.
Several brokers and banks with accountholders who are ARRIS stockholders will be “householding” our
proxy materials. As indicated in the notice provided by these brokers to ARRIS stockholders, a single
proxy statement/prospectus will be delivered to multiple stockholders sharing an address unless contrary
instructions have been received from an affected stockholder. If, at any time, you no longer wish to
participate in “householding” with respect to the Special Meeting and you prefer to receive a separate
proxy statement/prospectus, please notify your broker or contact our proxy solicitor, Morrow & Co. at (203)
658-9400, or write us at Investor Relations, ARRIS Group, Inc., 3871 Lakefield Drive, Suwanee, Georgia
30024. ARRIS stockholders who currently receive multiple copies of the proxy statement/prospectus at
their address and would like to request “householding” of their communications should contact their
broker or bank.
Q: If I change my mind, can I change my vote or revoke my proxy once I have given it?
A: Yes. If you are a non-record (beneficial) stockholder, you can revoke your prior voting instructions by
providing new instructions on a voting instruction form or proxy form with a later date, or at a later time in
the case of voting by telephone or through the Internet. Otherwise, contact your intermediary (or its agent)
if you want to revoke your proxy or change your voting instructions, or if you change your mind and want
to vote in person. Any new voting instructions given to an intermediary (or its agent) in connection with
the revocation of proxies need to be received with sufficient time to allow the intermediary to act on such
instructions prior to the deadline for the deposit of proxies of 11:59 p.m. (Eastern Time), on October 20,
2015, or, in the case of any adjournment or postponement of the Special Meeting, 11:59 p.m. (Eastern
Time) on the business day immediately preceding the date of any rescheduled meeting.
If you are a stockholder of record, you may revoke any proxy that you have given until the time of the
Special Meeting by voting again by telephone or through the Internet as instructed above, by signing and
dating a new proxy card and submitting it as instructed above, by giving written notice of such
8
TABLE OF CONTENTS
revocation to ARRIS’ Corporate Secretary at our address, by revoking it in person at the Special Meeting,
or by voting by ballot at the Special Meeting. If you choose to submit a proxy multiple times whether by
telephone, through the Internet or by mail, or a combination thereof, only your latest vote, not revoked and
received prior to 11:59 p.m. (Eastern Time), on October 20, 2015 (or, in the case of any adjournment or
postponement of the Special Meeting, 11:59 p.m. (Eastern Time) on the business day immediately
preceding the date of any rescheduled meeting) will be counted. A stockholder of record participating in
person, in a vote by ballot at the Special Meeting, will automatically revoke any proxy previously given by
that stockholder regarding business considered by that vote. However, attendance at the Special Meeting
by a registered stockholder who has voted by proxy does not alone revoke such proxy.
Q: Who will count the votes?
A:
ARRIS expects to appoint its Corporate Secretary as the inspector of elections to count the votes, but it
may, in its discretion, appoint someone else.
Q: Who is soliciting my proxy?
A:
The ARRIS Board is soliciting your proxy for use at the Special Meeting to be held on October 21, 2015 at
10:00 a.m. local time at ARRIS corporate headquarters at 3871 Lakefield Drive, Suwanee, Georgia, USA (or
any adjournments or postponements of that meeting). It is expected that the solicitation will be primarily
by mail, but proxies also may be solicited personally, by advertisement or by telephone, by directors,
officers or employees of ARRIS without special compensation or by ARRIS’ proxy solicitor, Morrow & Co.
This proxy statement/prospectus describes the voting procedures and the proposals to be voted on at the
Special Meeting.
Q: Are ARRIS stockholders able to exercise dissenters’ or appraisal rights with respect to the matters
being voted upon at the Special Meeting?
A:
No, ARRIS stockholders will not be entitled to dissenters’ or appraisal rights.
Q: Where can I find more information on ARRIS and Pace?
A:
You can find more information about ARRIS and Pace from various sources described in the section
captioned “Where You Can Find More Information” on page 170.
Q: Who should I contact if I have additional questions concerning the proxy statement/prospectus or the
proxy card?
A:
If you have any questions concerning the information contained in this proxy statement/prospectus or
require assistance completing the proxy card, you may contact Morrow & Co. as follows:
Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Banks and Brokerage Firms, Please Call: (203) 658-9400
Holders Call Toll Free: (855)-223-1287
Email: [email protected]
9
TABLE OF CONTENTS
SUMMARY
This summary highlights selected information contained in this proxy statement/prospectus and may not
contain all of the information that may be important to you. We urge you to read this document, including the
Annexes and the documents incorporated by reference, carefully and in full. In particular, we urge you to read
the section captioned “Risk Factors” beginning on page 20. The page references have been included in this
summary to direct you to a more complete description of the topics presented below. See also the section
entitled “Where You Can Find More Information” beginning on page 170.
Overview of the Combination (Page 47)
The Combination will be implemented in two main steps, which are the Pace Acquisition and the Merger:
In the Pace Acquisition (which will be implemented by means of the Scheme or, if ARRIS so elects, subject
to the consent of the Takeover Panel (where necessary) and subject to the provisions of the Co-Operation
Agreement, by way of the Contractual Offer):
•
all Pace ordinary shares, other than Pace ordinary shares held by or on behalf of New ARRIS or the
New ARRIS group or Pace in treasury (if any), will be transferred to New ARRIS;
•
holders of such Pace ordinary shares will receive 132.5 pence in cash and will be issued 0.1455 New
ARRIS ordinary shares in consideration for each Pace ordinary share so transferred; and
•
Pace will become a wholly-owned subsidiary of New ARRIS.
In the Merger:
•
Merger Sub will be merged with and into ARRIS with ARRIS continuing as the surviving corporation;
•
each ARRIS share, other than ARRIS shares held by ARRIS as treasury stock or any shares owned of
record by ARRIS Holdings or Merger Sub, will be converted into the right to receive one New ARRIS
ordinary share; and
•
ARRIS will become a wholly-owned subsidiary of New ARRIS.
As a result of the Combination, ARRIS and Pace will become wholly-owned subsidiaries of New ARRIS,
and ARRIS stockholders and Pace Scheme shareholders will become New ARRIS shareholders. We estimate that,
upon the completion of the Combination, ARRIS stockholders will own approximately 76% of the New ARRIS
ordinary shares, and Pace Scheme shareholders will receive approximately £438.4 million (or approximately
$672.8 million based on the exchange rate as of August 31, 2015) in cash in the aggregate and will own
approximately 24% of the New ARRIS ordinary shares.
The Pace Acquisition is conditioned on, among other things, the approval of the Scheme by the Pace
Scheme shareholders, the sanction of the Scheme by the Court, the adoption of the Merger Agreement by ARRIS
stockholders and the receipt of certain regulatory approvals. The consummation of the Merger is conditioned on
the adoption of the Merger Agreement Proposal by the affirmative vote of holders of a majority of the ARRIS
shares outstanding and entitled to vote, the completion of the Pace Acquisition and the completion of certain
internal steps that New ARRIS and ARRIS Holdings have committed to take relating to the issuance of the New
ARRIS ordinary shares as Merger Consideration (as defined below).
The directors of Pace have recommended that Pace shareholders vote in favor of the Scheme at the Court
Meeting and the resolutions to be proposed at the General Meeting.
For further information, including diagrams explaining the Combination, please see the section captioned
“Overview of the Combination” beginning on page 47.
Reasons for the Combination (Page 54)
The ARRIS Board considered a number of reasons for approving the Combination, including:
10
TABLE OF CONTENTS
•
the Combination will provide ARRIS with a large scale entry into the satellite segment and increase
ARRIS’ speed of innovation;
•
the Combination will significantly enhance ARRIS’ international presence;
•
the Combination will diversify and broaden ARRIS’ customer base, increase ARRIS’ portfolio and add
Pace’s world-class technology and employees to the ARRIS organization;
•
the Combination will position the company for future growth; and
•
the Combination will result in compelling financial benefits.
The ARRIS Board also weighed the positive factors and considerations against a number of uncertainties,
risks, and potentially negative factors relevant to the Combination, including:
•
that the fixed number of New ARRIS shares to be issued per Pace share will not adjust to compensate
for changes in the price of ARRIS shares or Pace shares prior to the closing of the Combination;
•
the adverse impact that business uncertainty pending the consummation of the Combination could
have on Pace’s ability to motivate and retain key personnel until the consummation of the
Combination;
•
the risks related to the fact that the Combination might not be completed in a timely manner or at all;
•
that the Takeover Code limits the contractual commitments that could be obtained from Pace to take
actions in furtherance of the Combination;
•
that the Takeover Code provides that certain conditions may be invoked only where the circumstances
underlying the failure of the condition are of material significance to ARRIS in the context of the Pace
Acquisition;
•
the challenges inherent in the combination of two businesses of the size and scope of ARRIS and Pace;
•
the risk that changes to relevant tax laws could have negative effects on New ARRIS or its subsidiaries
or affiliates; and
•
the degree to which New ARRIS will be leveraged following the Combination and the related
consequences to shareholders of New ARRIS.
The Combination has been structured in such a way as to bring ARRIS and Pace together under common
ownership while allowing both entities’ legal corporate status to survive. New ARRIS was incorporated in the
United Kingdom because a UK incorporation was deemed to be the most efficient and beneficial for the
combined company with respect to the future growth of the company, financial and global cash management
flexibility and a lower tax rate. The United Kingdom enjoys strong relationships as a member of the European
Union, and has a long history of international investment and a good network of commercial, tax, and other
treaties with the United States, the European Union and many other countries where both ARRIS and Pace
operate. Incorporation in the United Kingdom is expected to result in enhanced global cash management
flexibility, including access to both ARRIS’ and Pace’s non-U.S. cash flow without negative tax effects,
compared to incorporation in the United States, so long as New ARRIS’ status as a non-U.S. corporation is
respected for U.S. federal tax purposes. However, future U.S. regulatory or legislative action may adversely
impact whether New ARRIS’ status as a non-U.S. corporation is respected for U.S. federal tax purposes. The
expected non-GAAP tax rate for New ARRIS for the year ended December 31, 2016, based on the information
available to management as of April 22, 2015, is 26% to 28%, which is lower than ARRIS’ standalone preacquisition projected 2015 full year non-GAAP tax rate of 35%. Based on the information available to
management as of April 22, 2015, the expected GAAP effective tax rate for New ARRIS for the year ended
December 31, 2016 is approximately 15% to 18%. The non-GAAP tax rate reflects certain adjustments to pre-tax
book income and tax expense for certain
11
TABLE OF CONTENTS
non-cash and non-recurring charges such as amortization, stock based compensation and integration costs,
which adjustments are consistent with the adjustments used by ARRIS in determining non-GAAP measures in
other contexts. ARRIS’ GAAP effective tax rate for the six-month period ended June 30, 2015 was 34.4%.
The ARRIS Board believes that the Combination and incorporation in the United Kingdom will put ARRIS
in a stronger position to continue to grow internally and/or through additional acquisitions.
Companies Involved in the Combination (Page 50)
In the Combination, ARRIS and Pace will each become wholly-owned subsidiaries of New ARRIS, and
ARRIS stockholders and Pace shareholders will become New ARRIS shareholders.
ARRIS
ARRIS is a global provider of entertainment and communications solutions. It operates in two business
segments: Customer Premises Equipment (“CPE”) and Network & Cloud (“N&C”). It enables service providers,
including cable, telephone, and digital broadcast satellite operators, and media programmers, to deliver media,
voice, and IP data services to their subscribers.
ARRIS was organized as a corporation under the laws of the State of Delaware. ARRIS’ principal executive
offices are located at 3871 Lakefield Drive, Suwanee, Georgia 30024 and its telephone number at that address is
+1 (678) 473-2000. ARRIS employs approximately 6,660 people globally in manufacturing and warehouse
facilities, research and development, administrative and sales offices in various locations. ARRIS’ common
stock is listed on NASDAQ and trades under the symbol “ARRS.”
Pace
Pace is a leading technology developer for the global Pay TV industry, working across satellite, cable, IPTV
and terrestrial platforms. Pace has highly experienced specialist engineering teams, developing intelligent and
innovative products and services for both Pay TV operators and Telcos across the world.
Pace was founded in 1982 and is registered in England and Wales. Pace’s principal executive offices are
located at Victoria Road, Saltaire, West Yorkshire, BD18 3LF, England and its telephone number at that address
is +44 (0)1274 532000. It employs over 2,000 people in locations around the world, including France, the USA,
Brazil, India and China. Pace is a member of the FTSE 250 and listed on the Official List of the LSE and trades
under the symbol “PIC.”
New ARRIS
New ARRIS is a private limited company incorporated under the laws of England and Wales. New ARRIS
was incorporated on April 20, 2015, under the name “Archie ACQ Limited,” for the purpose of effecting the
Combination. On June 15, 2015, Archie ACQ Limited changed its name to “ARRIS International Limited.” New
ARRIS has not conducted any business operations other than those incidental to its formation and in connection
with the transactions contemplated by the Merger Agreement and the Pace Acquisition (including the financing
arrangements entered into in connection with the Combination). As of the date of this proxy
statement/prospectus, New ARRIS does not beneficially own any Pace ordinary shares. Prior to completion of
the Combination, New ARRIS will be converted into a public limited company named ARRIS International plc,
and, following the Combination, it is expected that New ARRIS ordinary shares will be listed on NASDAQ under
the symbol “ARRS.”
The principal executive offices of New ARRIS are located at 3871 Lakefield Drive, Suwanee, Georgia
30024 and its telephone number at that address is +1 (678) 473-2000.
ARRIS Holdings
ARRIS Holdings is a newly-formed Delaware limited liability company and a direct wholly-owned
subsidiary of New ARRIS. ARRIS Holdings has not conducted any business operations other than those
incidental to its formation and in connection with the transactions contemplated by the Merger Agreement.
12
TABLE OF CONTENTS
Prior to completion of the Merger, ARRIS Holdings will be converted into a Delaware corporation. ARRIS
Holdings’ principal executive office is located at 3871 Lakefield Drive, Suwanee, Georgia 30024 and its
telephone number at that address is +1 (678) 473-2000.
Merger Sub
Merger Sub is a newly-formed Delaware limited liability company and a direct wholly-owned subsidiary of
ARRIS Holdings. Merger Sub has not conducted any business operations other than those incidental to its
formation and in connection with the transactions contemplated by the Merger Agreement. Merger Sub’s
principal executive office is located at 3871 Lakefield Drive, Suwanee, Georgia 30024 and its telephone number
at that address is +1 (678) 473-2000.
The Scheme (Page 67)
The Pace Acquisition will be implemented by means of the Scheme (or, if ARRIS so elects, subject to the
consent of the Takeover Panel (where necessary) and subject to the provisions of the Co-operation Agreement,
by way of the Contractual Offer). Under the Scheme, the Pace Scheme shareholders will be entitled to receive
132.5 pence in cash and will be issued 0.1455 New ARRIS ordinary shares in consideration for each Pace
ordinary share being transferred to New ARRIS. As a result of the Scheme, Pace will become a wholly-owned
subsidiary of New ARRIS, and Pace Scheme shareholders will become New ARRIS shareholders. Upon
completion of the Scheme, we estimate that Pace Scheme shareholders will receive approximately £438.4
million (or approximately $672.8 million based on the exchange rate as of August 31, 2015) in cash in the
aggregate and will own approximately 24% of New ARRIS ordinary shares.
Conditions to the Pace Acquisition and the Scheme (Page 68)
The Pace Acquisition is conditional on, among other things:
(a) the Court Meeting and General Meeting being held on or before the 22 nd day after the expected date
of the meetings to be set out in the Scheme Circular or such later date (if any) as ARRIS and Pace may
agree;
(b) the hearing of the Court to sanction the Scheme being held on or before the 22 nd day after the
expected date of the hearing to be set out in the Scheme Circular, or such later date (if any) as ARRIS
and Pace may agree; and
(c) the Scheme becoming unconditional and becoming effective by no later than April 22, 2016, or such
later date (if any) as ARRIS and Pace may agree and (if required) the Court may allow.
The Scheme is conditional on, among other things:
(i)
the registration statement of which this proxy statement/prospectus is a part having become
“effective” under the Securities Act and not having been the subject of any stop order suspending its
effectiveness, and no proceedings seeking any such stop order having been initiated or threatened by
the SEC;
(ii) the Merger Agreement being duly adopted by the ARRIS stockholders at the Special Meeting;
(iii) NASDAQ having authorized the listing of all of the New ARRIS shares and not having withdrawn such
authorization;
(iv) approval of the Scheme by a majority in number representing not less than three-fourths in value of the
Pace Scheme shareholders entitled to vote and present and voting, either in person or by proxy, at the
Court Meeting (or at any adjournment thereof) and at any separate class meeting which may be
required by the Court (or at any adjournment thereof);
(v) all resolutions required to approve and implement the Scheme (including, without limitation, to
amend Pace’s articles of association) being duly passed by the requisite majority or majorities of the
Pace shareholders at the meeting to approve the Scheme, or at any adjournment thereof;
13
TABLE OF CONTENTS
(vi) the sanction of the Scheme by the Court with or without modifications, on terms reasonably
acceptable to ARRIS and Pace and the delivery of a copy of the order sanctioning the Scheme to the
Registrar of Companies in England and Wales; and
(vii) all notifications and filings as may be required under the HSR Act having been made in connection
with the acquisition of Pace shares by ARRIS and all applicable HSR Act waiting periods (including
any extensions thereof) relating to the acquisition of Pace shares by ARRIS having expired or been
terminated.
The Scheme also is conditional on the receipt of various other anti-trust clearances in a number of
jurisdictions, including Brazil, Colombia, Germany, Portugal and South Africa, and on the satisfaction or waiver
of the other conditions to the Scheme set out in the Rule 2.7 Announcement, which is attached to this proxy
statement/prospectus as Annex B.
To the extent permitted by law and subject to the requirements of the Takeover Panel, ARRIS has reserved
the right to waive all or any of the conditions (other than the conditions set out in (a) – (c) and (i)-(vi) above).
ARRIS is permitted to invoke a condition to the Scheme (other than certain conditions relating to the
approval of the Scheme by Pace Scheme shareholders and the Court) only where the circumstances underlying
the failure of the condition are of material significance to ARRIS in the context of the Pace Acquisition. Because
of this limitation, the conditions may provide ARRIS with less protection than the customary conditions in a
comparable combination between U.S. corporations. Please see the section captioned “Risk Factors — Risks
Relating to the Combination” beginning on page 20.
The Co-operation Agreement (Page 69)
On April 22, 2015, ARRIS, New ARRIS and Pace entered into the Co-operation Agreement in connection
with the proposed Combination. Pursuant to the Co-operation Agreement, Pace has agreed to provide ARRIS
with such information and assistance as ARRIS may reasonably require for the purposes of obtaining all
regulatory clearances in connection with the Combination and making any submission, filing or notification to
any regulatory authority. ARRIS has also given certain undertakings regarding the implementation of the
Combination and the conduct of its business from the date of the Co-operation Agreement until the effective
date of the Combination. Each of ARRIS and Pace has the right to terminate the Co-operation Agreement if,
among other things, any condition to the Pace Acquisition is invoked so as to cause the Pace Acquisition not to
proceed, if the Pace Board withdraws its recommendation of the Scheme or the ARRIS Board withdraws its
recommendation of the Merger, or if certain deadlines are not met, including the Pace Acquisition not being
consummated by April 22, 2016. As compensation for any loss suffered by Pace in connection with the
preparation and negotiation of the Combination, the Co-operation Agreement and any other document relating
to the Combination, ARRIS has undertaken in the Co-operation Agreement that, on the occurrence of certain
Break Payment Events, ARRIS will pay to Pace $20 million or, in certain other instances, Pace’s costs up to a
cap of $12 million. The Co-operation Agreement also, among other things, contains certain arrangements
relating to Pace’s share incentive plans.
The Merger and the Merger Agreement (Page 70)
The Merger will be implemented pursuant to the Merger Agreement. In the Merger, Merger Sub will be
merged with and into ARRIS with ARRIS as the surviving corporation, and each ARRIS share, other than ARRIS
shares held by ARRIS as treasury stock or any shares owned of record by ARRIS Holdings or Merger Sub, will be
converted into the right to receive one New ARRIS share. As a result of the Merger, ARRIS will become an
indirect wholly-owned subsidiary of New ARRIS, and ARRIS stockholders will become New ARRIS
shareholders. The consummation of the Merger is conditioned on the adoption of the Merger Agreement
Proposal by the affirmative vote of holders of a majority of the ARRIS shares outstanding and entitled to vote,
the completion of the Pace Acquisition and the completion of certain internal steps that New ARRIS and ARRIS
Holdings have committed to take relating to the issuance of the New ARRIS ordinary shares as Merger
Consideration.
Treatment of ARRIS Equity-Based Awards (Page 71)
Upon completion of the Merger, each outstanding ARRIS Option, ARRIS Restricted Share, ARRIS RSU and
ARRIS ESPP will be converted into, respectively, a New ARRIS Option, New ARRIS Restricted
14
TABLE OF CONTENTS
Share, New ARRIS RSU or New ARRIS ESPP, which converted award will relate to the number of New ARRIS
shares equal to the number of ARRIS shares subject to the corresponding pre-conversion award and will
continue to have the same terms and conditions that were applicable to the corresponding pre-conversion
ARRIS award (including settlement in cash or shares, as applicable).
ARRIS Board Recommendation (Page 42)
The ARRIS Board has determined that the Combination is in the best interests of ARRIS and its
stockholders. The ARRIS Board unanimously recommends that you vote:
•
“FOR” the Merger Agreement Proposal;
•
“FOR” the Non-Binding Compensation Proposal; and
•
“FOR” the Adjournment Proposal.
Opinion of ARRIS’ Financial Advisor (Page 56)
ARRIS retained Evercore Group L.L.C. (“Evercore”) to act as its financial advisor in connection with the
Combination. As part of this engagement, ARRIS requested that Evercore evaluate the fairness, from a financial
point of view, of the merger consideration of one New ARRIS share for each outstanding ARRIS share (other
than any ARRIS shares that are held in treasury by ARRIS or owned of record by ARRIS Holdings or Merger
Sub) to be received by the holders of ARRIS shares in the Combination (after giving effect to the completion of
the Pace Acquisition) (the “Merger Consideration”). At a meeting of the ARRIS Board held on April 22, 2015 to
evaluate the Combination, Evercore rendered an oral opinion to the ARRIS Board, subsequently confirmed in
writing, to the effect that, as of such date, and based upon and subject to the assumptions, procedures, factors,
qualifications and limitations set forth in Evercore’s written opinion, the Merger Consideration to be received
by the holders of ARRIS shares in the Combination (after giving effect to the completion of the Pace
Acquisition) is fair, from a financial point of view, to such holders.
The full text of Evercore’s written opinion, dated April 22, 2015, which sets forth, among other things,
the assumptions made, procedures followed, matters considered and qualifications and limitations on the
scope of review undertaken by Evercore in rendering its opinion, is attached as Annex E to this proxy
statement/​prospectus and is incorporated herein by reference. Evercore’s opinion does not constitute a
recommendation to the ARRIS Board or to any other persons in respect of the Combination, including as to
how any holder of ARRIS shares should vote or act in respect of the Combination. Evercore’s opinion was
provided for the benefit of the ARRIS Board and was rendered to the ARRIS Board in connection with its
evaluation of whether the Merger Consideration to be received by the holders of ARRIS shares in the
Combination (after giving effect to the completion of the Pace Acquisition) is fair, from a financial point of
view, to such holders, and did not address any other aspects of the Combination. The opinion did not address
the relative merits of the Combination as compared to any other transaction or business strategy in which
ARRIS might engage or the merits of the underlying decision by ARRIS to engage in the Combination. We
encourage you to read Evercore’s opinion carefully and in its entirety. The summary of the Evercore
opinion set forth herein is qualified in its entirety by reference to the full text of the opinion attached as
Annex E to this proxy statement/​prospectus.
Irrevocable Undertakings (Page 74)
In connection with the Scheme, the Pace directors who hold Pace shares, being Mike Pulli, Allan Leighton,
Pat Chapman-Pincher, John Grant and Mike Inglis, have irrevocably undertaken to vote in favor of the Scheme
at the Court Meeting and the resolutions to be proposed at the General Meeting in respect of their holdings of
Pace shares which amount, in aggregate, to 1,743,455 shares representing approximately 0.54% of the
outstanding Pace shares as of August 31, 2015.
These irrevocable undertakings will cease to be binding if:
•
the Scheme Circular is not sent to Pace shareholders on or before September 22, 2015 or such later
time as may be agreed by the Takeover Panel;
15
TABLE OF CONTENTS
•
the Scheme does not become effective on or before April 22, 2016; or
•
ARRIS announces that it does not intend to make or proceed with the Pace Acquisition and the
Scheme is withdrawn and no new replacement scheme of arrangement is announced by ARRIS within
five business days of such withdrawal.
Listing of New ARRIS Shares to be Issued in Connection with the Combination (Page 75)
New ARRIS ordinary shares currently are not traded or quoted on a stock exchange or quotation system.
NASDAQ has advised ARRIS that NASDAQ will treat the Combination as a “Substitution Listing Event” under
its rules and that upon notice of completion of the Combination, the New ARRIS ordinary shares will be listed
on NASDAQ. New ARRIS expects that the New ARRIS ordinary shares will trade under the symbol “ARRS.”
Financing (Page 76)
On June 18, 2015, ARRIS, ARRIS Enterprises, Inc., New ARRIS and certain ARRIS subsidiaries entered into
an amended and restated credit agreement (the “Credit Agreement”), which amended and restated ARRIS’
existing credit facility (the “Existing Credit Agreement”) and will be used to finance: (i) the payment of the cash
consideration by New ARRIS to holders of Pace shares being acquired by New ARRIS in the Pace Acquisition,
(ii) the payment of cash consideration to holders of options or awards to acquire Pace shares pursuant to any
proposal under the Takeover Code, (iii) the fees, costs and expenses related to the Combination and issuance of
new debt, refinancing, prepayment, repayment, redemption, discharge, defeasance and/or amendment of all
existing debt of ARRIS and Pace and (iv) the payment or refinancing of existing debt at ARRIS and Pace.
Board of Directors and Management after the Combination (Page 103)
Following the Combination, the Board of New ARRIS is expected to expand to ten members and include all
ten of the current ARRIS Directors. Robert J. Stanzione (the current ARRIS Chairman and CEO) will be the
Chairman and CEO of New ARRIS and David B. Potts (the current ARRIS CFO) will be the CFO of New ARRIS.
Material U.S. Federal Income Tax Consequences of the Merger and the Combination (Page 79)
Tax Residence of New ARRIS for U.S. Federal Income Tax Purposes
Under current U.S. federal income tax law, a corporation generally will be considered to be resident for U.S.
federal income tax purposes in its place of organization or incorporation. Accordingly, New ARRIS, which is
incorporated under the laws of England and Wales, would be a non-U.S. corporation (and, therefore, not a U.S.
tax resident). Section 7874 of the Internal Revenue Code (which is referred to in this document as “Section
7874”), contains specific rules (more fully discussed below) that can cause a non-U.S. corporation to be treated
as a U.S. corporation for U.S. federal income tax purposes. These rules are complex, and there is little or no
guidance as to their application.
As more fully described under “Material U.S. Federal Income Tax Considerations — U.S. Federal Income
Tax Consequences of the Merger and the Combination to ARRIS and New ARRIS — Tax Residence of New
ARRIS for U.S. Federal Income Tax Purposes” beginning on page 81, Section 7874 currently is expected to
apply in a manner such that New ARRIS should not be treated as a U.S. corporation for U.S. federal income tax
purposes. However, whether the requirements of Section 7874 have been satisfied will not be finally determined
until after the completion of the Combination, by which time there could be adverse changes to the relevant
facts and circumstances. In addition, there could be changes to Section 7874, or the regulations promulgated
thereunder, or other changes in law or subsequent changes in facts that could (possibly retroactively) cause New
ARRIS to be treated as a U.S. corporation for U.S. federal income tax purposes. In such event, New ARRIS could
be liable for substantial U.S. federal income tax on its operations and income following the completion of the
Combination in excess of what currently is contemplated.
16
TABLE OF CONTENTS
Regardless of the application of Section 7874, New ARRIS is expected to be treated as a UK resident
company for UK tax purposes because New ARRIS is incorporated under the laws of England and Wales.
The remaining discussion assumes that New ARRIS will not be treated as a U.S. corporation for U.S. federal
income tax purposes under Section 7874.
U.S. Federal Income Tax Consequences of the Merger to ARRIS
ARRIS will not be subject to U.S. federal income tax on the Merger. However, ARRIS will continue to be
subject to U.S. tax after the Merger. ARRIS (and its U.S. affiliates) may be subject to limitations on the
utilization of certain tax attributes, as described below under “Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the Merger and the Combination to ARRIS and New ARRIS”
beginning on page 80.
U.S. Federal Income Tax Consequences of the Merger to ARRIS Stockholders
For U.S. federal income tax purposes, the Merger is intended to qualify as a non-taxable “reorganization” in
which (i) Merger Sub will merge with and into ARRIS (with ARRIS as the surviving corporation in the Merger),
and (ii) ARRIS stockholders will exchange their ARRIS shares for New ARRIS shares. However, notwithstanding
such qualification as a non-taxable reorganization, it is expected that U.S. Holders of ARRIS shares will
recognize gain, if any, but not loss, on the receipt of New ARRIS shares in exchange for ARRIS shares pursuant
to the Merger. The amount of gain recognized should equal the excess, if any, of the fair market value of the New
ARRIS shares received in the Merger over the U.S. Holder’s adjusted tax basis in its ARRIS shares exchanged
therefor. Accordingly, a U.S. Holder may be subject to U.S. federal income tax on any gain recognized without a
corresponding receipt of cash.
While it is expected that U.S. Holders of ARRIS shares will recognize gain (but not loss) in the Merger,
there are various tax rules that might provide otherwise, and it is still uncertain as to whether they actually will.
More specifically, U.S. Holders of ARRIS shares will be required to recognize gain on the Merger if the “U.S.
shareholders gain amount” equals or exceeds the “New ARRIS income amount” (both as defined below under
“Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the Merger to
ARRIS stockholders”). The U.S. shareholders gain amount has been, and will continue to be, affected by changes
in the price of ARRIS shares, trading activity in ARRIS shares, and the tax basis of U.S. Holders of ARRIS shares
on the closing date. In this regard, ARRIS notes that there was a substantial decrease in the price of ARRIS shares
during the last two weeks of August 2015 that, if unreversed, would reduce the U.S. shareholders gain amount,
and further price declines would have a similar effect. As a result, the U.S. shareholders gain amount cannot be
known until after the closing of the Merger. In addition, the New ARRIS income amount cannot be known until
after the end of the year in which the Merger is completed. As a result, New ARRIS will not be in a position to
definitively inform U.S. Holders as to whether or not they will be required to recognize gain on the Merger until
after its implementation. Following the completion of the Combination, New ARRIS intends to notify ARRIS
shareholders via one or more website announcements regarding whether they will be required to recognize gain
on the Merger. These announcements will be updated once actual year-end information becomes available.
For a more detailed discussion of the material U.S. federal income tax consequences of the Merger, see
“Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the Merger to
ARRIS stockholders” beginning on page 83.
Such discussion is not intended to be tax advice to any particular ARRIS stockholder. ARRIS
stockholders should consult their own tax advisors regarding the particular tax consequences of the Merger
(and the Combination) to them in light of their particular circumstances, including the applicability and
effect of any U.S. federal, state, local or foreign tax laws or any non-income or other tax laws.
Comparison of the Rights of ARRIS Stockholders and New ARRIS Shareholders (Page 137)
As a result of the Combination, the ARRIS stockholders will become New ARRIS shareholders and their
rights will be governed by the articles of association of New ARRIS instead of ARRIS’ certificate of
incorporation and bylaws. The current articles of association of New ARRIS will be amended and restated
17
TABLE OF CONTENTS
prior to the completion of the Combination in substantially the form set forth in Annex D to this proxy
statement/prospectus. Following the Combination, former ARRIS stockholders will have different rights as New
ARRIS shareholders than the rights that they had as ARRIS stockholders. For a summary of the material
differences between the rights of ARRIS stockholders and New ARRIS shareholders, see the sections captioned
“Description of New ARRIS Shares” beginning on page 127 and “Comparison of the Rights of ARRIS
Stockholders and New ARRIS Shareholders” beginning on page 137.
Comparative per Share Market Price Data and Dividend Information (Page 126)
ARRIS shares are listed on NASDAQ under the symbol “ARRS.” Pace ordinary shares are listed on the LSE
under the symbol “PIC.” The following table shows, as of (i) April 22, 2015, the last full trading day before
ARRIS and Pace publicly announced the Combination, and (ii) August 31, 2015, the last practicable date before
the date of this proxy statement/prospectus, the closing price per ARRIS share on NASDAQ and the closing price
per Pace ordinary share on the LSE.
ARRIS
Common
Stock
Pace Ordinary Shares
($)
(£)
($)
April 22, 2015
$30.54
£3.32
$ 4.99
August 31, 2015
$26.42
£3.41
$5.23
Implied Equivalent Value per
Pace Ordinary Shares(1) ​
(£)
(2)
(3)
($)
£ 4.28
$
6.44
£ 3.83
$ 5.88
(2)
​
(3)
(1) Implied equivalent value is calculated by multiplying the closing price per ARRIS share by 0.1455, the
exchange ratio for each Pace share cancelled in the Combination, and then adding to that amount the cash
portion of the consideration of 132.5 pence payable for each Pace share cancelled in the Combination.
(2) Based on an exchange rate of $1.5040 per £1.00 as of April 22, 2015.
(3) Based on an exchange rate of $1.5346 per £1.00 as of August 31, 2015.
The market prices of ARRIS and Pace shares are likely to fluctuate prior to the completion of the
Combination and cannot be predicted. We urge you to obtain current market information regarding ARRIS and
Pace shares.
No Delaware Appraisal Rights (Page 169)
Appraisal rights are statutory rights under the DGCL that enable stockholders who object to certain
extraordinary transactions to demand that the corporation pay such stockholders the fair value of their shares
instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.
Appraisal rights are not available to ARRIS stockholders in connection with the Merger.
Accounting Treatment of the Combination (Page 170)
ARRIS will account for the Combination using the acquisition method of accounting in accordance with
U.S. generally accepted accounting principles (“U.S. GAAP”) with ARRIS being considered the accounting
acquirer.
Share Ownership and Voting by ARRIS’ Officers and Directors (Page 46)
As of the Record Date, the ARRIS directors and executive officers and their affiliates will have the right to
vote 1,768,883 ARRIS shares, representing approximately 1.2% of the ARRIS shares then outstanding and
entitled to vote at the meeting. ARRIS expects that the ARRIS directors and executive officers and their
affiliates who are stockholders of ARRIS will vote “FOR” each of the proposals above.
Interests of Certain Persons in Matters to be Acted Upon (Page 93)
Non-employee directors and executive officers of ARRIS have certain interests in the Combination that are
different from, or in addition to, the interests of ARRIS stockholders generally. These interests include the right
to receive a payment to make the directors and executive officers whole for the excise tax
18
TABLE OF CONTENTS
imposed pursuant to Section 4985 of the Code (which excise tax is not applicable to other ARRIS stockholders),
accelerated vesting of certain outstanding equity awards (intended to avoid excise tax becoming due on such
equity awards), continuing non-employee director and executive officer positions with New ARRIS, and rights
to ongoing indemnification and insurance coverage. The ARRIS Board was aware of and considered these
interests, among other matters, in evaluating, negotiating and approving the Merger Agreement and the
Combination and in making its recommendation that the ARRIS stockholders adopt the Merger Agreement. See
the section captioned “Interests of Certain Persons in Matters to be Acted Upon” beginning on page 93 which
sets forth the estimated amount, based on certain assumptions, of the value of stock awards to be vested and the
excise tax make-whole payment for each director and executive officer.
Please Read the Risk Factors (Page 20)
The Combination is subject to risks, and upon the completion of the Combination, New ARRIS will be
subject to risks. You should carefully read and consider the risk factors contained in the section captioned
“Risk Factors” beginning on page 20.
19
TABLE OF CONTENTS
RISK FACTORS
By approving the Merger Agreement Proposal, ARRIS stockholders will be choosing to invest in New
ARRIS ordinary shares. In considering whether to approve the Merger Agreement Proposal, you should
consider carefully the following risk factors, including the matters addressed under the caption “ForwardLooking Statements,” in addition to the other information contained in or incorporated by reference into this
proxy statement/prospectus.
Risks Relating to the Combination
ARRIS must obtain required approvals and governmental and regulatory consents to consummate the
Combination, which, if delayed, not granted or granted with unfavorable conditions, may delay or jeopardize
the completion of the Combination, result in additional expenditures of money and resources and/or reduce
the anticipated benefits of the Combination.
The completion of the Combination is generally conditioned on, among other things, the clearance by
antitrust and competition authorities in the United States, Brazil, Colombia, Germany, Portugal and South
Africa. The governmental agencies from which the parties seek certain of these approvals and consents have
broad discretion in administering the governing regulations. ARRIS can provide no assurance that all required
approvals and consents will be obtained. Moreover, as a condition to the approvals, the governmental agencies
may impose requirements, limitations or costs on, or require divestitures or place restrictions on the conduct of,
New ARRIS’ business after the completion of the Combination. These requirements, limitations, costs,
divestitures or restrictions could jeopardize or delay the completion of the Combination or reduce the
anticipated benefits of the Combination. Further, no assurance can be given as to the terms, conditions and
timing of the approvals. If ARRIS and Pace agree to any material requirements, limitations, costs, divestitures or
restrictions in order to obtain any approvals required to consummate the Combination, these requirements,
limitations, costs, divestitures or restrictions could adversely affect New ARRIS’ ability to integrate Pace’s
operations with ARRIS’ operations and/or reduce the anticipated benefits of the Combination. This could have a
material adverse effect on New ARRIS’ business and results of operations.
The Combination remains subject to other conditions that ARRIS cannot control.
The Combination is subject to other conditions, including the approval of the Scheme by a majority in
number of Pace Scheme shareholders representing no less than 75% in value of the shareholders present and
voting (in person or by proxy), the sanction of the Scheme by the Court, the adoption of the Merger Agreement
by the affirmative vote of the holders of a majority of the outstanding ARRIS shares entitled to vote, the Scheme
becoming effective by April 22, 2016 (or such later date (if any) as may be agreed by ARRIS and Pace and (if
required) the Court may allow), the registration statement of which this proxy statement/prospectus is a part
having become effective under the Securities Act and not having been the subject of any stop order suspending
its effectiveness, and no proceedings seeking any such stop order having been initiated or threatened by the
SEC, and authorization of the listing of the New ARRIS ordinary shares on NASDAQ. Additional conditions are
set out in Appendix I to the Rule 2.7 Announcement, which is attached to this proxy statement/prospectus as
Annex B. No assurance can be given that all of the conditions to the Combination will be satisfied, or if they are,
as to the timing of such satisfaction.
If the conditions to the Combination are not satisfied, then the Combination may not be consummated. See
the section of this proxy statement/prospectus entitled “The Merger and The Merger Agreement — Conditions
of the Merger” beginning on page 71.
Even if a material adverse change to Pace’s business or prospects were to occur, ARRIS may not be able to
invoke conditions and terminate the Combination, which could reduce the value of New ARRIS shares.
The Takeover Code provides that certain conditions may be invoked only where the circumstances
underlying the failure of the condition are of material significance to ARRIS in the context of the Combination.
Therefore, with the exceptions of certain conditions relating to the approval of the Scheme
20
TABLE OF CONTENTS
by Pace Scheme shareholders and the Court, ARRIS will be required to obtain the agreement from the Takeover
Panel that the circumstances giving rise to the right to invoke the condition were of material significance to
ARRIS in the context of the Pace Acquisition before ARRIS would be permitted to rely on that condition.
If a material adverse change affecting Pace occurs and the Takeover Panel does not allow ARRIS to invoke
a condition to cause the Combination not to proceed, the market price of ARRIS shares may decline or ARRIS’
business or ARRIS’ financial condition may be materially adversely affected. As a result, the value of the New
ARRIS ordinary shares received by ARRIS stockholders may be reduced and/or the business or financial
condition of New ARRIS may be adversely affected.
ARRIS may waive one or more of the conditions to the Merger without resoliciting stockholder approval.
ARRIS may determine to waive, in whole or in part, one or more of the conditions to its obligations to
complete the Merger, to the extent permitted by applicable laws. ARRIS will evaluate the materiality of any
such waiver and its effect on its stockholders in light of the facts and circumstances at the time to determine
whether any amendment of this proxy statement/prospectus and resolicitation of proxies is required or
warranted. ARRIS may waive any of these conditions prior to the Special Meeting, and if any such waiver is
material, this proxy statement/prospectus will be amended as necessary to reflect such waiver. If ARRIS
determines to waive any conditions after receiving stockholder approval at the Special Meeting, it may have the
discretion to complete the Merger without seeking further stockholder approval. Waiver of certain conditions for
which further stockholder approval is not sought may nevertheless be subject to approval under the Credit
Agreement.
While the Combination is pending, ARRIS and Pace will be subject to business uncertainties that could
adversely affect their businesses.
Uncertainty about the effect of the Combination on employees, customers and suppliers may have an
adverse effect on ARRIS and Pace and, consequently, on New ARRIS. These uncertainties may impair ARRIS’
and Pace’s ability to attract, retain and motivate key personnel until the Combination is consummated and for a
period of time thereafter, and could cause customers, suppliers and others who deal with ARRIS and Pace to seek
to change existing business relationships with ARRIS and Pace. Employee retention may be particularly
challenging during the pendency of the Combination because employees may experience uncertainty about
their future roles with New ARRIS. If, despite ARRIS’ and Pace’s retention efforts, key employees depart because
of issues relating to the uncertainty and difficulty of integration or a desire not to remain with New ARRIS, New
ARRIS’ business could be harmed.
The number of New ARRIS shares that ARRIS stockholders will receive as consideration in the Combination
will be based on a fixed exchange ratio, which will not be adjusted to reflect changes in the market value of
ARRIS shares or Pace shares prior to the consummation of the Combination.
In the Merger, ARRIS stockholders will receive one New ARRIS ordinary share as consideration for each
ARRIS share they hold. This one-for-one fixed exchange ratio will not be adjusted upwards or downwards to
compensate for changes in the price of ARRIS shares or Pace shares prior to the effective time of the
Combination. Share price changes may result from a variety of factors, including changes in the business,
operations or prospects of ARRIS or Pace, market assessments of the likelihood that the Combination will be
completed, the timing of the Combination, regulatory considerations, general market and economic conditions
and other factors. ARRIS stockholders are urged to obtain current market quotations for ARRIS shares and Pace
shares. See “Comparative Per Share Market Price Data and Dividend Information” beginning on page 126 for
additional information on the market value of ARRIS shares and Pace shares.
ARRIS’ directors and executive officers have interests in the Combination that are in addition to, or different
from, any interests they might have as stockholders.
In considering the recommendations of the ARRIS Board, ARRIS stockholders should be aware that the
directors and executive officers of ARRIS have interests in the proposed transaction that are in addition to, or
different from, any interests they might have as stockholders, including the right to receive a payment
21
TABLE OF CONTENTS
to make them whole for the excise tax imposed pursuant to Section 4985 of the Internal Revenue Code (which
excise tax is not applicable to other ARRIS stockholders), the aggregate value of which we estimate to be
approximately $19.2 million for ARRIS’ directors and executive officers, accelerated vesting of certain
outstanding equity awards (which vesting is intended to avoid any excise tax being due on such equity shares),
continuing non-employee director and executive officer positions with New ARRIS, and rights to ongoing
indemnification and insurance coverage. For more information, including the assumptions used to estimate the
value of such interests, please see “Interests of Certain Persons in Matters to Be Acted Upon” beginning on page
93. You should consider these interests in connection with your vote on the related proposals.
The Takeover Code may limit ARRIS’ ability to cause Pace to consummate the transaction and may otherwise
limit the relief ARRIS may obtain in the event Pace’s Board withdraws its support of the Scheme.
The Takeover Code limits the contractual commitments that may be obtained from Pace to take actions in
furtherance of the Combination, and the Pace Board may, if its fiduciary and other directors’ duties so require,
withdraw its recommendation in support of the Scheme, and withdraw the Scheme itself, at any time before the
Court hearing to sanction the Scheme. The Takeover Code does not permit Pace to pay any break fee if it does
so, nor can it be subject to any restrictions on soliciting or negotiating other offers or transactions involving
Pace, other than the restrictions under the Takeover Code against undertaking actions or entering into
agreements which are similar to or have a similar effect to “poison pills” and which might frustrate ARRIS’ offer
for Pace.
ARRIS stockholders will have a reduced ownership and voting interest after the Combination and may
exercise less influence over management in New ARRIS than they currently have in ARRIS.
Upon the completion of the Combination, an ARRIS stockholder will hold a percentage ownership of New
ARRIS that is smaller than such stockholder’s current percentage ownership of ARRIS prior to completion of the
Combination. It is currently expected that the former stockholders of ARRIS as a group will receive shares in the
Merger constituting approximately 76% of the outstanding New ARRIS ordinary shares immediately after the
consummation of the Merger. Because of this, current ARRIS stockholders may have less influence on the
management and policies of New ARRIS than they currently have on the management and policies of ARRIS.
The cash consideration subjects ARRIS to foreign exchange rate exposure.
Because the cash portion of the purchase price payable to the Pace shareholders in the Pace Acquisition is
payable in pounds, while a majority of ARRIS’ revenues are denominated in U.S. dollars, ARRIS is subject to
exchange rate exposure through the closing of the Combination. ARRIS may seek to mitigate its exposure to
currency exchange rate fluctuations by hedging any material mismatch between revenues and obligations, but
any such efforts may not be successful, in which case changes in the relative value of pounds versus U.S. dollars
could materially and adversely affect ARRIS’ financial condition.
Failure to consummate the Combination could negatively impact the share price and the future business and
financial results of ARRIS.
If the Combination is not completed, the ongoing businesses of ARRIS may be adversely affected and,
without realizing any of the benefits of having consummated the Combination, ARRIS will be subject to a
number of risks which, if they materialize, might adversely affect ARRIS’ business, results of operation and share
price, including without limitation the risks described below: ARRIS may be required to pay costs and expenses
relating to the proposed Combination, including certain break payments and expense reimbursements as
provided in the Co-operation Agreement. For more information see the section captioned “The Co-operation
Agreement” beginning on page 69. The consideration, negotiation and implementation of the Combination
(including integration planning) will have required substantial commitments of time and resources by ARRIS
management, which could otherwise have been devoted to other opportunities beneficial to ARRIS.
22
TABLE OF CONTENTS
Risks Relating to the Combined Company
New ARRIS may not realize all of the anticipated benefits of the Combination or those benefits may take
longer to realize than expected. New ARRIS may also encounter significant unexpected difficulties in
integrating the two businesses.
Our ability to realize all of the anticipated benefits of the Combination will depend on our ability to
integrate the ARRIS and Pace businesses. The combination of two independent businesses is a complex, costly
and time-consuming process. As a result, we will be required to devote significant management attention and
resources to integrating the business practices and operations of ARRIS and Pace. The integration process may
disrupt the businesses and, if implemented ineffectively, could preclude realization of the full benefits expected
by ARRIS. Our failure to meet the challenges involved in integrating the two businesses to realize the
anticipated benefits of the Combination could cause an interruption of, or a loss of momentum in, the activities
of either or both of the businesses of ARRIS and Pace and could adversely affect New ARRIS’ results of
operations.
In addition, the overall integration of the businesses may result in material unanticipated problems,
expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management’s
attention. The difficulties of combining the operations of the companies include, among others:
•
the diversion of management’s attention to integration matters;
•
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth
prospects from combining the business of Pace with that of ARRIS;
•
difficulties in the integration of operations and systems; and
•
difficulties in managing the expanded operations of a larger and more complex company.
Many of these factors will be outside of our control and any of them could result in increased costs,
decreases in the amount of expected revenues and diversion of management’s time and energy, which could
materially impact the business, financial condition and results of operations of New ARRIS. In addition, even if
the operations of the businesses of ARRIS and Pace are integrated successfully, we may not realize the full
benefits of the Combination, including the potential synergies, cost savings or sales or growth opportunities.
These benefits may not be achieved within the anticipated time frame, or at all, or additional unanticipated costs
may be incurred in the integration of the businesses of ARRIS and Pace. All of these factors could cause dilution
to the earnings per share of New ARRIS, decrease or delay the expected accretive effect of the Combination, or
negatively impact the price of New ARRIS ordinary shares. As a result, we cannot provide assurance that the
combination of the ARRIS and Pace businesses will result in the realization of the full benefits anticipated from
the Combination.
New ARRIS’ effective tax rates and the benefits described in this proxy statement/prospectus are also
subject to a variety of other factors, many of which are beyond our ability to control, such as changes in the rate
of economic growth in jurisdictions in which the combined group will do business, the financial performance of
the combined business in various jurisdictions, currency exchange rate fluctuations, and significant changes in
trade, monetary or fiscal policies, including changes in interest rates, and changes in U.S. tax laws, UK tax laws
and the tax laws of the other jurisdictions in which the combined group will do business. The impact of these
factors, individually and in the aggregate, is difficult to predict, in part because the occurrence of the events or
circumstances described in such factors may be interrelated, and the impact to the combined group of the
occurrence of any one of these events or circumstances could be compounded or, alternatively, reduced, offset,
or more than offset, by the occurrence of one or more of the other events or circumstances described in such
factors.
New ARRIS will incur direct and indirect costs as a result of the Combination.
New ARRIS will incur costs and expenses in connection with and as a result of the Combination. These
costs and expenses include professional fees incurred in connection with New ARRIS’ compliance with UK
corporate and tax laws and financial reporting requirements, costs and other administrative expenses related to
the expanded global scope of New ARRIS’ operations, as well as any additional costs New ARRIS may incur
going forward as a result of its new corporate structure. We cannot assure you that
23
TABLE OF CONTENTS
we will realize all of the anticipated benefits of the Combination, including the synergies related to public
company expenses, back-office support functions, sales and distribution, and integration of senior management
and administration. We also cannot assure you that our estimates of pre-tax cost savings are accurate. While
direct and indirect costs incurred as a result of the Combination are not expected to have such an effect, as
ARRIS currently estimates that, upon the effective time of the Combination, Combination related costs incurred
by the combined company, including fees and expenses relating to the financing, will be approximately $92.7
million, the costs could exceed the costs historically borne by ARRIS and Pace.
New ARRIS’ actual financial position and results of operations may differ materially from the unaudited pro
forma financial information included in this proxy statement/prospectus.
New ARRIS has been recently formed and has no operating history and no revenues. The unaudited pro
forma condensed combined financial information contained in this proxy statement/prospectus is presented for
illustrative purposes only and may not be an indication of what New ARRIS’ financial position or results of
operations would have been had the Combination been completed on the dates indicated. The unaudited pro
forma condensed combined financial information has been derived from the audited historical financial
statements of ARRIS and Pace and certain adjustments and assumptions have been made regarding the
combined company after giving effect to the combination. The assets and liabilities of Pace have been measured
at fair value by ARRIS based on various preliminary estimates using assumptions that management believes are
reasonable utilizing information currently available. The process for estimating the fair value of acquired assets
and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.
These estimates and assumptions may be revised as additional information becomes available and as additional
analyses are performed. Differences between preliminary estimates in the pro forma financial information and the
final acquisition accounting will occur and could have a material impact on the pro forma financial information
and the combined company’s financial position and future results of operations. Neither the unaudited pro forma
condensed combined financial information nor the estimates and assumptions referred to above have been
approved by Pace.
Pace is not yet owned by ARRIS, and there are limitations on the information available to prepare the pro
forma financial information. The assumptions used in preparing the pro forma financial information may not
prove to be accurate, and other factors may affect New ARRIS’ financial condition or results of operations
following the completion of the Combination. Acquisition accounting rules require evaluation of certain
assumptions, estimates or determination of financial statement classifications which are completed during the
measurement period as defined in current accounting standards. Accounting policies of New ARRIS and
acquisition accounting rules may materially vary from those of Pace. Any changes in assumptions, estimates, or
financial statement classifications may be material and have a material adverse effect on the assets, liabilities or
future earnings of New ARRIS. Any potential decline in New ARRIS’ financial condition or results of operations
may cause significant variations in the share price of New ARRIS. Please see “Unaudited Pro Forma Condensed
Combined Financial Information” beginning on page 106.
The financial analyses and projections considered by ARRIS and its financial advisor may not be realized.
The financial analyses and projections considered by ARRIS and its financial advisor Evercore reflect
numerous estimates and assumptions that are inherently uncertain with respect to industry performance and
competition, general business, economic, market and financial conditions and matters specific to ARRIS’ and
Pace’s businesses, including the factors described or referenced under “Forward-Looking Statements” and/or
listed in this proxy statement/prospectus under this section entitled “Risk Factors,” all of which are difficult to
predict, and many of which are beyond our control. The financial analyses presented by Evercore on April 22,
2015 to the ARRIS Board speak only as of that date. There can be no assurance that the financial analyses and
projections considered by ARRIS and its financial advisor will be realized or that actual results will not
materially vary from such financial analyses and projections. In addition, since the financial projections cover
multiple years, such information by its nature becomes less predictive with each successive year.
24
TABLE OF CONTENTS
Pace currently is not subject to the internal controls and other compliance obligations of the U.S. securities
laws, and New ARRIS may not be able to timely and effectively implement controls and procedures over Pace
operations as required under the U.S. securities laws.
Pace currently is not subject to the information and reporting requirements of the Exchange Act and other
U.S. federal securities laws, including the compliance obligations relating to, among other things, the
maintenance of a system of internal controls as contemplated by the Exchange Act. Subsequent to the
completion of the Combination, New ARRIS will need to timely and effectively implement the internal controls
necessary to satisfy those requirements, which require annual management assessments of the effectiveness of
internal control over financial reporting and a report by an independent registered public accounting firm
addressing these assessments. New ARRIS intends to take appropriate measures to establish or implement an
internal control environment at Pace aimed at successfully fulfilling these requirements. However, it is possible
that New ARRIS may experience delays in implementing or be unable to implement the required internal
financial reporting controls and procedures, which could result in enforcement actions, the assessment of
penalties and civil suits, failure to meet reporting obligations and other material and adverse events that could
have a negative effect on the market price for New ARRIS ordinary shares.
The IRS may not agree that New ARRIS is a foreign corporation for U.S. federal income tax purposes
following the Combination.
Although New ARRIS is incorporated under the laws of England and Wales and is a tax resident in the
United Kingdom for UK tax purposes, the IRS may assert that New ARRIS should be treated as a U.S. corporation
(and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874. For U.S.
federal income tax purposes, a corporation generally is considered to be a tax resident in the jurisdiction of its
organization or incorporation. Because New ARRIS is incorporated under the laws of England and Wales, it
generally would be classified as a non-U.S. corporation (and, therefore, a non-U.S. tax resident) under these rules.
Section 7874, however, provides an exception to this general rule under which a foreign incorporated entity
may, in certain circumstances, be treated as a U.S. corporation for U.S. federal income tax purposes.
Generally, for New ARRIS to be treated as a non-U.S. corporation for U.S. federal income tax purposes
following the Combination under Section 7874, the former stockholders of ARRIS must own (within the
meaning of Section 7874) less than 80% (by both vote and value) of all of the outstanding shares of New ARRIS
after the Combination by reason of holding shares in ARRIS (including the receipt of New ARRIS shares in
exchange for ARRIS shares) (the “Ownership Test”). Based on the terms of the Combination, ARRIS
stockholders are expected to own less than 80% (by both vote and value) of all of the outstanding shares in New
ARRIS after the Combination by reason of holding shares in ARRIS and, thus, the Ownership Test is expected to
be satisfied. As a result, under current law, New ARRIS is expected to be treated as a non-U.S. corporation for
U.S. federal income tax purposes. However, ownership for purposes of Section 7874 is subject to various
adjustments under the Code and the Treasury Regulations promulgated thereunder, and there is limited
guidance regarding the Section 7874 provisions, including regarding the application of the Ownership Test.
Thus, there can be no assurance that the IRS will agree with the position that the Ownership Test is satisfied
following the Combination and/or would not successfully challenge the status of New ARRIS as a non-U.S.
corporation for U.S. federal income tax purposes.
If New ARRIS were to be treated as a U.S. corporation for U.S. federal income tax purposes, New ARRIS
could be subject to substantial additional U.S. taxes. Additionally, if New ARRIS were treated as a U.S.
corporation for U.S. federal income tax purposes, non-U.S. New ARRIS shareholders would be subject to U.S.
withholding tax on the gross amount of any dividends paid by New ARRIS to such shareholders. For UK tax
purposes, New ARRIS is expected, regardless of any application of Section 7874, to be treated as a UK tax
resident. Consequently, if New ARRIS is treated as a U.S. corporation for U.S. federal income tax purposes under
Section 7874, it could be liable for both U.S. and UK taxes, which could have a material adverse effect on its
financial condition and results of operations.
Please see “Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of
the Merger and the Combination to ARRIS and New ARRIS — Tax Residence of New ARRIS for U.S. Federal
Income Tax Purposes” beginning on page 81 for a more detailed discussion of the application of Section 7874
to the Combination.
25
TABLE OF CONTENTS
Section 7874 may limit ARRIS’ and its U.S. affiliates’ ability to utilize certain U.S. tax attributes following the
Combination.
Following the acquisition of a U.S. corporation by a non-U.S. corporation, Section 7874 can limit the
ability of the acquired U.S. corporation and its U.S. affiliates to utilize certain U.S. tax attributes (including net
operating losses and certain tax credits) to offset, during the ten-year period following the acquisition, their U.S.
taxable income, or related income tax liability, resulting from certain (a) transfers to related foreign persons of
stock or other properties of the acquired U.S. corporation and its U.S. affiliates and (b) income received or
accrued from related foreign persons during such period by reason of a license of any property by the acquired
U.S. corporation and its U.S. affiliates (collectively, “inversion gain”). Based on the limited guidance available,
ARRIS currently expects that, following the Combination, this limitation under Section 7874 will apply and, as
a result, ARRIS currently does not expect that it or its U.S. affiliates will be able to utilize certain U.S. tax
attributes to reduce the amount of any inversion gain and/or to offset their U.S. federal income tax liability
attributable to any inversion. As of the period ended December 31, 2014, ARRIS had existing and utilizable net
operating losses of approximately $375 million and research and development tax credits of approximately $28
million. These tax attributes may continue to be used to reduce ARRIS’ taxable income from its ordinary
operations, but may not be used to offset any inversion gain that may be incurred. Please see the section
captioned “Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the
Merger and the Combination to ARRIS and New ARRIS — Potential Limitation on the Utilization of ARRIS’
(and its U.S. Affiliates’) Tax Attributes” beginning on page 82. In addition, because gain will be recognized by
stockholders of ARRIS as a result of the Merger, Section 4985 of the Code and rules related thereto will impose
an excise tax on the value of certain ARRIS stock-based compensation held directly or indirectly by certain
“disqualified individuals” (including officers and directors of ARRIS) at a rate equal to 15%. Please see the
section captioned “Interests of Certain Persons in Matters to be Acted Upon” beginning on page 93.
New ARRIS’ status as a foreign corporation for U.S. tax purposes could be affected by a change in law.
Under current law, New ARRIS is expected to be treated as a non-U.S. corporation for U.S. federal income
tax purposes. However, changes to Section 7874 or the Treasury Regulations promulgated thereunder, or other
changes in law, could adversely affect New ARRIS’ status as a non-U.S. corporation for U.S. federal income tax
purposes, its effective tax rate and/or future tax planning for the combined group, and any such changes could
have prospective or retroactive application to New ARRIS, ARRIS, their respective shareholders, stockholders
and affiliates, and/or the Combination.
Recent legislative proposals have aimed to expand the scope of Section 7874, or otherwise address certain
perceived issues arising in connection with so-called inversion transactions. For example, proposals introduced
by certain members of both houses of the U.S. Congress that, if enacted in their present form, would be effective
retroactively to any transactions completed after May 8, 2014 would, among other things, treat a foreign
acquiring corporation as a U.S. corporation under Section 7874 if the former stockholders of the U.S. corporation
own more than 50% (by vote or value) of the shares of the foreign acquiring corporation after the transaction.
These proposals, if enacted in their present form and if made retroactively effective to transactions completed
during the period in which the Combination occurs, would cause New ARRIS to be treated as a U.S. corporation
for U.S. federal income tax purposes. It is presently uncertain whether any such legislative proposals or any other
legislation relating to Section 7874 or so-called inversion transactions will be enacted into law and, if so, what
impact such legislation would have on New ARRIS and its affiliates.
In addition, the U.S. Treasury has indicated that it is considering regulatory action in connection with socalled inversion transactions, including, most recently, in Notice 2014-52 (the “Notice”). The specific timing
and substance of any such action is presently uncertain. The regulations described in the Notice would, among
other things, make it more difficult for the ownership tests under Section 7874 to be satisfied and would limit or
eliminate certain tax benefits to so-called inverted corporations, including with respect to access to certain
foreign earnings and/or the ability to restructure the non-U.S. members of the ARRIS group. Although the
promulgation of the Treasury Regulations described in the Notice is not expected to materially affect the
benefits of the Combination or the tax status of New ARRIS, the precise scope and application of these
regulatory proposals will not be clear until proposed Treasury Regulations are actually
26
TABLE OF CONTENTS
issued. Accordingly, until such regulations are promulgated and fully understood, we cannot be certain that such
regulations would not have an adverse impact on New ARRIS. Moreover, the Notice also indicates that the U.S.
Treasury and the IRS are considering issuing additional guidance, which in the case of “inverted groups” would
be retroactive to September 22, 2014, to address certain transactions that have the effect of “shifting” U.S.source earnings to lower-tax jurisdictions, including by limiting U.S. tax deductions for interest on certain
intercompany debt obligations. Any such future guidance could have an adverse impact on New ARRIS.
Any change of law or regulatory action relating to Section 7874 or so-called inversion transactions or
inverted groups could adversely impact New ARRIS’ tax status as well as its financial position and results of
operations in a material manner.
Future changes to U.S. and non-U.S. tax laws could adversely affect New ARRIS.
The U.S. Congress, the Organization for Economic Co-operation and Development and other government
agencies in jurisdictions where New ARRIS and its affiliates do business have had an extended focus on issues
related to the taxation of multinational corporations. One example is in the area of “base erosion and profit
shifting,” including situations where payments are made between affiliates from a jurisdiction with high tax rates
to a jurisdiction with lower tax rates. As a result, the tax laws in the United States, the United Kingdom and other
countries in which New ARRIS and its affiliates do business could change on a prospective or retroactive basis,
and any such changes could adversely affect New ARRIS and its affiliates (including ARRIS and its affiliates
after the Combination).
Non-U.S. law may limit the ability of ARRIS, Pace and their affiliates to utilize certain non-U.S. tax attributes
following the Combination.
The Combination will constitute a change of ownership of ARRIS, Pace and their affiliates for UK tax
purposes which, in certain cases, could limit their ability to access UK tax assets, principally losses. Similar
considerations may be relevant in connection with tax attributes in other non-U.S. jurisdictions.
Proposed changes to U.S. Model Income Tax Treaty could adversely affect New ARRIS.
On May 20, 2015, the U.S. Treasury released proposed revisions to the U.S. model income tax convention
(the “Model”), the baseline text used by the U.S. Treasury to negotiate tax treaties. The proposed revisions
address certain aspects of the Model by modifying existing provisions and introducing entirely new provisions.
Specifically, the proposed revisions target (1) exempt permanent establishments, (2) special tax regimes, (3)
expatriated entities, (4) the anti-treaty shopping measures of the limitation on benefits article, and (5)
subsequent changes in treaty partners’ tax laws.
With respect to the proposed changes to the Model pertaining to expatriated entities, because it is expected
that the Combination will otherwise be subject to Section 7874, if applicable treaties were subsequently
amended to adopt such proposed changes, payments of interest, dividends, royalties and certain other items of
income by ARRIS Holdings or its U.S. affiliates to non-U.S. persons would become subject to full U.S.
withholding tax at a 30% rate. This could result in material U.S. taxes being paid by recipients of payments from
ARRIS Holdings and its U.S. affiliates. Additionally, revisions to the Model may influence the international
community’s discussion of approaches to treaty abuse and harmful tax practices with respect to the Organization
for Economic Cooperation and Development’s ongoing work regarding base erosion and profit shifting. We are
unable to predict the likelihood that the proposed revisions to the Model become a part of the Model or any U.S.
income tax treaty. However, any revisions to a U.S. income tax treaty, including the proposed revisions
described in this paragraph, could adversely affect New ARRIS and its affiliates (including ARRIS and its
affiliates after the Combination).
Proposed legislation relating to the denial of U.S. federal or state governmental contracts to U.S. companies
that redomicile abroad could adversely affect New ARRIS’ business.
Various U.S. federal and state legislative proposals that would deny governmental contracts to redomiciled
companies may affect New ARRIS if adopted into law. We are unable to predict the likelihood that any such
proposed legislation might become law, the nature of regulations that may be promulgated under any future
legislative enactments, or the effect such enactments or increased regulatory scrutiny could have on New
ARRIS’ business.
27
TABLE OF CONTENTS
The tax rate that will apply to New ARRIS is uncertain and may vary from expectations.
There can be no assurance that the Combination will improve New ARRIS’ ability to maintain any
particular worldwide effective corporate tax rate. We cannot give any assurance as to what New ARRIS’ effective
tax rate will be after the completion of the Combination because of, among other things, uncertainty regarding
the tax policies of the jurisdictions in which New ARRIS and its affiliates will operate. New ARRIS’ actual
effective tax rate may vary from our expectations, and such variance may be material. Additionally, tax laws or
their implementation and applicable tax authority practices in any particular jurisdiction could change in the
future, possibly on a retroactive basis, and any such change could have a material adverse impact on New ARRIS
and its affiliates.
The tax treatment of the Merger to ARRIS shareholders is uncertain and cannot be definitively known until
after the Merger is completed.
Under current U.S. federal income tax law, it is uncertain whether U.S. Holders (as defined below under
“Material U.S. Federal Income Tax Considerations”) of ARRIS will be required to recognize gain or loss on the
Merger. While it is expected that U.S. Holders of ARRIS shares will recognize gain but not loss in the Merger,
there is the possibility that U.S. Holders of ARRIS shares will not be required to recognize gain or loss on the
Merger because non-recognition treatment depends on certain facts that are subject to change and that could be
affected by actions taken by ARRIS and other events beyond ARRIS’ control. More specifically, U.S. Holders of
ARRIS shares will be required to recognize gain on the Merger if the “U.S. shareholders gain amount” equals or
exceeds the “New ARRIS income amount” (both as defined below under “Material U.S. Federal Income Tax
Considerations — U.S. Federal Income Tax Consequences of the Merger to ARRIS stockholders”). The U.S.
shareholders gain amount has been, and will continue to be, affected by changes in ARRIS’ share price, trading
activity in ARRIS’ stock, and the tax basis of U.S. Holders of ARRIS shares on the closing date. In this regard,
ARRIS notes that there was a substantial decrease in ARRIS share price during the last two weeks of August
2015 that, if unreversed, would reduce the U.S. shareholders gain amount, and further price declines would have
a similar effect. As a result, the U.S. shareholders gain amount cannot be known until after the closing of the
Merger. The New ARRIS income amount will depend, in part, on the earnings and profits of ARRIS Holdings
and ARRIS for the taxable year that includes the closing date of the Merger (which ARRIS expects will be
2015). Such earnings and profits, if any, will depend on overall business conditions and the overall tax position
of ARRIS Holdings and ARRIS for such taxable year and will take into account, among other things, taxable
operating income and loss as well as taxable non-operating income and loss (including dispositions outside the
ordinary course of business and extra-ordinary items), subject to certain adjustments, and cannot be determined
until the end of the taxable year in which the Merger is completed. See “Material U.S. Federal Income Tax
Considerations — U.S. Federal Income Tax Consequences of the Merger to ARRIS stockholders — Detailed
Discussion of the Exception to Section 367(a) of the Code for Certain Outbound Stock Transfers” beginning on
page 83.
New ARRIS may be subject to U.S. federal withholding tax as a result of ARRIS Holdings’ subscription for
New ARRIS ordinary shares in exchange for its promissory note.
If the Merger qualifies as a reorganization under Section 368(a) of the Code and if the “New ARRIS income
amount” exceeds the “U.S. shareholders gain amount” (both as defined below under “Material U.S. Federal
Income Tax Considerations — U.S. Federal Income Tax Consequences of the Merger to ARRIS stockholders”)
then, as described below under “— U.S. Federal Income Tax Consequences of the Merger to ARRIS stockholders
— Detailed Discussion of the Exception to Section 367(a) of the Code for Certain Outbound Stock Transfers,”
New ARRIS should be treated for U.S. tax purposes as receiving a distribution from ARRIS Holdings
immediately prior to the Merger. The deemed distribution for U.S. tax purposes should be treated as a taxable
dividend to New ARRIS to the extent of ARRIS Holdings’ and ARRIS’ current and accumulated earnings and
profits for the year of the deemed distribution and such dividend will be subject to U.S. withholding tax (at a rate
of 5%) in accordance with the Tax Treaty. The amount of ARRIS Holdings’ and ARRIS’ current and
accumulated earnings and profits for the year of the deemed distribution is uncertain, but could be substantial.
Notwithstanding the foregoing, if instead, the U.S. shareholders gain amount equals or exceeds the New
ARRIS income amount, the deemed distribution and U.S. withholding tax rules would not apply. See
28
TABLE OF CONTENTS
“Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax Consequences of the Merger and
the Combination to ARRIS and New ARRIS — U.S. Federal Withholding Tax Consequences of the Merger to
New ARRIS” beginning on page 80.
New ARRIS’ substantial leverage and debt service obligations could adversely affect our business.
New ARRIS, ARRIS and various related entities have entered into a Credit Agreement that has an aggregate
maximum commitment amount of approximately $2.834 billion from Bank of America, N.A. and various other
lenders to finance the cash portion of the consideration payable under the Scheme, pay related fees and expenses
and provide financing for New ARRIS’ future needs. After giving effect to the Pace Acquisition, and assuming
payment of estimated fees and expenses including estimated financing costs, and assuming a late 2015
Combination closing, New ARRIS, expects to have total external debt aggregating approximately $2.4 billion.
The degree to which New ARRIS will be leveraged following the Combination could have important
consequences to shareholders of New ARRIS, including, but not limited to, potentially:
•
increasing New ARRIS’ vulnerability to, and reducing its flexibility to respond to, general adverse
economic and industry conditions;
•
requiring the dedication of a substantial portion of New ARRIS’ cash flow from operations to the
payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash
flow to fund working capital, capital expenditures, acquisitions, joint ventures, product research and
development, dividends, share repurchases, or other general corporate purposes;
•
limiting New ARRIS’ flexibility in planning for, or reacting to, changes in New ARRIS’ business and
the competitive environment and the industry in which it operates;
•
placing New ARRIS at a competitive disadvantage as compared to its competitors, to the extent that
they are not as highly leveraged; or
•
limiting the ability of New ARRIS to borrow additional funds and increasing the cost of any such
borrowing.
English law requires that companies meet certain additional financial requirements before they can declare
dividends or repurchase shares following the Combination.
Under English law, a company generally can declare dividends, make distributions or repurchase shares
(other than out of the proceeds of a new issuance of shares made for that purpose) only out of distributable
reserves.
Distributable reserves are a company’s accumulated, realized profits, to the extent not previously utilized
for distributions or capitalization, less its accumulated, realized losses, to the extent not previously written off in
a reduction or reorganization of capital.
New ARRIS currently has only ordinary shares, nominal amount (i.e., par value) £0.01 per share, which we
refer to in this proxy statement/prospectus as the New ARRIS shares, and redeemable shares of nominal amount
£0.01 per share. Immediately following the Combination New ARRIS will not have distributable reserves. Prior
to the effective time of the Combination, ARRIS, as the current sole shareholder of New ARRIS, will pass a
resolution to reduce the capital of New ARRIS by cancelling the shares currently held by ARRIS, and reducing
its share premium account to create distributable reserves. As soon as practicable following the Combination,
New ARRIS will seek the approval of the Court to such cancellation and reduction through a customary process,
which is required for the creation of distributable reserves to be effective. The approval of the Court is expected
to be received within six weeks after the completion of the Combination. Prior to the receipt of the approval,
New ARRIS will be unable to declare dividends, make distributions or make share repurchases. If that approval
is not received, it is expected that New ARRIS will be subject to such limitation on its ability to declare
dividends, make distributions or repurchase shares for the foreseeable future.
29
TABLE OF CONTENTS
The rights of holders of New ARRIS shares to be received by ARRIS stockholders in connection with the
Combination will be different from the rights of holders of ARRIS shares.
Upon completion of the Combination, ARRIS stockholders will become New ARRIS shareholders and their
rights as shareholders will be governed by the New ARRIS articles of association and English law and
regulation. The rights associated with the ARRIS shares are different than the rights associated with New ARRIS
ordinary shares. Material differences between the rights of ARRIS stockholders before the Combination and the
rights of New ARRIS shareholders following the Combination include differences with respect to, among other
things, distributions, dividends, share repurchases and redemptions, shareholder preemption rights, the duties of
directors, the process for the election and removal of directors, conflicts of interests of directors, the
indemnification of directors and officers, limitations on director liability, the convening of annual meetings of
shareholders and special shareholder meetings, the advance notice provisions for meetings, voting rights and
resolution approval thresholds, the quorum for shareholder meetings, the adjournment of shareholder meetings,
shareholder proposals, shareholder suits, reporting requirements, inspection of books and records, disclosure of
interests in shares, rights of dissenting shareholders, anti-takeover measures, provisions relating to the ability to
amend the articles of association, forum and venue, and enforcement of civil liabilities against foreign persons.
While ARRIS does not believe that these differences will have a materially adverse effect on ARRIS
stockholders who become New ARRIS shareholders, situations may arise where the rights associated with ARRIS
shares would have provided benefits to ARRIS stockholders that will not be available with respect to their
holdings of New ARRIS ordinary shares. See the section captioned “Comparison of the Rights of ARRIS
Stockholders and New ARRIS Shareholders” beginning on page 137 and for further details of New ARRIS’
intentions in relation to share repurchases, see “Description of New ARRIS Shares” on page 127.
As a result of different shareholder voting requirements in the United Kingdom relative to Delaware, New
ARRIS will have less flexibility with respect to certain aspects of capital management than ARRIS currently
has.
Under Delaware law, ARRIS’ directors may authorize the issuance, without stockholder approval or any
preemptive rights, of any shares authorized by its certificate of incorporation that are not already issued. Under
English law, New ARRIS’ directors may issue new ordinary shares up to a maximum amount equal to the
allotment authority granted to the directors under the articles of association of New ARRIS or by an ordinary
resolution of the New ARRIS shareholders, subject to a five year limit on such authority. Additionally, subject to
specified exceptions, English law grants statutory preemption rights to existing shareholders to subscribe for
new issuances of shares for cash, but allows shareholders to waive their statutory preemption rights by way of a
special resolution with respect to any particular allotment of shares or generally, subject to a five-year limit on
such waiver. Accordingly, New ARRIS’ articles of association contain, as permitted by English law, a provision
authorizing the New ARRIS Board to issue new shares for cash without preemption rights. The authorization of
the directors to issue shares without further shareholder approval and the authorization of the waiver of the
statutory preemption rights must both be renewed by the shareholders at least every five years, and ARRIS
cannot provide any assurance that these authorizations always will be approved, which could limit New ARRIS’
ability to issue equity and, thereby, adversely affect the holders of New ARRIS shares. While ARRIS does not
believe that the differences between Delaware law and English law relating to New ARRIS’ capital management
will have a material adverse effect on New ARRIS, situations may arise where the flexibility ARRIS now has
under Delaware law would have provided benefits to New ARRIS shareholders that will not be available under
English law. Please see “Comparison of the Rights of ARRIS Stockholders and New ARRIS Shareholders”
beginning on page 137.
After the completion of the Combination, attempted takeovers of New ARRIS will be governed by English law.
Delaware’s anti-takeover statutes and laws regarding directors’ fiduciary duties give the board of directors
broad latitude to defend against unwanted takeover proposals. As a UK incorporated company, New ARRIS is
subject to English law, as discussed in greater detail under “Description of New ARRIS Shares.” An English
public limited company is potentially subject to the protections afforded by the Takeover Code if, among other
factors, a majority of its directors are resident within the UK, the Channel
30
TABLE OF CONTENTS
Islands or the Isle of Man. Based upon New ARRIS’ current and intended plans for its directors, it is anticipated
that the Takeover Code will not apply to New ARRIS. Accordingly the New ARRIS articles of association will
include measures that may be found in the charters of U.S. companies, being the power for the New ARRIS Board
to allot shares where in the opinion of the New ARRIS Board it is necessary to do so in the context of an
acquisition of 20% or more of the issued voting shares in specified circumstances (this power will be subject to
renewal by New ARRIS shareholders at least every five years, as described in the preceding paragraph in relation
to the disapplication of statutory preemption rights on the issuance of new shares, and will cease to be
applicable if the Takeover Code is subsequently deemed by the Takeover Panel to be applicable to New
ARRIS).
Further, it could be more difficult for New ARRIS to obtain shareholder approval for a merger or negotiated
transaction after the closing of the business combination because the shareholder approval requirements for
certain types of transactions differ, and in some cases are greater, under English law than under Delaware law.
See “Description of New ARRIS Ordinary Shares” beginning on page 127.
The market price of New ARRIS ordinary shares may be volatile, and the value of your investment could
materially decline.
Investors who hold New ARRIS ordinary shares may not be able to sell their shares at or above the price at
which they purchased the ARRIS shares. The prices of ARRIS and Pace shares have fluctuated materially from
time to time, and New ARRIS cannot predict the price of its ordinary shares. Broad market and industry factors
may materially harm the market price of New ARRIS ordinary shares, regardless of New ARRIS’ operating
performance. In addition, the price of New ARRIS ordinary shares may be dependent upon the valuations and
recommendations of the analysts who cover the New ARRIS business, and if its results do not meet the analysts’
projections and expectations, New ARRIS’ stock price could decline as a result of analysts lowering their
valuations and recommendations or otherwise.
Future sales of New ARRIS ordinary shares in the public market could cause volatility in the price of New
ARRIS ordinary shares or cause the share price to fall.
Sales of a substantial number of New ARRIS ordinary shares in the public market, or the perception that
these sales might occur, particularly at the time of the completion of the Combination (due to Pace shareholders
or ARRIS stockholders deciding not to own New ARRIS ordinary shares) could depress the market price of New
ARRIS ordinary shares, and could impair New ARRIS’ ability to raise capital through the sale of additional
equity securities. Subject to the terms of the voting commitments, the key Pace shareholders may enter into sale,
hedging or other transactions with respect to the New ARRIS ordinary shares that they will receive as
consideration in the Scheme.
New ARRIS may seek approval from the Court for a capital reduction to create distributable reserves in order
to pay dividends.
Under English law, dividends may only be paid and share repurchases and redemptions must generally be
funded only out of “distributable reserves.” In the absence of such distributable reserves, New ARRIS may seek
to create distributable reserves that involves a reduction in New ARRIS’ share premium account, which requires
the approval of the Court and, in connection with seeking such Court approval, the approval of New ARRIS
shareholders would be sought. New ARRIS is not aware of any reason why the Court would not approve the
creation of distributable reserves in this manner; however, the issuance of the required order is a matter for the
discretion of the Court. There will also be no guarantee that the approvals by New ARRIS shareholders will be
obtained. In the event that distributable reserves of New ARRIS are not created, no distributions by way of
dividends, share repurchases or otherwise will be permitted under English law until such time as the group has
created sufficient distributable reserves from its business activities.
Following the completion of the Combination, a future transfer of your New ARRIS shares, other than one
effected by means of the transfer of book-entry interests in the Depository Trust Company (“DTC”), may be
subject to UK stamp duty.
No liability for stamp duty or stamp duty reserve tax (“SDRT”) generally should arise on the issue of New
ARRIS ordinary shares to Cede and Co. (“Cede”), as nominee of DTC, for the benefit of the New ARRIS
shareholders.
31
TABLE OF CONTENTS
Transfers of New ARRIS ordinary shares within DTC should not be subject to stamp duty or SDRT provided
no instrument of transfer is entered into and no election that applies to the New ARRIS ordinary shares is made
or has been made by DTC or Cede under Section 97A FA 1986. In this regard DTC has confirmed that neither
DTC nor Cede has made an election under section 97A of the Finance Act which would affect the New ARRIS
shares to be issued to Cede, as nominee of DTC, as part of the Combination. If such an election is or has been
made, transfers of New ARRIS ordinary shares within DTC generally will be subject to SDRT at the rate of 0.5%
of the amount or value of the consideration.
Transfers of New ARRIS ordinary shares held in certificated form generally will be subject to stamp duty at
the rate of 0.5% of the consideration given (rounded up to the nearest £5). SDRT will also be chargeable on an
agreement to transfer such shares, although such liability would be discharged if stamp duty is duly paid on the
instrument of transfer implementing such agreement within a period of six years from the agreement.
Subsequent transfer of New ARRIS ordinary shares to an issuer of depository receipts or into a clearance
system (including DTC) generally will be subject to SDRT at a rate of 1.5% of the consideration given or
received or, in certain cases, the value of the New ARRIS ordinary shares transferred.
The purchaser or transferee of the New ARRIS ordinary shares generally will be responsible for paying any
stamp duty or SDRT payable.
Please see the section headed “Certain United Kingdom Tax Considerations — Stamp duty and stamp duty
reserve tax — Subsequent Transfers of the New ARRIS Ordinary Shares” beginning on page 91.
If the UK were to exit from the European Union, New ARRIS’ business could suffer a material adverse effect.
Following the recent general election in the UK, it is expected that a referendum on continued UK
membership in the European Union will be held by the end of 2017, though it could also be held before 2017.
This referendum could introduce potentially significant new uncertainties and instability in financial and trade
markets, both ahead of the date for any such referendum and, depending on the outcome, after the referendum.
As a member of the European Union, the UK and UK-based businesses such as New ARRIS have access to strong
financial and trade relationships, including the EU Single Market, and these strong relationships are part of the
reason that UK incorporation was deemed to be the most efficient and beneficial for New ARRIS with respect to
the future growth of the company, financial and global cash management flexibility and tax.
Given the lack of precedent, it is unclear how a potential withdrawal of the UK from the European Union
would affect the UK’s access to the EU Single Market and other important financial and trade relationships and
how it would affect New ARRIS. A withdrawal could, among other outcomes, disrupt the free movement of
goods, services and people between the UK and the European Union, undermine bilateral cooperation in key
policy areas and significantly disrupt trade between the UK and the European Union. Under current European
Union rules, following a withdrawal the UK would not be able to negotiate bilateral trade agreements with
member countries of the European Union. In addition, a withdrawal of the UK from the European Union could
significantly affect the fiscal, monetary and regulatory landscape within the UK and could have a material
impact on its economy and the future growth of its various industries, including the broadcast and broadband
communication systems industry in which New ARRIS will operate. Although it is not possible to predict fully
the effects of a withdrawal of the UK from the European Union, if it were to occur it could have a material
adverse effect on New ARRIS’ business.
New ARRIS shares received by means of a gift or inheritance could be subject to UK inheritance tax.
The New ARRIS shares will be assets situated in the UK for the purposes of UK inheritance tax. A gift or
settlement of such assets by, or on the death of, an individual holder of such assets may give rise to a liability to
UK inheritance tax even if the holder is not a resident of, or domiciled in the UK. However, pursuant to the
Estate and Gift Tax Treaty 1980 entered into between the UK and the U.S. (the “Treaty”), a gift or settlement of
New ARRIS shares by New ARRIS shareholders who are domiciled in the US for the purposes of the Treaty
generally should not give rise to a liability to UK inheritance tax.
32
TABLE OF CONTENTS
Risks Relating to the Business of New ARRIS
New ARRIS’ business will be dependent on customers’ capital spending on broadband communication
systems, and reductions by customers in capital spending would adversely affect its business.
New ARRIS’ performance will be dependent primarily on customers’ capital spending for constructing,
rebuilding, maintaining or upgrading broadband communications systems. Capital spending in the broadband
communications industry is cyclical and can be curtailed or deferred on short notice. A variety of factors affect
capital spending, and, therefore, will affect New ARRIS’ sales and profits, including:
•
general economic conditions;
•
customer specific financial or stock market conditions;
•
availability and cost of capital;
•
foreign currency fluctuations;
•
governmental regulation;
•
demands for network services;
•
competition from other providers of broadband and high-speed services;
•
customer acceptance of new services offered; and
•
real or perceived trends or uncertainties in these factors.
Several of New ARRIS’ customers have accumulated significant levels of debt. These high debt levels,
coupled with the volatility in the capital markets, may impact their access to capital in the future. Even if the
financial health of these customers remains intact, these customers may not purchase new equipment at levels
seen in the past or expected in the future. While there has been improvement in the U.S. and global economy
over the past year, New ARRIS cannot predict the impact, if any, of any softening of the national of global
economy or of specific customer financial challenges on its customer’s expansion and maintenance
expenditures.
In addition, the Federal Communications Commission has proposed new regulations to mandate “net
neutrality” by broadband Internet service providers and subjecting broadband providers to regulation as
traditional telephone companies under Title II of the Communications Act. These and other changes in
regulatory requirements with which many of New ARRIS’ U.S. customers are required to comply could result in
such customers reducing their investment in their broadband communications networks. A significant reduction
in their capital expenditures as a result of any such regulations could adversely affect New ARRIS’ business,
operating results, and financial condition.
The market in which New ARRIS will operate is intensely competitive, and competitive pressures may
adversely affect its results of operations.
The markets in which New ARRIS will participate are dynamic, highly competitive and require companies
to react quickly and capitalize on change. New ARRIS must retain skilled and experienced personnel, as well as
deploy substantial resources to meet the changing demands of the industry and must be nimble to be able to
capitalize on change. New ARRIS will compete with international, national and regional manufacturers,
distributors, wholesalers and service providers, including some companies that are larger than New ARRIS will
be following the Combination. ARRIS lists its major competitors in Part I, Item 1, “Business” of ARRIS’ Annual
Report on Form 10-K for the year ended December 31, 2014, which is incorporated in this proxy
statement/prospectus by reference. Pace competes with a broad range of service providers in the highly
competitive broadcast and broadband communication systems industry.
In some instances, New ARRIS’ customers themselves may be its competition. Some of New ARRIS’
customers may develop their own software requiring support within New ARRIS’ products and/or may design
and develop products of their own which are produced to their own specifications directly by a contract
manufacturer. The rapid technological changes occurring in broadband may lead to the entry of new
competitors, including those with substantially greater resources than New ARRIS.
33
TABLE OF CONTENTS
Because the market in which New ARRIS will compete is characterized by rapid growth and, in some cases,
low barriers to entry, smaller 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 New
ARRIS’ sales and profitability. In the future, technological advances could lead to the obsolescence of some of
ARRIS’ and Pace’s current products, which could have a material adverse effect on the business of New ARRIS.
Further, several of New ARRIS’ larger competitors may be in a better position to withstand any significant,
sustained reduction in capital spending by customers. They often have broader product lines and segment focus
and therefore are not as susceptible to downturns in a particular market. In addition, several of New ARRIS’
competitors have been in operation longer than ARRIS or Pace, and therefore have more established
relationships with customers.
Consolidations in the broadcast and broadband communication systems industry could have a material
adverse effect on New ARRIS’ business.
The broadcast and broadband communication systems industry has historically experienced, and continues
to experience, the consolidation of many industry participants. For example, subsequent to the termination of its
agreement with Comcast, Time Warner Cable announced its intention to merge with Charter Communications,
Inc., AT&T recently completed its acquisition of DIRECTV, Verizon Communications Inc. announced that it is
selling certain wireline businesses to Frontier Communications Corp. and Altice announced its intention to
acquire Suddenlink. When consolidations occur, it is possible that the acquirer will not continue using the same
suppliers, possibly resulting in an immediate or future elimination of sales opportunities for New ARRIS. Even if
sales are not reduced, consolidations also could result in delays in purchasing decisions by the affected
companies prior to completion of the transaction and by the merged businesses. Further, even if ARRIS believes
that it will receive additional sales from a customer following a transaction as a result of typical network
upgrades following a combination or otherwise, no assurance can be provided that such anticipated sales will be
realized. In addition, consolidations can also result in increased pressure from customers (such as New ARRIS’
customers) for lower prices or better terms, reflecting the increase in the total volume of products purchased or
the elimination of a price differential between the acquiring customer and the company acquired. Any of these
results could have a material adverse effect on New ARRIS’ business.
New ARRIS may have difficulty in forecasting its sales and may experience volatility in revenues.
Because a significant portion of the purchases by New ARRIS customers are discretionary, accurately
forecasting New ARRIS sales is difficult. In addition, New ARRIS customers in recent years have submitted their
purchase orders less evenly over the course of each quarter and year, and with shorter lead times than they have
historically provided. The combination of New ARRIS’ dependence on relatively few key customers and the
award by those customers of irregular but sizeable contracts, together with the anticipated size of New ARRIS’
operations, make it difficult to forecast sales and can result in revenue volatility, which could further result in
maintaining inventory levels that are too high or too low for New ARRIS’ ultimate needs and could have a
negative impact on New ARRIS’ business.
The broadcast and broadband communications system industry on which New ARRIS’ business will be focused
is significantly impacted by technological change.
The broadcast and broadband communication systems industry has gone through dramatic technological
change resulting in service providers rapidly migrating their business from a one-way television service to a twoway communications network enabling multiple services, such as residential and business high-speed Internet
access, residential and business telephony services, digital television, video on demand and advertising services.
New services, such as home security, power monitoring and control, HD television, 3-D television and 4K (UHD)
television that are or may be offered by service providers, are also based on, and will be characterized by, rapidly
evolving technology. The development of increasing transmission speed, density and bandwidth for Internet
traffic has also enabled the provision of high quality, feature length video over the Internet. This over-the-top IP
video service enables content providers such as Netflix and Hulu, programmers such as HBO and ESPN and
portals like Google to provide video
34
TABLE OF CONTENTS
services on-demand, by-passing traditional video service providers. The Federal Communications Commission
is also considering changes to its rules to facilitate the ability of over-the-top services to compete against
traditional multichannel video programming providers. As these service providers enhance their quality and
scalability, traditional providers are introducing similar services over their existing networks, as well as overthe-top IP video for delivery not only to televisions but to computers, tablets, and telephones in order to remain
competitive. New ARRIS’ business will be dependent on its ability to develop products that enable current and
new customers to exploit these rapid technological changes. New ARRIS believes the continued growth of overthe-top IP video represents a shift from the traditional video delivery paradigm. To the extent that New ARRIS is
unable to adapt its technologies to serve this emerging demand its business may be adversely affected.
The continued industry move to open standards may impact New ARRIS’ future results.
The broadcast and broadband communication systems industry has and will continue to demand products
based on open standards. The move toward open standards is expected to increase the number of service
providers that will offer services to the market. This trend is expected to increase the number of competitors who
are able to supply products to service providers and drive down the capital costs per subscriber deployed. These
factors may adversely impact New ARRIS’ future revenues and margins. In addition, many customers of the
ARRIS business participate in “technology pools” and increasingly request that ARRIS donate a portion of its
source code used by the customer to these pools which may impact our ability to recapture the R&D investment
made in developing such code.
New ARRIS believes it will be increasingly required to work with third-party technology providers. As a
result, ARRIS expects the shift to more open standards may require New ARRIS to license software and other
components indirectly to third parties via various open source licenses. In some circumstances, New ARRIS’ use
of such open source technology may include technology or protocols developed by standards settings bodies,
other industry forums or third party companies. The terms of the open source licenses granted by such parties
may limit New ARRIS’ ability to commercialize products that utilize such technology, which could have a
material adverse effect on its results.
New ARRIS’ business will be concentrated in a few key customers. The loss of any of these customers or a
significant reduction in sales to any of these customers would have a material adverse effect on New ARRIS’
business.
For the three months ended June 30, 2015, sales to ARRIS’ three largest customers (including their
affiliates, as applicable) accounted for approximately 44.5% of its total revenue. In addition, Pace’s three largest
customers (including their affiliates, as applicable) accounted for approximately 46.5% of its total revenue for
the year ended December 31, 2014. The loss of any of these large customers, or a significant reduction in the
products or services provided to any of them would have a material adverse effect on New ARRIS’ business. For
many of these customers, New ARRIS will also be one of their largest suppliers. As a result, if from time-to-time
customers elect to purchase products from New ARRIS’ competitors in order to diversify their supplier base and
to dual-source key products or to curtail purchasing due to budgetary or market conditions, such decisions could
have material consequences to New ARRIS’ business. In addition, because of the magnitude of sales to these
customers the terms and timing of these sales are heavily negotiated, and even minor changes can have a
significant impact upon New ARRIS’ business.
New ARRIS may face higher costs associated with protecting its intellectual property or obtaining necessary
access to the intellectual property of others.
New ARRIS’ future success depends in part upon its proprietary technology, product development,
technological expertise and distribution channels, in addition to a number of important patents and licenses.
ARRIS cannot predict whether New ARRIS will be able protect its technology or whether competitors will be
able to develop similar technology independently, and such technology could be subject to challenge, unlawful
copying or other unfair competitive practices. Given the dependence on technology within the market in which
New ARRIS will compete, there are frequent claims and related litigation regarding patent and other intellectual
property rights. ARRIS has received, directly or indirectly, and expects to continue to receive, from third parties,
including some of its competitors, notices claiming that ARRIS, or customers using its products, have infringed
upon third-party patents or other proprietary
35
TABLE OF CONTENTS
rights. ARRIS is involved in several proceedings (and other proceedings have been threatened) in which its
customers were sued for patent infringement. In these cases, ARRIS’ customers have made claims against it and
other suppliers for indemnification. New ARRIS may become involved in similar litigation involving these and
other customers in the future. These claims, regardless of their merit, could result in costly litigation, divert the
time, attention and resources of management, delay product shipments, and, in some cases, require New ARRIS
to enter into royalty or licensing agreements. If a claim of patent infringement against New ARRIS or a customer
is successful and New ARRIS fails to obtain a license or develop non-infringing technology, New ARRIS or the
customer may be prohibited from marketing or selling products containing the infringing technology which
could have a material adverse effect on New ARRIS’ business and operating results. In addition, the payment of
any damages or any necessary licensing fees or indemnification costs associated with a patent infringement
claim could be material and could also materially adversely affect New ARRIS’ operating results.
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 New ARRIS’ products. The technology
applications that ARRIS and Pace are currently developing are subject to technological, supply chain, product
development and other related risks that could delay successful delivery. The markets in which New ARRIS will
operate are subject to a rapid rate of technological change, reflected in increasing development and
manufacturing complexity and increasingly demanding customer requirements, all of which can result in
unforeseen delivery problems. Even if the products in development are successfully brought to market, they may
be late, may not be widely used or New ARRIS may not be able to capitalize successfully on their technology.
To compete successfully, New ARRIS must quickly design, develop, manufacture and sell new or enhanced
products that provide increasingly higher levels of performance and reliability. However, New ARRIS may not
be able to develop or introduce these products successfully if such products:
•
are not cost-effective;
•
•
•
are not brought to market in a timely manner;
fail to achieve market acceptance; or
fail to meet industry certification standards.
Furthermore, New ARRIS’ competitors may develop similar or alternative technologies that, if successful,
could have a material adverse effect on New ARRIS. New ARRIS’ 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, and the loss of any such strategic relationship could have a material
adverse effect on New ARRIS’ business and results of operations.
Defects within ARRIS’ products could have a material impact on its results.
Many of New ARRIS’ products are of complex technology that include both hardware and software
components. It is not unusual for software, especially in earlier versions, to contain bugs that can unexpectedly
interfere with expected operations. While ARRIS and Pace employ rigorous testing prior to the shipment of its
products, defects, including those resulting from components they purchase, may still occur from time to time.
Product defects could impact New ARRIS’ reputation with its customers which may result in fewer sales. In
addition, depending on the number of products affected, the cost of fixing or replacing such products could have
a material impact on New ARRIS’ operating results.
ARRIS and Pace also offer warranties of various lengths to customers on many products and have
established warranty reserves based on, among other things, their historic experience, failure rates and cost to
repair. In the event of a significant non-recurring product failure, the amount of the warranty reserve may not be
sufficient. From time to time, New ARRIS may also make repairs on defects that occur outside of the provided
warranty period. Such costs would not be covered by the established reserves and, depending on the volume of
any such repairs, may have a material adverse effect on New ARRIS’ results from operations or financial
condition.
New ARRIS will be dependent on a limited number of suppliers, and the inability to obtain adequate and
timely delivery of supplies could have a material adverse effect on its business.
Many components, subassemblies and modules necessary for the manufacture or integration of ARRIS’
products are obtained from a sole supplier or a limited group of suppliers. Likewise, ARRIS has
36
TABLE OF CONTENTS
only a limited number of potential suppliers for certain materials and hardware used in its products, and a
number of its agreements with suppliers could be short-term in nature. New ARRIS’ reliance on sole or limited
suppliers, particularly foreign suppliers, and its reliance on subcontractors involves several risks including a
potential inability to obtain an adequate supply of required components, subassemblies, modules and other
materials and reduced control over pricing, quality and timely delivery of components, subassemblies, modules
and other products. An inability to obtain adequate deliveries or any other circumstance that would require New
ARRIS to seek alternative sources of supply could affect its ability to ship products on a timely basis which
could damage relationships with current and prospective customers and potentially have a material adverse
effect on New ARRIS’ business.
New ARRIS’ ability to ship could also be impacted by country laws and/or union labor disruptions. For
example the recent labor dispute involving union dock workers at certain U.S. west coast port facilities, in many
cases, greatly increased the shipping times for ARRIS’ products arriving through the affected ports and also
increased shipping costs as ARRIS had to increase the number of products shipped using air freight which is
significantly more expensive. Disputes of this nature may have a material impact on New ARRIS’ financial
results.
New ARRIS will depend on channel partners to sell its products in certain regions and will be subject to risks
associated with these arrangements.
New ARRIS will utilize distributors, value-added resellers, system integrators, and manufacturers’
representatives to sell its products to certain customers and in certain geographic regions to improve its access to
these customers and regions and to lower its overall cost of sales and post-sales support. Sales through channel
partners are subject to a number of risks, including:
•
the ability of selected channel partners to effectively sell its products to end customers;
•
New ARRIS’ ability to continue channel partner arrangements into the future since most are for a
limited term and subject to mutual agreement to extend;
•
a reduction in gross margins realized on sales of products; and
•
a diminution of contact with end customers which, over time, could adversely impact New ARRIS’
ability to develop new products that meet customers’ evolving requirements.
Cyber-security incidents, including data security breaches or computer viruses, could harm ARRIS’ business
by disrupting its delivery of services, damaging its reputation or exposing it to liability.
ARRIS and Pace receive, process, store and transmit, often electronically, the confidential data of customers
and others. Unauthorized access to New ARRIS’ computer systems or stored data could result in the theft or
improper disclosure of confidential information, the deletion or modification of records or could cause
interruptions in New ARRIS’ operations. These cyber-security risks increase when New ARRIS transmits
information from one location to another, including transmissions over the Internet or other electronic networks,
and could be further increased by integrations associated with the Combination. Despite implemented security
measures, New ARRIS’ facilities, systems and procedures, and those of its third-party service providers, may be
vulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming and/or
human errors or other similar events which may disrupt delivery of services or expose the confidential
information of New ARRIS’ customers and others. Any security breach involving the misappropriation, loss or
other unauthorized disclosure or use of confidential information of New ARRIS’ customers or others, whether by
New ARRIS or a third party, could (i) subject New ARRIS to civil and criminal penalties, (ii) have a negative
impact on New ARRIS’ reputation, or (iii) expose New ARRIS to liability to customers, third parties or
government authorities. Any of these developments could have a material adverse effect on New ARRIS’
business, results of operations and financial condition. ARRIS has not experienced any such incidents that have
had material consequences to date. The U.S. Congress also is considering, and we expect other governments to
consider, cyber-security legislation that, if enacted, could impose additional obligations upon New ARRIS.
37
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements concerning certain trends,
expectations, forecasts, estimates, and other forward-looking information affecting or relating to New ARRIS and
its industry, products and activities that are intended to qualify for the protections afforded “forward-looking
statements” under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forwardlooking statements speak only as to the date of this document and may be identified by the use of forwardlooking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,”
“targets,” “forecasts,” “outlook,” “impact,” “potential,” “confidence,” “improve,” “optimistic,” “deliver,”
“comfortable,” “trend” and “seeks,” or the negative of such terms or other variations on such terms or
comparable terminology. These forward-looking statements are subject to risks and uncertainties that may cause
actual results to differ materially from those indicated in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the possibility that a possible Combination will not be completed,
failure to obtain necessary regulatory approvals or required financing or to satisfy any of the other conditions to
the possible Combination, adverse effects on the market price of ARRIS shares and on ARRIS’ or Pace’s
operating results because of a failure to complete the possible Combination, failure to realize the expected
benefits of the possible Combination, negative effects relating to the announcement of the possible
Combination or any further announcements relating to the possible Combination or the consummation of the
possible Combination on the market price of ARRIS shares or Pace shares, significant transaction costs and/or
unknown liabilities, customer reaction to the announcement of the Combination, possible litigation relating to
the Combination or the public disclosure thereof, general economic and business conditions that affect the
combined companies following the consummation of the possible Combination, changes in global, political,
economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax
laws or their interpretation or application, regulations, rates and policies, future business combinations or
disposals and competitive developments. These factors are not intended to be an all-encompassing list of risks
and uncertainties. Additional information regarding these and other risks and uncertainties can be found in this
proxy statement/prospectus under “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations of Pace,” and in other ARRIS reports filed with the SEC and incorporated
by reference herein, including its Quarterly Report on Form 10-Q for the quarter ended June 30, 2015. By their
nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to
events and depend on circumstances that will occur in the future. The risks and uncertainties described in the
context of such forward-looking statements in this document could cause New ARRIS’ plans actual results,
performance or achievements, or industry results and developments to differ materially from those expressed in
or implied by such forward-looking statements. Although it is believed that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have
been correct and persons reading this document are therefore cautioned not to place undue reliance on these
forward-looking statements which speak only as at the date of this document. ARRIS, Pace and New ARRIS
expressly disclaim any obligation to release publicly any revisions to forward-looking statements as a result of
subsequent events or developments, except as required by law.
38
TABLE OF CONTENTS
SELECTED HISTORICAL FINANCIAL DATA OF ARRIS
The following selected financial data set out below as of and for the fiscal years ended December 31, 2010
through December 31, 2014 are derived from ARRIS’ audited consolidated financial statements for the fiscal
years then ended. The following selected financial data set out below as of and for the six months ended June 30,
2015 and 2014 are derived from ARRIS’ unaudited consolidated financial statements for the periods then ended.
The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which
ARRIS considers necessary for a fair presentation of the financial position and the results of operations for these
periods. Operating results for the six-month period ended June 30, 2015 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 2015. The information set forth below is a
summary that should be read together with the historical consolidated financial statements of ARRIS and the
related notes thereto as well as the section titled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contained in the Annual Report on Form 10-K for the year ended
December 31, 2014 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2105 previously filed
with the SEC and incorporated by reference into this proxy statement/prospectus. Historical results are not
necessarily indicative of any results to be expected in the future. For more information, see the section entitled
“Where You Can Find More Information” beginning on page 170 of this proxy statement/prospectus.
Six Months Ended
June 30,
2015
2014
Consolidated Operating Data:
Net sales
Cost of sales
Gross margin
Selling, general and administrative
expenses
Research and development expenses
Amortization of intangible assets
Integration, acquisition, restructuring
and other costs
Impairment of goodwill &
intangibles
Operating (loss) income
Interest expense
Loss (gain) on debt retirement
Interest income
Loss (gain) on investments and note
receivable
Other expense (income), net
Income (loss) before income taxes
Income tax expense (benefit)
Net (loss) income
Net (loss) income per common share:
Basic
Diluted
Selected Balance Sheet Data:
Total assets
Long-term obligations
Years Ended December 31,
2014
2013
2012
2011
​
​​
(in thousands, except per share data)
​
​​
2010
​
$2,475,234 $2,654,088 $5,322,921 $3,620,902 $1,353,663 $1,088,685 $1,087,506
1,774,317 1,887,901 3,740,425 2,598,154
891,086
678,172
663,417
700,917
766,187 1,582,496 1,022,748
462,577
410,513
424,089
207,534
268,728
113,930
211,494
278,274
122,736
410,568
556,575
236,521
338,252
425,825
193,637
161,338
170,706
30,294
148,755
146,519
33,649
137,694
140,468
35,957
13,465
24,020
37,498
83,047
12,968
7,565
65
—
97,260
41,821
—
(1,279 )
—
129,663
34,823
—
(1,284 )
—
341,334
62,901
—
(2,590 )
—
(18,013 )
67,888
—
(2,936 )
—
87,271
17,797
—
(3,242 )
88,633
(14,608 )
16,939
19
(3,154 )
2,698
10,487
(96,150 )
(47,390 )
(48,760 ) $
(1,404 )
(176 )
74,296
20,837
53,459 $
1,570
(1,471 )
(28,511 )
(10,849 )
(17,662 ) $
(0.37 ) $
(0.37 ) $
0.47 $
0.46 $
(0.15 ) $
(0.15 ) $
$
3,119
1,358
52,241
17,973
35,883 $
$
$
0.25 $
0.24 $
4,911
10,961
7,247
30,832
83,966
239,230
4,142
(87,981 )
79,824 $ 327,211 $
0.56 $
0.54 $
2.27 $
2.21 $
—
109,905
17,965
(373 )
(1,997 )
(414 )
94
94,630
30,502
64,128
0.51
0.50
$4,558,675 $4,330,820 $4,365,645 $4,322,007 $1,405,894 $1,360,810 $1,424,087
$1,537,641 $1,507,796 $1,665,014 $1,907,992 $ 74,785 $ 286,749 $ 282,087
39
TABLE OF CONTENTS
SELECTED HISTORICAL FINANCIAL DATA OF PACE
The following historical consolidated financial information is provided to assist you in your analysis of the
financial aspects of the Pace Acquisition and the Merger. Pace derived the financial information as of and for the
fiscal years ended December 31, 2010 through December 31, 2014 from its historical audited consolidated
financial statements and related notes for the fiscal years then ended. The financial information for the years
ended December 31, 2010 through December 31, 2014 has been prepared on the basis of accounting policies
drawn up in accordance with the recognition and measurement requirements of International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The
information set forth below is only a summary that you should read together with the historical audited
consolidated financial statements of Pace and the related notes, as well as the section titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations of Pace” beginning on page 173.
Historical results are not necessarily indicative of any results to be expected in the future.
2014
​ ​
Consolidated Operating Data:
Revenue
Cost of sales
Gross profit
Administrative expenses:
Research and development expenditure
Amortisation of development expenditure
Other administrative expenses:
Before exceptional costs
Exceptional costs
Amortisation of other intangibles
Years Ended December 31
2013
2012
2011
​ ​
​
(in millions, except per share data)
​ ​
$ 2,620.0 $ 2,469.2 $ 2,403.4 $ 2,309.3
(2,087.5 ) (2,021.0 ) (1,970.4 )
(1,866.0 )
532.5
448.2
433.0
443.3
2010
​
$ 2,062.9
(1,667.8 )
395.1
(83.7 )
(45.4 )
(87.0 )
(45.6 )
(101.1 )
(54.3 )
(112.7 )
(47.9 )
(68.0 )
(52.0 )
(162.3 )
(7.3 )
(52.9
(351.6 ))
(122.0 )
(12.2 )
(42.6
(309.4 ))
(119.5 )
(12.5 )
(51.8
(339.2 ))
(141.3 )
(12.7 )
(55.7
(370.3 ))
(114.5 )
(29.5 )
(18.1
(282.1 ))
Operating profit
Finance income – interest receivable
Finance expenses – interest payable
180.9
2.5
(7.7 )
138.8
1.8
(9.8 )
93.8
0.5
(14.2 )
73.0
0.2
(18.5 )
113.0
1.2
(4.0 )
Profit before tax
Tax charge
175.7
(27.7 )
130.8
(34.1 )
80.1
(21.7 )
54.7
(15.9 )
110.2
(32.9 )
Total administrative expenses
Profit for the year
Profit attributable to:
Equity holders of Pace
Earnings per ordinary share:
Basic earnings per ordinary share (cents)
Diluted earnings per ordinary share (cents)
Selected Balance Sheet Data:
Total assets
Long-term obligations
$
148.0
$
96.7
$
58.4
$
38.8
$
77.3
$
148.0
$
96.7
$
58.4
$
38.8
$
77.3
47.4
45.6
31.2
29.8
19.4
18.5
13.2
12.5
26.4
25.0
$ 2,122.2
$ 428.1
$ 1,271.1
$ 116.6
$ 1,488.1
$ 196.5
$ 1,208.6
$ 284.6
$ 1,112.6
$ 378.4
On July 28, 2015, Pace announced its interim results for the six months ended June 30, 2015. As required
by Item 8(A)(5) of Form 20-F, Annex G contains certain information included in that announcement and
unaudited condensed consolidated interim financial statements that have been prepared on the basis of
accounting policies drawn up in accordance with the recognition and measurement requirements of IFRS issued
by the IASB.
40
TABLE OF CONTENTS
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data (“Selected Pro Forma Data”) give effect to the
Combination and the financing transactions described in “Financing” beginning on page 76. The Combination
will be accounted for as a business combination using the acquisition method of accounting under the
provisions of Accounting Standards Codification 805, “Business Combinations.” The selected unaudited pro
forma condensed combined balance sheet data are based on the historical consolidated balance sheets of ARRIS
and Pace as of June 30, 2015, and give effect to the Combination and the incurrence of $800 million of
indebtedness under the Term A-1 Loan Facility as if they had occurred on June 30, 2015. The selected unaudited
pro forma condensed combined statements of operations data for the fiscal year ended December 31, 2014 and
for the six months ended June 30, 2015 are based on the historical condensed combined statements of operations
of ARRIS and Pace for the fiscal year ended December 31, 2014 and the six months ended June 30, 2015,
respectively, and give effect to the Combination and the financing transactions as if they had occurred on
January 1, 2014.
The Selected Pro Forma Data have been derived from, and should be read in conjunction with, the more
detailed unaudited pro forma condensed combined financial information of New ARRIS appearing elsewhere in
this proxy statement/prospectus and the accompanying notes to the pro forma information. In addition, the pro
forma information was based on, and should be read in conjunction with, the historical consolidated financial
statements and related notes of both ARRIS, which have been incorporated in this proxy statement/prospectus
by reference, and Pace, which have been provided herein. See the sections captioned “Where You Can Find
More Information” beginning on page 170 and “Unaudited Pro Forma Condensed Combined Financial
Information” beginning on page 106 in this proxy statement/prospectus for additional information. The Selected
Pro Forma Data have been presented for informational purposes only and are not necessarily indicative of what
the combined company’s financial position or results of operations actually would have been had the
acquisition been completed as of the dates indicated. In addition, the Selected Pro Forma Data does not purport
to project the future financial position or operating results of the combined company. Also, as explained in more
detail in the accompanying notes to the pro forma information, the preliminary fair values of assets acquired and
liabilities assumed reflected in the Selected Pro Forma Data are subject to adjustment and may vary significantly
from the fair values that will be recorded upon completion of the Combination. The Selected Pro Forma Data
have not been approved by Pace.
Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data
As of
June 30, 2015
(In thousands)
Total assets
Long-term debt and financing lease obligations
Total debt, financing lease obligations, and short-term borrowings
Total stockholders’ equity
$7,916,277
$2,314,650
$2,404,951
$3,131,814
Selected Unaudited Pro Forma Condensed Combined Statements of Income Data
Six months ended
Year Ended
June 30, 2015
December 31, 2014 ​
(In thousands, except per share data)
Net sales
Net income
Net income per common share – Basic
Net income per common share – Diluted
Weighted average common shares – Basic
Weighted average common shares – Diluted
$3,553,719
$ 48,241
$
0.25
$
0.24
195,068
197,695
41
$7,944,032
$ 260,930
$
1.35
$
1.32
193,631
196,935
TABLE OF CONTENTS
THE SPECIAL MEETING
Overview
This proxy statement/prospectus is being provided to ARRIS stockholders as part of a solicitation of
proxies by the ARRIS Board for use at the Special Meeting of ARRIS stockholders and at any adjournments or
postponements of such meeting. This proxy statement/prospectus is being furnished to ARRIS stockholders on
or about [•], 2015. In addition, this proxy statement/prospectus constitutes a prospectus for New ARRIS in
connection with the issuance by New ARRIS of ordinary shares to be delivered to ARRIS stockholders in
connection with the Merger.
Date, Time and Place of the Special Meeting
ARRIS will hold the Special Meeting on October 21, 2015, at 10:00 a.m. local time, at ARRIS Corporate
Headquarters, 3871 Lakefield Drive, Suwanee, Georgia, USA (unless the meeting is adjourned or postponed).
Proposals
At the Special Meeting, ARRIS stockholders will vote upon:
•
the Merger Agreement Proposal;
•
the Non-Binding Compensation Proposal; and
•
the Adjournment Proposal.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” EACH OF
THE PROPOSALS LISTED ABOVE.
Record Date; Outstanding Shares; Shares Entitled to Vote
Only holders of ARRIS shares as of the close of business on the Record Date of September 10, 2015 will be
entitled to notice of, and to vote at, the Special Meeting or any adjournments thereof. On the Record Date, there
were 146,592,391 ARRIS shares outstanding, held by 433 holders of record. Each outstanding ARRIS share is
entitled to one vote on each proposal and any other matter properly coming before the Special Meeting.
Attendance
Only ARRIS stockholders on the Record Date or persons holding a written proxy for any stockholder or
account of ARRIS as of the Record Date may attend the Special Meeting. Proof of stock ownership is necessary
to attend.
Quorum
The ARRIS stockholders present in person or by proxy holding a majority of the outstanding ARRIS shares
entitled to vote will constitute a quorum for the transaction of business at the Special Meeting. ARRIS’ inspector
of election intends to treat as “present” for these purposes stockholders who have submitted properly executed
or transmitted proxies that are marked “abstain” and broker non-votes.
Vote Required and ARRIS Board Recommendation
Merger Agreement Proposal
ARRIS stockholders are considering and voting on a proposal to adopt the Merger Agreement. You should
carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the
Combination and Merger. In particular, your attention is directed to the full text of the Merger Agreement, which
is attached as Annex A to this proxy statement/prospectus.
42
TABLE OF CONTENTS
The approval of the Merger Agreement Proposal requires the affirmative vote of the holders of a majority of
the ARRIS shares outstanding and entitled to vote on this proposal. Because the vote required to approve this
proposal is based upon the total number of outstanding ARRIS shares entitled to vote, if you abstain, or if you
are a stockholder of record and you fail to submit a proxy or vote in person at the Special Meeting, or if your
ARRIS shares are held through a bank, brokerage firm or other nominee and you do not instruct your bank,
brokerage firm or other nominee to vote your ARRIS shares, this will have the same effect as a vote “against” the
adoption of the Merger Agreement.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
MERGER AGREEMENT PROPOSAL.
Non-Binding Compensation Proposal
ARRIS stockholders are considering and voting on a proposal to approve, on a non-binding, advisory basis,
the compensation that may be paid or become payable to the ARRIS Named Executive Officers in connection
with the Merger.
Approval of the Non-Binding Compensation Proposal requires the affirmative vote of a majority of the
votes cast by holders of ARRIS shares entitled to vote on this proposal, although such vote will not be binding
on ARRIS. Because the vote required to approve this proposal is based upon the total number of ARRIS shares
represented in person or by proxy, abstentions will have the same effect as a vote “against” this proposal. If you
fail to submit a proxy and do not attend the Special Meeting, or if your ARRIS shares are held through a bank,
brokerage firm or other nominee and you do not instruct your bank, brokerage firm or other nominee to vote
your ARRIS shares, your ARRIS shares will not be voted, but this will not have an effect on the advisory vote to
approve the compensation that may be paid or become payable to ARRIS’ Named Executive Officers in
connection with the completion of the Merger. Approval of this proposal is not a condition to the completion of
the Combination and the Combination may be completed whether or not this proposal is approved.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
NON-BINDING COMPENSATION PROPOSAL.
Adjournment Proposal
ARRIS stockholders may be asked to vote on a proposal to adjourn the Special Meeting, or any
postponement thereof, if necessary or appropriate (i) to solicit additional proxies if there are insufficient votes at
the time of the Special Meeting to adopt the Merger Agreement, (ii) to provide to ARRIS stockholders any
supplement or amendment to the proxy statement/prospectus or (iii) to disseminate any other information which
is material to ARRIS stockholders voting at the Special Meeting.
Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the
holders of ARRIS shares entitled to vote on this proposal. Because the vote required to approve this proposal is
based upon the total number of ARRIS shares represented in person or by proxy, abstentions will have the same
effect as a vote “against” this proposal. If you fail to submit a proxy and do not attend the Special Meeting, or if
your ARRIS shares are held through a bank, brokerage firm or other nominee and you do not instruct your bank,
brokerage firm or other nominee to vote your ARRIS shares, your ARRIS shares will not be voted, but this will
not have an effect on the vote to adjourn the Special Meeting. Approval of this proposal is not a condition to the
completion of the Combination and the Combination may be completed whether or not this proposal is
approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
ADJOURNMENT PROPOSAL.
Voting Your Shares
ARRIS stockholders may vote in person at the Special Meeting or by proxy. If you sign the proxy card
without naming your own proxyholder, you appoint Patrick W. Macken and David B. Potts as your
proxyholders, any of whom will be authorized to vote and otherwise act for you at the Special Meeting
43
TABLE OF CONTENTS
(including any postponements or adjournments of the Special Meeting). ARRIS recommends that you submit
your proxy even if you plan to attend the Special Meeting. If you vote by proxy, you may change your vote by
submitting a later dated proxy before the deadline or by casting a ballot in person at the Special Meeting.
Your shares will be counted for purposes of determining a quorum if you vote:
•
via the Internet;
•
by telephone;
•
by submitting a properly executed proxy card or voting instruction form by mail; or
•
in person at the Special Meeting.
Abstentions and broker non-votes will be counted for determining whether a quorum is present for the Special
Meeting.
Voting instructions are printed on the proxy card or voting information form you received. Either method of
submitting a proxy will enable your shares to be represented and voted at the Special Meeting
If your shares are owned directly in your name with our transfer agent, American Stock Transfer & Trust
Company LLC, you are considered, with respect to those shares, the “stockholder of record.” If your shares are
held in a stock brokerage account or by a bank or other nominee or intermediary, you are considered the
beneficial owner of shares held in “street name” and are considered a “non-record (beneficial) stockholder.” The
voting process differs depending on whether you are a stockholder of record or a non-record (beneficial)
stockholder:
Stockholder of record
If you are a stockholder of record, a proxy card is enclosed with this proxy statement/prospectus to enable
you to vote, or, more technically, to appoint a proxyholder to vote on your behalf, at the Special Meeting.
Whether or not you plan to attend the Special Meeting, you may vote your ARRIS shares by proxy by any one
of the following methods:
•
by mail: Mark, sign and date your proxy card and return it in the postage paid envelope. Your proxy
card must be received no later than 11:59 p.m. (Eastern Time) on October 20, 2015 in order for your
vote to be counted;
•
by telephone: Call 1-800-PROXIES (1-800-776-9437) in the U.S. or 1-718-921-8500 from foreign
countries. Have your proxy card available when you call. The telephone voting service is available
until 11:59 p.m. (Eastern Time) on October 20, 2015; and
•
via the Internet: Go to www.voteproxy.com and follow the instructions on the website and complete
your proxy voting prior to 11:59 p.m. (Eastern Time) on October 20, 2015. We provide Internet proxy
voting to allow you to vote your ARRIS shares online, with procedures designed to ensure the
authenticity and correctness of your proxy vote instructions.
If the Special Meeting is adjourned or postponed, our transfer agent must receive your proxy card or your
vote via telephone or Internet not later than 11:59 p.m. (Eastern Time) on the business day immediately
preceding the date of any rescheduled meeting.
Voting your ARRIS shares by proxy does not prevent you from attending the Special Meeting in person
and voting in person.
Non-record (beneficial) stockholders
If you are a non-record (beneficial) stockholder, your intermediary (or its agent) will send you a voting
instruction form or proxy form with this proxy statement/prospectus. Properly completing such form and
returning it to your intermediary (or its agent) will instruct your intermediary how to vote your ARRIS shares at
the Special Meeting on your behalf. You should carefully follow the instructions provided by your intermediary
(or its agent) and contact your intermediary (or its agent) promptly if you need help.
44
TABLE OF CONTENTS
If you do not intend to attend the Special Meeting and vote in person, mark your voting instructions on the
voting instruction form or proxy form, sign it, and return it as instructed by your intermediary (or its agent). Your
intermediary (or its agent) also may have provided you with the options of voting by telephone or Internet,
similar to those applicable to stockholders of record set forth above.
If you wish to vote in person at the Special Meeting, follow the instructions provided by your intermediary
(or its agent).
In addition, your intermediary (or its agent) will need to receive your voting instructions in sufficient time
in advance for your intermediary to act on them prior to the deadline for the deposit of proxies of 11:59 p.m.
(Eastern Time) on October 20, 2015, or, in the case of any adjournment or postponement of the Special Meeting,
11:59 p.m. (Eastern Time) on the business day immediately preceding the date of any rescheduled meeting.
On the proxy card, you can indicate how you want your proxyholder to vote your ARRIS shares, or you can
let your proxyholder decide for you by signing and returning the proxy card without indicating a voting
preference for one or more of the proposals. If you have specified on the proxy card how you want to vote on a
particular proposal (by marking, as applicable, “for” or “against”), then your proxyholder must vote your ARRIS
shares accordingly.
If you are a stockholder of record and you submit your proxy through the Internet or by telephone without
indicating your vote, or if you sign and return an ARRIS proxy card without giving specific voting instructions,
then the proxyholders will vote your shares in the manner recommended by the ARRIS Board on all matters
presented in this proxy statement/prospectus and as the proxyholders may determine in their discretion with
respect to any other matters properly presented for a vote at the Special Meeting.
If you are a non-record (beneficial) stockholder and you do not provide the organization that holds your
ARRIS shares with specific instructions, generally the organization that holds your ARRIS shares may vote on
routine matters but cannot vote on non-routine matters. We expect the Merger Agreement Proposal and the NonBinding Compensation Proposal to be non-routine matters for this purpose. If the organization that holds your
ARRIS shares does not receive instructions from you on how to vote your ARRIS shares on these proposals, it is
likely that it will inform the inspector for the Special Meeting that it does not have the authority to vote on these
matters with respect to your ARRIS shares. This generally is referred to as a “broker non-vote.” When ARRIS’
inspector of elections tabulates the votes for any particular matter, broker non-votes will be counted for purposes
of determining whether a quorum is present, will have the same effect as a vote “against” the Merger Agreement
Proposal and will not have any effect with regard to the vote on the Non-Binding Compensation Proposal and
the Adjournment Proposal. ARRIS encourages you to provide voting instructions to the organization that holds
your ARRIS shares to ensure that your vote is counted on all three proposals.
Revoking Your Proxy
If you are an ARRIS stockholder of record, you may revoke your proxy at any time before it is voted at the
Special Meeting by:
•
timely delivering a written revocation letter to the Corporate Secretary of ARRIS;
•
timely submitting your voting instructions again by telephone or through the Internet;
•
signing and returning by mail a proxy card with a later date so that it is received prior to the Special
Meeting; or
•
attending the Special Meeting and voting by ballot in person.
Attendance at the Special Meeting will not, in and of itself, revoke a proxy.
If you are a non-record (beneficial) stockholder, you should follow the instructions of your bank, broker or
other nominee regarding the revocation of proxies.
45
TABLE OF CONTENTS
Share Ownership and Voting by ARRIS’ Officers and Directors
As of the Record Date, the ARRIS directors and executive officers and their affiliates had the right to vote
1,768,883 ARRIS shares, representing approximately 1.2% of the ARRIS shares then outstanding and entitled to
vote at the meeting. ARRIS expects that the ARRIS directors and executive officers who are ARRIS stockholders
will vote “for” the Merger Agreement Proposal, “for” the Non-Binding Compensation Proposal, and “for” the
Adjournment Proposal, although none of them has entered into any agreement requiring them to do so.
Costs of Solicitation
ARRIS will bear the cost of soliciting proxies from ARRIS stockholders. ARRIS will solicit proxies by mail.
In addition, the directors, officers and employees of ARRIS may solicit proxies from ARRIS stockholders by
telephone, electronic communication, or in person, but will not receive any additional compensation for their
services. ARRIS will make arrangements with brokerage houses and other custodians, nominees, and fiduciaries
for forwarding proxy solicitation material to the beneficial owners of ARRIS shares held of record by those
persons and will reimburse them for their reasonable out-of-pocket expenses incurred in forwarding such proxy
solicitation materials.
ARRIS has engaged a professional proxy solicitation firm, Morrow & Co., to assist in soliciting proxies.
Morrow & Co. will receive customary compensation for its services, including a base fee of $12,500 and
additional fees based on the number of telephone solicitations made and other additional stockholder services
provided. In addition, ARRIS will reimburse Morrow & Co. for its reasonable disbursements.
ARRIS stockholders should not send in their stock certificates with their proxy cards.
As described in the section captioned “The Merger and the Merger Agreement” beginning on page 70
ARRIS stockholders of record will be sent materials for exchanging ARRIS shares shortly after the completion of
the Merger.
Other Business
ARRIS is not aware of any other business to be acted upon at the Special Meeting. If, however, other matters
are properly brought before the Special Meeting, the proxies will have discretion to vote or act on those matters
according to their best judgment and they intend to vote the shares as the ARRIS board may recommend.
Assistance
If you need assistance in completing your proxy card or have questions regarding ARRIS’ Special Meeting,
please contact Morrow & Co., the proxy solicitation agent for ARRIS, by mail at 470 West Avenue, Stamford,
Connecticut 06902. Morrow & Co. may be contacted by phone at (203) 658-9400.
46
TABLE OF CONTENTS
PROPOSAL 1 — ADOPTION OF THE MERGER AGREEMENT
ARRIS is requesting that ARRIS stockholders approve a proposal to adopt the Merger Agreement in
furtherance of the Combination as described below.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE
MERGER AGREEMENT PROPOSAL.
Required Vote
The approval of the Merger Agreement Proposal requires the affirmative vote of the holders of a majority of
the ARRIS shares outstanding and entitled to vote on the proposal. Because the vote required to approve this
proposal is based upon the total number of outstanding ARRIS shares entitled to vote, if you vote to abstain, or
if you are a stockholder of record and you fail to submit a proxy or vote in person at the Special Meeting, or if
your ARRIS shares are held through a bank, brokerage firm or other nominee and you do not instruct your bank,
brokerage firm or other nominee to vote your ARRIS shares, this will have the same effect as a vote “against” the
adoption of the Merger Agreement.
OVERVIEW OF THE COMBINATION
The Combination will be implemented in two main steps, which are the Pace Acquisition and the Merger:
In the Pace Acquisition (which will be implemented by means of the Scheme or, if ARRIS so elects, subject
to the consent of the Takeover Panel (where necessary) and subject to the provisions of the Co-Operation
Agreement, by way of the Contractual Offer):
•
all Pace ordinary shares, other than Pace ordinary shares held by or on behalf of New ARRIS or the
New ARRIS group or by Pace in treasury, will be transferred to New ARRIS; and
•
holders of such Pace ordinary shares will receive 132.5 pence in cash and will be issued 0.1455 New
ARRIS ordinary shares in consideration for each Pace ordinary share so transferred.
In the Merger:
•
Merger Sub will be merged with and into ARRIS with ARRIS continuing as the surviving corporation;
and
•
each ARRIS share, other than ARRIS shares held by ARRIS as treasury stock or any shares owned of
record by ARRIS Holdings or Merger Sub, will be converted into the right to receive one New ARRIS
ordinary share.
As a result of the Combination, ARRIS and Pace will each become wholly-owned subsidiaries of New
ARRIS, and ARRIS stockholders and Pace Scheme shareholders will become New ARRIS shareholders. We
estimate that, upon the completion of the Combination, ARRIS stockholders will own approximately 76% of the
New ARRIS ordinary shares, and Pace shareholders will receive approximately £438.4 million (or approximately
$672.8 million based on the exchange rate as of August 31, 2015) in cash in the aggregate and will own
approximately 24% of the New ARRIS ordinary shares.
This transaction structure brings ARRIS and Pace together under common ownership while allowing both
entities’ legal corporate status to survive. New ARRIS was incorporated in the United Kingdom because a UK
incorporation was deemed to be the most efficient and beneficial for the combined company with respect to
regulatory and governmental relations, financial and global cash management flexibility and a lower tax rate.
See “Background and Reasons for the Combination — Reasons for the Combination” beginning on page 54.
Based on the number of Pace ordinary shares and the number of ARRIS shares outstanding as of August 31,
2015, New ARRIS is expected to issue approximately 48.1 million New ARRIS ordinary shares to the Pace
Scheme shareholders upon the Scheme becoming effective and approximately 147.6 million New ARRIS
ordinary shares to the ARRIS stockholders upon completion of the Merger.
47
TABLE OF CONTENTS
The Scheme is conditioned on, among other things, the approval of the Scheme by the Pace Scheme
shareholders, the sanction of the Scheme by the Court, the adoption of the Merger Agreement by the ARRIS
stockholders and the receipt of certain regulatory approvals. The consummation of the Merger is conditioned,
among other things, on the adoption of the Merger Agreement Proposal by the affirmative vote of holders of a
majority of the ARRIS shares outstanding and entitled to vote, the completion of the Pace Acquisition and the
completion of certain internal steps that New ARRIS and ARRIS Holdings have committed to take relating to
the issuance of the New ARRIS ordinary shares as Merger Consideration.
The diagrams below illustrate in a simplified manner ARRIS’, Pace’s and New ARRIS’ corporate structure
before and after the completion of the Combination.
Pre-Combination Structure
48
TABLE OF CONTENTS
Post-Combination Structure
49
TABLE OF CONTENTS
COMPANIES INVOLVED IN THE COMBINATION
In the Combination, ARRIS and Pace will each become wholly-owned subsidiaries of New ARRIS, and
ARRIS stockholders and Pace shareholders will become New ARRIS shareholders.
ARRIS
ARRIS is a global provider of entertainment and communications solutions. It operates in two business
segments: Customer Premises Equipment and Network & Cloud. It enables service providers, including cable,
telephone, and digital broadcast satellite operators, and media programmers to deliver media, voice, and IP data
services to their subscribers.
ARRIS is a leader in set tops, digital video and Internet Protocol Television distribution systems,
broadband access infrastructure platforms, and associated data and voice CPE, which it also sells directly to
consumers through retail channels. ARRIS’ solutions are complemented by a broad array of services including
technical support, repair and refurbishment, and system design and integration.
ARRIS was organized as a corporation under the laws of the State of Delaware. ARRIS’ principal executive
offices are located at 3871 Lakefield Drive, Suwanee, Georgia 30024 and its telephone number at that address is
+1 (678) 473-2000. ARRIS employs approximately 6,660 people globally in manufacturing and warehouse
facilities, research and development, administrative and sales offices in various locations. ARRIS’ common
stock is listed on NASDAQ and trades under the symbol “ARRS.”
Pace
Pace is a leading technology developer for the global Pay TV industry, working across satellite, cable, IPTV
and terrestrial platforms. Pace has highly experienced specialist engineering teams, developing intelligent and
innovative products and services for both Pay TV operators and Telcos across the world.
Pace has built up its experience and expertise over 30 years and enjoys a customer base of over 200
operators around the globe (including eight of the world’s largest Pay TV operators).
Pace’s principal activities are the development, design and distribution of technologies, products and
services for managed subscription television, telephony and broadband services and the provision of
engineering design and software applications to its customers. It also provides related support services including
consulting, systems integration and customer care centers.
Pace was founded in 1982 and is registered in England and Wales. Pace’s principal executive offices are
located at Victoria Road, Saltaire, West Yorkshire, BD18 3LF, England and its telephone number at that address
is +44 (0)1274 532000. It employs over 2,000 people in locations around the world, including France, the USA,
Brazil, India and China. Pace is a member of the FTSE 250 and listed on the Official List of the LSE and trades
under the symbol “PIC.”
New ARRIS
New ARRIS is a private limited company incorporated under the laws of England and Wales. New ARRIS
was incorporated on April 20, 2015, under the name “Archie ACQ Limited,” for the purpose of effecting the
Combination. On June 15, 2015, Archie ACQ Limited changed its name to “ARRIS International Limited.” New
ARRIS has not conducted any business operations other than those incidental to its formation and in connection
with the transactions contemplated by the Merger Agreement and the Pace Acquisition (including the financing
arrangements entered into in connection with the Combination). As of the date of this proxy
statement/prospectus, New ARRIS does not beneficially own any Pace ordinary shares. Prior to completion of
the Combination, New ARRIS will be converted into a public limited company named ARRIS International plc
and following the Combination, it is expected that New ARRIS ordinary shares will be listed on NASDAQ under
the symbol “ARRS.”
The principal executive offices of New ARRIS are located at 3871 Lakefield Drive, Suwanee, Georgia
30024 and its telephone number at that address is +1 (678) 473-2000.
New ARRIS’ registered office address is 20-22 Bedford Row, London, WC1R4JS.
50
TABLE OF CONTENTS
ARRIS Holdings
ARRIS Holdings is a Delaware limited liability company formed in Delaware on April 21, 2015 and a direct
wholly-owned subsidiary of New ARRIS. ARRIS Holdings has not conducted any business operations other than
those incidental to its formation and in connection with the transactions contemplated by the Merger
Agreement. Prior to the completion of the Merger, ARRIS Holdings will be converted into a Delaware
corporation. ARRIS Holdings’ principal executive office is located at 3871 Lakefield Drive, Suwanee, Georgia
30024 and its telephone number at that address is +1 (678) 473-2000. ARRIS Holdings was formed in order to
serve as a holding company for ARRIS’ U.S. operations following completion of the Combination.
Merger Sub
Merger Sub is a Delaware limited liability company formed on April 21, 2015, and a direct wholly-owned
subsidiary of ARRIS Holdings. Merger Sub has not conducted any business operations other than those
incidental to its formation and in connection with the transactions contemplated by the Merger Agreement.
Merger Sub’s principal executive office is located at 3871 Lakefield Drive, Suwanee, Georgia 30024 and its
telephone number at that address is +1 (678) 473-2000. Merger Sub was formed in order to facilitate the Merger
under the DGCL, whereby ARRIS would ultimately be a subsidiary of New ARRIS.
51
TABLE OF CONTENTS
BACKGROUND AND REASONS FOR THE COMBINATION
Background of the Combination
The ARRIS Board and management team regularly review ARRIS’ growth strategy and related strategic
alternatives in light of the company’s performance and the current business environment. ARRIS’ growth
historically has come through a combination of both organic product growth as well as acquisitions, such as its
acquisition of the Motorola Home business from Google in 2013. As part of its growth strategy, ARRIS
continually evaluates other businesses that it believes could further improve ARRIS’ performance through
enhanced or accelerated product development, geographic diversification and/or enhanced scale. As part of this
process, ARRIS often will engage with management of various companies to discuss, on an informal basis,
whether or not the company has any interest in combining with ARRIS.
In furtherance of this process, from time to time Mike Pulli, the CEO of Pace, and Robert Stanzione,
Chairman and CEO of ARRIS, have had informal conversations regarding the state of the industry and have
mentioned a potential transaction involving the two companies. These high-level discussions were never
focused on a combination of the two companies and never previously reached the point of any specific
transaction or financial terms being proposed by either company.
In late February 2015, a meeting was scheduled for Messrs. Pulli and Stanzione. In preparation for the
meeting, Mr. Stanzione discussed the proposed meeting with Evercore, and Evercore provided Mr. Stanzione
with certain publicly available information regarding Pace and preliminary analyses regarding the two
companies and a possible combination. Messrs. Pulli and Stanzione subsequently met at the Atlanta airport on
March 9, 2015. At that meeting Mr. Pulli indicated that Pace was considering strategic alternatives, including
potential acquisitions, but that he thought it would be in his shareholders’ interests to also consider a possible
combination of Pace with ARRIS. The preliminary discussions at the March 9 th meeting focused on whether a
combination of the two companies made strategic sense at that point in time and was capable of being
implemented.
Following the meeting, ARRIS requested that Evercore reach out to Pace’s financial advisor, J.P. Morgan, to
discuss potential next steps if ARRIS decided to move forward. ARRIS management, advised by Evercore and
ARRIS’ legal advisors, continued to evaluate the possible transaction following the March 9 th meeting. In
connection with this preliminary evaluation, ARRIS management discussed with Evercore initial indicative
ranges of valuation for Pace based on publicly available information, and the potential form of consideration for
any transaction (cash, stock or a combination of the two). ARRIS management also discussed with Evercore and
ARRIS’ legal advisors possible structures for completing an acquisition, and the UK takeover process and
differences compared to acquisitions under the U.S. process. As part of these preliminary analyses, ARRIS
management and its advisors discussed the potential movement of ARRIS’ country of organization and primary
tax jurisdiction as part of the transaction.
The ARRIS Board met on March 18, 2015. As part of that meeting, Mr. Stanzione discussed with the ARRIS
Board his March 9 th meeting with Mr. Pulli and ARRIS’ preliminary evaluation regarding Pace. Mr. Stanzione
reminded the ARRIS Board that Pace was one of the companies that ARRIS had considered as a potential
acquisition target from time to time. The ARRIS Board discussed, among other things, strategic benefits,
financing alternatives, accretion and growth aspects of a transaction with Pace, together with other strategic
alternatives. As part of the discussion, it was noted that Pace’s financial position had improved dramatically over
the prior three years and that it appeared poised for additional growth. Given that growth potential and
Mr. Stanzione’s discussions with Mr. Pulli, the ARRIS Board agreed with management’s recommendation to
continue its due diligence review and discussions with Pace.
Following the March 18 th ARRIS board meeting, Mr. Stanzione advised Mr. Pulli that ARRIS was
interested in continuing discussions with Pace regarding a potential transaction and conducting a preliminary
diligence review. Mr. Stanzione indicated that ARRIS intended to send to Pace (and did following the
conversation) a non-disclosure agreement (the “NDA”), and logistics for due diligence meetings were discussed.
Subsequent to that conversation, Pace, through J.P. Morgan, requested a written indication of interest with a
specific non-binding proposal from ARRIS in order to proceed. Also during this time, ARRIS and Pace
negotiated the terms of the NDA. ARRIS, with the assistance of its advisors, continued to evaluate Pace using
publicly-available information, as well as to review the benefits and risks
52
TABLE OF CONTENTS
associated with the acquisition, including the prospects of the combined company, regulatory approvals needed
(including antitrust approvals), the transaction structure and the consideration to be offered. ARRIS and Pace
executed the NDA as of March 31, 2015 (which was later amended and restated on April 20, 2015).
At a March 24, 2015 meeting, the ARRIS Board reviewed the analysis prepared by management with
respect to strategy, valuation, structuring options (including tax structuring), and financing opportunities
relating to a transaction with Pace and authorized management to deliver a non-binding indication of interest to
Pace. On March 26, 2015, ARRIS delivered a non-binding indication of interest to purchase Pace in a price
range of 415 to 435 pence per share ($6.16 to $6.46 per share at the then exchange rate), with approximately
70% of the consideration in ARRIS shares and 30% in cash, which would provide the Pace shareholders
ownership of 25% of the combined company’s equity and a 25% to 31% premium over the latest closing price.
The Pace Board met to consider the proposal and authorized Pace management to continue to work with ARRIS
towards a combination and to allow further due diligence by ARRIS. A due diligence session was scheduled for
April 1, 2015, in Boca Raton, Florida.
On March 30, 2015, ARRIS contacted the Bank of America to lead the company’s effort to obtain
commitments for the desired financing for the cash portion of the purchase price and otherwise to amend and
extend the ARRIS existing credit facility.
Due diligence meetings were conducted in Boca Raton, Florida on April 1 and 2, 2015, which included
management presentations and the exchange of certain documents and financial information, and Pace
subsequently provided limited follow-up information. Pace personnel also conducted due diligence with respect
to ARRIS during this period. ARRIS management, together with the assistance of its advisors, analyzed the due
diligence findings and further revised the analysis and valuation of the transaction.
On April 8, 2015, a meeting of the ARRIS Board was held to review the possible transaction. Due diligence
findings were reviewed, along with revisions and refinements to the analysis and valuation of the transaction. In
addition, the advantages and risks of an inversion transaction, whereby New ARRIS would become a UK
company, were discussed. The implications of becoming a UK company and the fiduciary duties of the directors
in connection with the consideration and approval of a transaction were reviewed in detail. Following these
discussions, the ARRIS Board approved a revised non-binding offer. The revised offer was presented to Pace on
April 9, 2015, providing for total per share compensation of 420 pence ($6.19 at the then exchange rate)
consisting of 125 pence ($1.85 at the then exchange rate) in cash and 295 pence ($4.35 at the then exchange
rate) of New ARRIS shares (based on a fixed exchange ratio using the closing price of ARRIS shares just prior to
the announcement of the transaction). This revised offer represented a premium of 20% to the Pace share price
immediately preceding the date of the offer and approximately 21% to the 90 day weighted average Pace share
price as of such date and provided that Pace shareholders would own approximately 25% of New ARRIS. The
revised offer also contemplated that New ARRIS would be tax domiciled in either the UK or Ireland.
On April 9, 2015, ARRIS entered into an engagement letter with Evercore confirming Evercore’s
engagement to serve as ARRIS’ financial advisor with respect to the Combination.
The Pace Board met to consider the ARRIS revised proposal on April 10, 2015. After further negotiations,
by letter dated April 11, 2015, and delivered on April 12, 2015, the merger consideration per share was increased
to 427.5 pence ($6.26 at the then exchange rate), consisting of 132.5 pence ($1.94 at the then exchange rate) in
cash and 295 pence ($4.32 at the then exchange rate) in shares of New ARRIS (based on a fixed exchange ratio
using the closing price of ARRIS shares just prior to the announcement of the transaction). The latest proposal
also included the payment to Pace of a $12 million fee if the transaction failed to close for certain reasons,
including failure to obtain necessary antitrust clearances. The proposal was subject to further due diligence, and
the parties scheduled an additional session for due diligence at the Pace headquarters in Saltaire, England.
The scheduled additional due diligence meetings were conducted on April 14 and 15, 2015, with follow up
conferences on April 16, 2015. In addition, the parties continued to exchange additional documents as part of
the due diligence process. The diligence findings were reviewed by ARRIS with the assistance of its advisors
and additional refinements to the analysis and valuation of the transaction were made. ARRIS and
53
TABLE OF CONTENTS
Pace, with assistance of their legal counsel, also began negotiation of the Co-operation Agreement and the Rule
2.7 Announcement and began discussions regarding the irrevocable undertakings. The ARRIS Board held two
additional meetings on April 20 and 22, 2015, to consider the current information about the transaction.
At the April 20, 2015, meeting, the ARRIS Board was provided with an update of the results of the due
diligence efforts, the anticipated antitrust filings, as well as updates on the proposed financing and expected
transaction costs. The ARRIS Board again reviewed the benefits and risks associated with the transaction,
including the differences between UK and Delaware corporate law, the advantages and risks of the contemplated
tax inversion, and the financial model and risks and opportunities associated with the model. In addition, the
ARRIS Board was presented information regarding, and discussed, cash flow and likely debt pay down,
accretion from the transaction, and synergy opportunities and risks. Representatives of Evercore reviewed their
fairness opinion process and the preliminary conclusions of Evercore’s financial analysis.
The parties continued to negotiate the definitive terms of the Co-operation Agreement, the Rule 2.7
Announcement and the Merger Agreement. As part of these negotiations, the parties agreed to a one pence
reduction in the per share purchase price and an increase in the termination fee to $20 million if the failure to
consummate the transaction related to certain regulatory conditions or a change in recommendation to approve
the transaction by the ARRIS Board. The final offer represented an approximately 28% premium to the Pace
share price immediately preceding the date of the offer and approximately 23% to the 90 day weighted average
Pace share price as of such date and would result in Pace shareholders owning approximately 24% of New
ARRIS.
On April 22, 2015, the transaction was reviewed again at an ARRIS Board meeting. The materials
previously distributed to and reviewed by the ARRIS Board and tentative conclusions of the ARRIS Board were
discussed. A representative from Evercore reviewed the various analyses performed by Evercore in connection
with its fairness opinion and rendered an oral fairness opinion (subsequently confirmed in writing) as more fully
described below. The near-final Co-operation Agreement, Rule 2.7 Announcement and Merger Agreement and
stockholder communication plans were reviewed and discussed. Following a lengthy discussion, the ARRIS
Board approved the Combination and related documents. The Pace Board also met and approved the
Combination and related documents on April 22, 2015. The Co-operation Agreement and the Merger Agreement
were signed, the Rule 2.7 Announcement was issued and the Combination was announced later that day.
Reasons for the Combination
At its meeting on April 22, 2015, the ARRIS Board determined that the Combination is fair to and in the
best interests of ARRIS and its stockholders. Accordingly, the ARRIS Board unanimously recommends that
ARRIS stockholders vote “FOR” approval of the Merger Agreement Proposal. In arriving at its determination, as
described above, the ARRIS Board consulted with ARRIS’ management and outside financial, accounting and
legal advisors and considered a number of factors that it believed supported its determinations. These positive
factors included the ARRIS Board’s belief that:
•
the Combination will provide ARRIS with a large scale entry into the satellite segment and increase
ARRIS’ speed of innovation by enhancing the company’s scope and scale, giving it the ability to
invest in innovative technologies and customer responsiveness, enabling it to maintain pace with
recent consolidation among operators and increase volumes across a broad array of product cost tiers
and creating manufacturing and procurement efficiencies;
•
the Combination will significantly enhance ARRIS’ international presence and diversify ARRIS’
geographic and customer footprint;
•
the Combination will diversify and broaden ARRIS’ customer base and increase ARRIS’ portfolio
across equipment, software and services and add Pace’s world-class technology and employees to the
ARRIS organization;
•
the Combination will build on ARRIS’ recent acquisitions and position the company for future
growth; and
54
TABLE OF CONTENTS
•
the Combination will result in compelling financial benefits, including expected pro forma revenues
of approximately $8 billion, an expected increase in non-GAAP earnings per share, a reduction in nonGAAP tax rate, significant synergy opportunities from the optimization of back-office infrastructure,
component procurement and go-to-market efficiencies, and the removal of Pace’s public company
costs while allowing ARRIS to maintain flexibility in its capital structure to support future growth.
In considering the structure of the Combination, the ARRIS Board noted that the Combination has been
structured in such a way as to bring ARRIS and Pace together under common ownership while allowing both
entities’ legal corporate status to survive. New ARRIS was incorporated in the United Kingdom because a UK
incorporation was deemed to be the most efficient and beneficial for the combined company with respect to the
future growth of the company, financial and global cash management flexibility and a lower tax rate. The United
Kingdom enjoys strong relationships as a member of the European Union, and has a long history of international
investment and a good network of commercial, tax, and other treaties with the United States, the European
Union and many other countries where both ARRIS and Pace operate. Incorporation in the United Kingdom is
expected to result in enhanced global cash management flexibility, including access to both ARRIS’ and Pace’s
non-U.S. cash flow without negative tax effects, compared to incorporation in the United States, so long as New
ARRIS’ status as a non-U.S. corporation is respected for U.S. federal tax purposes. However, future U.S.
regulatory or legislative action may adversely impact whether New ARRIS’ status as a non-U.S. corporation is
respected for U.S. federal tax purposes.
The expected non-GAAP tax rate for New ARRIS for the year ended December 31, 2016, based on the
information available to management as of April 22, 2015, is 26% to 28%, which is lower than ARRIS’
standalone pre-acquisition projected 2015 full year non-GAAP tax rate of 35%. Based on the information
available to management as of April 22, 2015, the expected GAAP effective tax rate for New ARRIS for the year
ended December 31, 2016 is approximately 15% to 18%. The non-GAAP tax rate reflects certain adjustments to
pre-tax book income and tax expense for certain non-cash and non-recurring charges such as amortization, stock
based compensation and integration costs, which adjustments are consistent with the adjustments used by
ARRIS in determining non-GAAP measures in other contexts. ARRIS’ GAAP effective tax rate for the six-month
period ended June 30, 2015 was 34.4%.
In addition, the ARRIS Board noted that following the Combination the board of directors of New ARRIS
will consist of the ten current directors of ARRIS, and the CEO and CFO of ARRIS will remain as the CEO and
CFO of New ARRIS.
The ARRIS Board also considered ARRIS’ strategic alternatives to the Combination for maximizing
stockholder value over the long-term, including the alternative of relying primarily on organic growth, and the
potential risks, rewards and uncertainties associated with such alternatives, including management’s standalone
plan. The ARRIS Board concluded that the proposed Combination with Pace is the most attractive option
available to ARRIS and its stockholders.
The ARRIS Board also considered (i) the opinion of Evercore rendered to the ARRIS Board that, as of
April 22, 2015, and based upon and subject to the assumptions, procedures, factors, qualifications and
limitations set forth in Evercore’s written opinion, the Merger Consideration to be received by the holders of
ARRIS shares in the Combination (after giving effect to the completion of the Pace Acquisition) is fair, from a
financial point of view, to such holders, and (ii) the related presentation and financial analysis of Evercore
provided to the ARRIS Board in connection with the rendering of its opinion, as more fully described in the
section entitled “Opinion of Evercore — Financial Advisor to ARRIS” beginning on page 56.
The ARRIS Board weighed the above factors and considerations against a number of uncertainties, risks,
and potentially negative factors relevant to the Combination, including:
•
that the fixed number of New ARRIS shares to be issued per Pace share will not adjust to compensate
for changes in the price of ARRIS shares or Pace shares prior to the closing of the Combination;
•
the adverse impact that business uncertainty pending the consummation of the Combination could
have on Pace’s ability to attract, retain, and motivate key personnel until the consummation of the
Combination;
55
TABLE OF CONTENTS
•
the risks related to the fact that the Combination might not be completed in a timely manner or at all,
including that failure to complete the Combination could cause ARRIS to incur significant expenses
(including any required termination fee or expense reimbursements) and/or lead to negative
perceptions among investors;
•
that the Takeover Code limits the contractual commitments that could be obtained from Pace to take
actions in furtherance of the Combination, and the Pace Board may, if its fiduciary duties so require,
withdraw its recommendation in support of the Scheme at any time before the Court hearing to
sanction the Scheme. The Takeover Code does not permit Pace to pay any termination fee if it does so,
nor can it be subject to any restrictions on soliciting or negotiating other offers or transactions
involving Pace other than the restrictions under the Takeover Code against undertaking actions or
entering into agreements that are similar to, or have a similar effect to, “poison pills” and that might
frustrate ARRIS’ offer for Pace;
•
that the Takeover Code provides that certain conditions may be invoked only where the circumstances
underlying the failure of the condition are of material significance to ARRIS in the context of the Pace
Acquisition. Therefore, with the exceptions of certain conditions relating to the approval of the
Scheme by Pace shareholders and the Court, ARRIS will be required to obtain agreement of the
Takeover Panel in order to exercise its right to invoke the failure of a condition, and that there is no
assurance the Takeover Panel would so agree;
•
the challenges inherent in the combination of two businesses of the size and scope of ARRIS and Pace,
including the possibility that the anticipated cost savings, synergies and other benefits sought to be
obtained by the Combination might not be achieved in the time frame contemplated or at all;
•
that the IRS may assert that New ARRIS should be treated as a U.S. corporation (and, therefore, a U.S.
tax resident) for U.S. federal income tax purposes pursuant to the current Section 7874;
•
the risk that changes to relevant tax laws, including Section 7874, could cause New ARRIS to be
treated as a U.S. domestic corporation for U.S. federal tax purposes following the Combination, or
could otherwise have negative effects on New ARRIS or its subsidiaries or affiliates;
•
the degree to which New ARRIS will be leveraged following the Combination and the related
consequences to shareholders of New ARRIS, including, but not limited to, potentially (i) increasing
New ARRIS’ vulnerability to, and reducing its flexibility to respond to, general adverse economic and
industry conditions and developments; (ii) placing New ARRIS at a competitive disadvantage as
compared to its competitors, to the extent that the latter are not as highly leveraged as New ARRIS; or
(iii) limiting the ability of New ARRIS to borrow additional funds and increasing the cost of any such
borrowing; and
•
the risks of the type and nature described in the sections of this proxy statement/prospectus entitled
“Risk Factors,” beginning on page 20 and “Forward-Looking Statements,” beginning on page 38.
The foregoing discussion of the information and factors considered by the ARRIS Board is not exhaustive
but is intended to reflect the material factors considered by the ARRIS Board in its consideration of the
Combination. In view of the large number of factors considered and their complexity, the ARRIS Board, both
individually and collectively, did not find it practicable to, and did not attempt to, quantify or assign any
relative or specific weight to the various factors. Rather, the ARRIS Board based its recommendation on the
totality of the information presented to and considered by it. In addition, individual members of the ARRIS
Board may have given different weights to different factors.
The foregoing discussion of the information and factors considered by the ARRIS Board is forward-looking
in nature. This information should be read in light of the factors described under the section entitled “ForwardLooking Statements” beginning on page 38.
Opinion of Evercore — Financial Advisor to ARRIS
ARRIS retained Evercore to act as its financial advisor. As part of this engagement, ARRIS requested that
Evercore evaluate the fairness, from a financial point of view, of the Merger Consideration to be
56
TABLE OF CONTENTS
received by the holders of ARRIS shares in the Combination (after giving effect to the completion of the Pace
Acquisition). At a meeting of the ARRIS Board held to evaluate the Combination on April 22, 2015, Evercore
rendered an oral opinion to the ARRIS Board, subsequently confirmed in writing, to the effect that, as of such
date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth
in Evercore’s written opinion, the Merger Consideration to be received by the holders of ARRIS shares in the
Combination (after giving effect to the completion of the Pace Acquisition) is fair, from a financial point of
view, to such holders.
The full text of Evercore’s written opinion, dated April 22, 2015, which sets forth, among other things,
the assumptions made, procedures followed, matters considered and qualifications and limitations on the
scope of review undertaken by Evercore in rendering its opinion, is attached as Annex E to this proxy
statement/​prospectus and is incorporated herein by reference. Evercore’s opinion does not constitute a
recommendation to the ARRIS Board or to any other persons in respect of the Combination, including as to
how any holder of ARRIS shares should vote or act in respect of the Combination. We encourage you to read
Evercore’s opinion carefully and in its entirety.
Evercore’s opinion was provided for the benefit of the ARRIS Board and was rendered to the ARRIS
Board in connection with its evaluation of whether the Merger Consideration to be received by the holders of
ARRIS shares in the Combination (after giving effect to the completion of the Pace Acquisition) is fair, from
a financial point of view, to such holders, and did not address any other aspects of the Combination.
Evercore’s opinion necessarily was based upon information made available to Evercore as of the date
of Evercore’s opinion and financial, economic, market and other conditions as they existed and could be
evaluated on the date of Evercore’s opinion. Evercore has no obligation to update, revise or reaffirm its
opinion based on subsequent developments. Evercore’s opinion did not express any opinion as to the price at
which the shares of ARRIS or Pace will trade at any time.
In connection with its engagement, Evercore was not authorized to, and did not, solicit indications of
interest from third parties regarding a potential transaction with ARRIS, and its opinion did not address the
relative merits of the Combination as compared to any other transaction or business strategy in which ARRIS
might engage or the merits of the underlying decision by ARRIS to engage in the Combination.
The following is a summary of Evercore’s opinion. We encourage you to read Evercore’s written opinion
carefully in its entirety:
In connection with its opinion, Evercore:
•
reviewed certain publicly available business and financial information relating to each of ARRIS and
Pace that Evercore deemed to be relevant, including publicly available research analysts’ estimates;
•
reviewed certain non-public projected financial and operating data relating to ARRIS prepared and
furnished by management of ARRIS;
•
reviewed certain publicly available projected financial and operating data relating to Pace, including
publicly available research analysts’ estimates;
•
reviewed the projected synergies and other benefits, including the amount and timing of realization
thereof, anticipated by the management of ARRIS to be realized from the Combination;
•
discussed with management of ARRIS the past and current operations, financial projections (including
publicly available research analysts’ estimates) and current financial condition of each of ARRIS and
Pace (including their views on the risks and uncertainties of achieving such projections);
•
discussed with management of Pace the past and current operations, publicly available financial
projections (including publicly available research analysts’ estimates) and current financial condition
of Pace (including their views on the risks and uncertainties of achieving such projections);
57
TABLE OF CONTENTS
•
discussed with management of ARRIS the projected operating synergies, other strategic benefits and
tax synergies and benefits, including the amounts and timing of realization thereof, anticipated by
management of ARRIS to be realized from the Combination (including their views on the risks and
uncertainties of realizing such synergies and other benefits);
•
reviewed the reported prices and the historical trading activity of the ARRIS shares and the Pace
shares;
•
compared the financial performance of ARRIS and Pace and their respective stock market trading
multiples with those of certain other publicly traded companies that Evercore deemed relevant;
•
compared the financial performance of ARRIS and the valuation multiples relating to the
Combination with those of certain other transactions that Evercore deemed relevant;
•
reviewed the potential pro forma financial impact of the Combination on the future financial
performance of New ARRIS, based on the projected financial data relating to each of ARRIS and Pace
referred to above, including the projected tax synergies and benefits, operating synergies and other
strategic benefits, including the amounts and timing of realization thereof, anticipated by management
of ARRIS to be realized from the Combination;
•
reviewed the financial terms and conditions of drafts of the Merger Agreement, the Co-operation
Agreement and the Rule 2.7 Announcement (collectively, the “Transaction Documents”); and
•
performed such other analyses and examinations and considered such other factors that Evercore
deemed appropriate.
For purposes of its analysis and opinion, Evercore assumed and relied upon, without undertaking any
independent verification of, the accuracy and completeness of all of the information publicly available, and all
of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, and
Evercore assumes no liability therefor. At the direction of ARRIS management, for purposes of its analysis and
opinion, Evercore utilized and relied upon certain composite projected financial and operating data for Pace
derived from publicly available research analysts’ estimates.
With respect to the projected financial data relating to ARRIS and Pace referred to above, including those
relating to the projected synergies and other benefits anticipated by management of ARRIS to be realized from
the Combination, Evercore assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and good faith judgments as to the future financial performance of ARRIS and
Pace, respectively, and such synergies and other benefits. Evercore expressed no view as to any projected
financial data relating to ARRIS or Pace or the assumptions on which they are based. Evercore relied, at the
direction of ARRIS management, without independent verification, upon the assessments of management of
ARRIS as to whether the projected tax synergies and benefits, operating synergies and other strategic benefits,
including the amounts and timing of realization thereof, anticipated by management of ARRIS to be realized
from the Combination are reasonable, and whether the anticipated synergies and other benefits will be realized
in accordance with such projections.
For purposes of rendering its opinion, Evercore assumed, in all respects material to its analysis, that the
representations and warranties of each party contained in the Transaction Documents are true and correct, that
each party will perform all of the covenants and agreements required to be performed by it under those
documents and that all conditions to the consummation of the Combination will be satisfied without material
waiver or modification thereof. Evercore further assumed that all governmental, regulatory or other consents,
approvals or releases necessary for the consummation of the Combination will be obtained without any material
delay, limitation, restriction or condition that would have an adverse effect on ARRIS or Pace or the
consummation of the Combination or materially reduce the benefits of the Combination to the holders of the
ARRIS shares. Evercore did not express any opinion as to any tax or other consequences that might result from
the Combination, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which
Evercore understands that ARRIS has obtained such advice as ARRIS deemed necessary from qualified
professionals.
58
TABLE OF CONTENTS
Evercore did not make nor assume any responsibility for making any independent valuation or appraisal of
the respective assets or liabilities of ARRIS or Pace, nor was it furnished with any such appraisals, nor did it
evaluate the solvency or fair value of either ARRIS or Pace under any state or federal laws relating to
bankruptcy, insolvency or similar matters.
Evercore was not asked to pass upon, and expressed no opinion with respect to, any matter other than the
fairness to the holders of ARRIS shares, from a financial point of view, of the Merger Consideration to be
received by such holders in the Combination. Evercore did not express any view on, and its opinion did not
address, the fairness of the Combination to, or any consideration received in connection therewith by, the
holders of any other securities, creditors or other constituencies of ARRIS, nor as to the fairness of the amount or
nature of any compensation to be paid or payable to any of the officers, directors or employees of ARRIS, or any
class of such persons, whether relative to the Merger Consideration or otherwise. Evercore did not express any
view on, and its opinion did not address, any other terms or other aspects of the Combination, including, without
limitation, the form or structure of the Combination, the terms and conditions of the Transaction Documents or
any other agreements or arrangements entered into or contemplated in connection with the Combination.
Evercore’s opinion did not address the relative merits of the Combination as compared to other business or
financial strategies that might be available to ARRIS, nor did it address the underlying business decision of
ARRIS to engage in the Combination. Evercore is not a legal, regulatory, accounting or tax expert and assumed
the accuracy and completeness of assessments by ARRIS and its advisors with respect to legal, regulatory,
accounting and tax matters.
Summary of Material Financial Analysis
The following is a brief summary of the material financial and comparative analyses that Evercore deemed
to be appropriate for this type of transaction and that were reviewed with the ARRIS Board in connection with
rendering Evercore’s opinion. The summary of Evercore’s financial analyses described below is not a complete
description of the analyses underlying its opinion. The preparation of a financial opinion is a complex
analytical process involving various determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description.
In arriving at its opinion, Evercore did not draw, in isolation, conclusions from or with regard to any factor
or analysis considered by it. Rather, Evercore made its determination as to fairness on the basis of its experience
and professional judgment after considering the results of all of the analyses. Considering selected portions of
the analyses and reviews in the summary set forth below, without considering the analyses and reviews as a
whole, could create an incomplete or misleading view of the analyses and reviews underlying Evercore’s
opinion.
For purposes of its analyses and reviews, Evercore considered industry performance, general business,
economic, market and financial conditions and other matters, many of which are beyond the control of ARRIS
and Pace. No company, business or transaction used in Evercore’s analyses and reviews as a comparison is
identical to ARRIS or Pace or the Combination, and an evaluation of the results of those analyses and reviews is
not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, businesses or transactions used in Evercore’s analyses and reviews. The
estimates contained in Evercore’s analyses and reviews and the ranges of valuations resulting from any
particular analysis or review are not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested by Evercore’s analyses and
reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not
purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold.
Accordingly, the estimates used in, and the results derived from, Evercore’s analyses and reviews are inherently
subject to substantial uncertainty.
The summary of the analyses and reviews provided below includes information presented in tabular
format. In order to fully understand Evercore’s analyses and reviews, the tables must be read together with
the full text of each summary. The tables alone do not constitute a complete description of Evercore’s
analyses and reviews. Considering the data in the tables below without considering the full description of the
analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews,
could create a misleading or incomplete view of Evercore’s analyses and reviews.
59
TABLE OF CONTENTS
Except as otherwise noted, the following quantitative information, to the extent that it is based on market
data, is based on market data as it existed on or before April 21, 2015 and is not necessarily indicative of current
market conditions. Throughout its analyses, where applicable, Evercore converted pounds to dollars utilizing an
exchange rate of $1.4928 per £1.00.
Discounted Cash Flow Analysis
Pace
Evercore performed a discounted cash flow analysis of Pace to calculate the estimated present value of the
standalone unlevered, after-tax free cash flows that Pace was projected to generate from September 30, 2015
(which was the earliest anticipated date for the completion of the Combination) through calendar year 2018, in
each case, based on publicly available projected financial and operating data relating to Pace for calendar year
2015, composite financial projections for Pace derived from publicly available research analysts’ estimates (the
“Consensus Projections”) and assumptions provided by the management of ARRIS. Evercore also calculated a
terminal value for Pace by applying a perpetuity growth rate, based on its professional judgment given the
nature of Pace and its business and industry, of (2.0%) to 0.0%, to the projected standalone unlevered, after-tax
free cash flows of Pace in the terminal year. The cash flows and the terminal value were then discounted to
present value using a discount rate of 9.0% to 11.0%, based on an estimate of Pace’s weighted average cost of
capital, to derive a range of implied enterprise values for Pace. A range of implied equity values for Pace was
then calculated by reducing the range of implied enterprise values by the amount of Pace’s projected net debt
(calculated as debt less cash and cash equivalents) as of September 30, 2015. Evercore performed this analysis
for Pace (i) on a standalone basis and (ii) with the inclusion of operating (but not tax) synergies estimated by
ARRIS management to be realized from the Combination, attributing 100% of the value of such synergies to
Pace. Evercore’s analysis indicated an implied per-share equity value reference range for Pace on a standalone
basis of approximately £3.53 to £4.88. Evercore’s analysis with the inclusion of operating (but not tax)
synergies, attributing 100% of the value of such synergies to Pace, indicated an implied per-share equity value
reference range for Pace of approximately £3.78 to £5.21.
Evercore also performed the discounted cash flow analysis outlined above with the inclusion of the net
present value of tax synergies (in addition to operating synergies) projected by the management of ARRIS as a
result of the Combination (i) through calendar year 2019 and (ii) on a perpetual basis, in each case, attributing
100% of the value of such synergies to Pace. Evercore indicated to the ARRIS Board that realization of such
projected tax benefits remains uncertain in light of potential future anti-inversion legislative and administrative
action. Evercore’s analysis with the inclusion of tax synergies (in addition to operating synergies) projected by
ARRIS management to be realized from the transaction, attributing 100% of the value of such synergies to Pace,
indicated an implied per-share equity value reference range for Pace of approximately £4.28 to £5.73 when
including the net present value of tax synergies through calendar year 2019 and approximately £5.25 to £6.70
when including the perpetual net present value of tax synergies.
ARRIS
Evercore performed a discounted cash flow analysis of ARRIS to calculate the estimated present value of
the standalone unlevered, after-tax free cash flows that ARRIS was projected to generate from September 30,
2015 through calendar year 2018, in each case, based on projections provided by the management of ARRIS.
Evercore also calculated a terminal value for ARRIS by applying a perpetuity growth rate, based on its
professional judgment given the nature of ARRIS and its business and industry, of (1.0%) to 1.0%, to the
projected standalone unlevered, after-tax free cash flows of ARRIS in the terminal year. The cash flows and the
terminal value were then discounted to present value using a discount rate of 8.5% to 10.5%, based on an
estimate of ARRIS’ weighted average cost of capital, to derive a range of implied enterprise values for ARRIS. A
range of implied equity values for ARRIS was then calculated by reducing the range of implied enterprise values
by the amount of ARRIS’ projected net debt (calculated as debt less cash and cash equivalents) as of
September 30, 2015. This analysis indicated an implied per share equity value reference range of approximately
$26.33 to $40.97 for ARRIS on a standalone basis.
60
TABLE OF CONTENTS
Implied Adjusted Exchange Ratio
Evercore calculated an implied adjusted exchange ratio reference range by dividing the high end of the
implied per share value reference range for Pace, less the 132.5 pence per-share cash consideration to be paid to
Pace shareholders in the Combination (the “Cash Consideration”), by the low end of the implied per share
equity value reference range for ARRIS indicated by the discounted cash flow analyses and by dividing the low
end of the implied per share equity value reference range for Pace, less the per share Cash Consideration, by the
high end of the implied per share equity value reference range for ARRIS indicated by the discounted cash flow
analyses. Utilizing the Consensus Projections, as well as assumptions provided by ARRIS management for Pace
on a standalone basis, this analysis indicated an implied exchange ratio reference range of 0.0804 to 0.2014 of a
New ARRIS ordinary share for each Pace share. Utilizing the Consensus Projections, as well as assumptions
provided by ARRIS management for Pace with the inclusion of operating (but not tax) synergies, and attributing
100% of the value of such synergies to Pace, the analysis indicated an implied exchange ratio reference range of
0.0893 to 0.2204 of a New ARRIS ordinary share for each Pace share. Evercore compared these exchange ratios
to the exchange ratio of 0.1455 of a New ARRIS ordinary share for each Pace share in the Combination.
Evercore also calculated an implied adjusted exchange ratio using the methodology outlined above
utilizing the Consensus Projections, as well as assumptions provided by ARRIS management for Pace with the
inclusion of tax synergies in addition to operating synergies and attributing 100% of the value of such synergies
to Pace. Evercore indicated to the ARRIS Board that, though based on the advice of ARRIS’ legal and tax
advisors, ARRIS management has concluded that realization of the projected tax synergies of the Combination
will not be negatively impacted by the notice issued by the U.S. Treasury and the IRS on September 22, 2014,
realization of such projected tax benefits remains uncertain in light of potential future anti-inversion legislative
and administrative action. This analysis indicated an implied exchange ratio reference range of 0.1078 to 0.2495
of a New ARRIS ordinary share for each Pace share with net present value of tax synergies through calendar year
2019 and 0.1432 to 0.3046 of a New ARRIS ordinary share for each Pace share with perpetual NPV of tax
synergies. Evercore compared these exchange ratios to the exchange ratio of 0.1455 of a New ARRIS ordinary
share for each Pace share in the Combination.
Selected Publicly Traded Companies Analyses
In performing a selected publicly traded companies analysis of Pace and ARRIS, Evercore reviewed
publicly available financial and market information for both companies and the selected public companies
listed in the table below (the “Selected Public Companies”), which Evercore deemed most relevant to consider
in relation to ARRIS and Pace, based on its professional judgment and experience, because they are public
companies with operations that for purposes of this analysis Evercore considered similar to the operations of one
or more of the business lines of ARRIS and Pace.
Evercore reviewed, among other things, enterprise values of the Selected Public Companies as a multiple of
estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”) for calendar year 2015 and
2016. EBITDA of all companies were adjusted to exclude stock-based compensation and extraordinary items.
Pace EBITDA was adjusted to include as an expense all estimated research and development expenses in
accordance with U.S. GAAP, including amounts currently capitalized and subsequently amortized by Pace under
IFRS. Enterprise values were calculated for purposes of this analysis as equity value (based on the per share
closing price of each selected public company on April 21, 2015 multiplied by the fully diluted number of such
company’s outstanding equity securities on such date), plus debt, plus minority interest, less cash and cash
equivalents (in the case of debt, minority interest, cash and cash equivalents, as set forth on the most recent
publicly available balance sheet of such company and in the case of minority interest, where applicable). The
financial data of the Selected Publicly Traded Companies used by Evercore for this analysis were based on
publicly available research analysts’ estimates and, in the case of Pace, on publicly available projected financial
and operating data relating to Pace for 2015, the Consensus Projections and assumptions provided by the
management of ARRIS, and in the case of ARRIS, on the financial projections provided to Evercore by ARRIS
management. The EBITDA multiple for each of the Selected Public Companies is set forth in the table below.
61
TABLE OF CONTENTS
Selected
Public Company
Sector
EV/2015E
EBITDA
EV/2016E
EBITDA ​
Cable Infrastructure/Software
Cable Infrastructure/Software
Cable Infrastructure/Software
Cable Infrastructure/Software
Cisco Systems
Ericsson
Rovi
Harmonic
7.4x
9.3x
11.1x
10.4x
7.2x
8.3x
8.6x
9.0x
Cable Infrastructure/Software
Kudelski
12.7x
12.2x
Cable Infrastructure/Software
SeaChange
NM
NM
Cable Infrastructure/Software
Vecima Networks
6.2x
NA
Cable Infrastructure/Software
Teleste
5.7x
5.3x
Set-top Box
ARRIS
7.6x
6.8x
Set-top Box
Technicolor
5.5x
6.5x
Set-top Box
TiVO
6.5x
5.2x
Set-top Box
Amino Technologies
7.1x
6.2x
Set-top Box
ADB Holdings
Gateway/Other CPE
NA
NA
Aruba
8.4x
7.4x
Gateway/Other CPE
NETGEAR
6.2x
5.8x
Gateway/Other CPE
D-Link
NA
NA
ARRIS
7.6x
6.8x
Pace
6.3x
6.1x
Reference:
Evercore then applied a reference range of multiples of 6.25x to 7.25x and 6.00x to 7.00x, derived by
Evercore based on its review of the Selected Public Companies and its experience and professional judgment, to
the estimated EBITDA for ARRIS and Pace for the fiscal year ending December 31, 2015 and the fiscal year
ending December 31, 2016, respectively. In the case of ARRIS, estimated EBITDA was based on the projections
provided by the management of ARRIS, and in the case of Pace, estimated EBITDA was based on publicly
available projected financial and operating data relating to Pace for 2015, the Consensus Projections and
assumptions provided by the management of ARRIS. This analysis indicated an implied equity value per share
reference range for ARRIS of approximately $24.69 to $29.35 and $27.14 to $32.41 and an implied equity value
per share reference range for Pace of approximately £3.55 to £4.10 and £3.56 to £4.14, in each case, using the
2015 and 2016 EBITDA multiples, respectively.
Implied Adjusted Exchange Ratio
Evercore calculated an implied adjusted exchange ratio reference range by dividing the high end of the
implied per share equity value reference range for Pace, less the Cash Consideration, by the low end of the
implied per share equity value reference range for ARRIS indicated by the selected publicly traded companies
analyses and by dividing the low end of the implied per share equity value reference range for Pace, less the
Cash Consideration, by the high end of the implied per share equity value reference range for ARRIS indicated
by the selected publicly traded companies analyses. This analysis indicated an implied exchange ratio reference
range of 0.1134 to 0.1678 of a New ARRIS ordinary share for each Pace share using 2015 EBITDA multiples and
an implied exchange ratio reference range of 0.1030x to 0.1545x of a New ARRIS ordinary share for each Pace
share using 2016 EBITDA multiples. Evercore compared these exchange ratios to the exchange ratio of 0.1455
of a New ARRIS ordinary share for each Pace share in the Combination.
Selected Precedent Transactions Analysis
Evercore reviewed, to the extent publicly available, financial information relating to 29 transactions
involving providers of cable infrastructure and software and manufacturers of set-top boxes, gateways and other
customer premise equipment. Based on its professional judgment and experience, Evercore deemed
62
TABLE OF CONTENTS
these transactions relevant to consider in relation to Pace and the Combination. Evercore selected these
transactions because they represented transactions of which Evercore was aware that were announced between
November 2005 and April 2015 involving companies in the cable infrastructure and software, set-top boxes,
gateway, and other customer premise equipment industry verticals, which Evercore considered, in its
professional judgment and experience, most relevant to the Combination.
No company, business or transaction used in this analysis is identical or directly comparable to Pace or the
Combination. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this
analysis involves complex considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition or other values of the companies, business
segments or transactions to which Pace or the Combination were compared.
Evercore reviewed transaction values and calculated the enterprise value implied for each target company
based on the consideration paid in the selected transaction, as a multiple of the target company’s last 12-months
(“LTM”) EBITDA (in each case, to the extent publicly available and calculated for the last 12 month period
available prior to the date of announcement of such transaction). The financial data used by Evercore for the
selected transactions were based on publicly available information at the time of announcement of the relevant
transaction.
Evercore’s analysis indicated average and median enterprise value to LTM EBITDA multiples of 10.5x and
9.3x, respectively. The enterprise value and enterprise value to LTM EBITDA multiples for each of the
precedent transactions are set forth in the table below.
Announcement Date
Acquirer
Target
​ ​
Enterprise
Enterprise
Value
Value/LTM
​ ​ (in millions) ​ ​ EBITDA ​
03/31/14
Parallax Capital Partners/​
StepStone Group
Rovi (DivX and MainConcept)
$
75
NA
03/26/14
02/06/14
01/29/14
10/23/13
Kudelski
Belden
TiVo
Pace
Conax
Grass Valley
Digitalsmiths
Aurora Networks(1)
$
$
$
$
250
220
135
310
6.2x
8.1x
NA
10.5x
04/08/13
02/19/13
12/19/12
12/06/12
03/15/12
10/11/11
12/22/10
07/26/10
07/26/10
05/06/10
10/05/09
06/27/08
12/19/07
10/28/07
Ericsson
Aurora Networks
ARRIS
Gores Group
Cisco Systems
ARRIS
Rovi
Pace
Francisco Partners
Harmonic
Kudelski
Permira Advisers
Pace
The Gores Group
Microsoft Mediaroom
Harmonic Cable Access Business
Motorola Mobility Home Business
Harris Broadcast Communications
NDS Group
BigBand Networks
Sonic Solutions
2Wire, Inc.
Grass Valley
Omneon
OpenTV (68% Stake)
NDS Group (51% Stake)
Royal Philips Set-Top Box Business
Sagem (Safran Broadband Sub)(2)
$ NA
$
46
$ 2,350
$ 225
$ 5,000
$
53
$ 720
$ 420
$ 100
$ 274
$ 102
$ 2,828
$ 144
$ 551
NA
NA
6.0x
NA
18.3x
NM
NM
NA
NM
NA
7.2x
12.2x
NM
4.0x
09/24/07
09/23/07
07/31/07
04/23/07
02/26/07
EchoStar
ARRIS
British Sky Broadcasting
Motorola
Ericsson
Sling Media
C-COR
Amstrad
Terayon
TANDBERG Television ASA
$ 380
$ 609
$ 198
$ 119
$ 1,416
NA
17.1x
5.1x
NM
17.8x
63
TABLE OF CONTENTS
Announcement Date ​ ​
Acquirer
Target
Enterprise
Value
(in millions)
Enterprise
Value/LTM
EBITDA ​
02/12/07
LM Ericsson
Entrisphere(3)
$
250
NA
12/04/06
11/14/06
01/17/06
11/18/05
NDS Group
Motorola
Motorola
Cisco Systems
Jungo
Netopia
Kreatel
Scientific-Atlanta
$ 108
$ 180
$ 108
$ 5,278
NA
NM
NA
12.9x
Notes:
(1) LTM financials as of 3/31/13
(2) Sagem financials reflect 2007E Revenue and EBIT from broker research estimates
(3) Entrisphere transaction value based on broker research estimates
Evercore then applied a reference range of LTM EBITDA multiples of 6.0x to 8.0x, derived by Evercore
based on its review of the precedent transactions and its experience and professional judgment, to the estimated
LTM EBITDA as of September 30, 2015 of Pace. A range of implied equity values for Pace was then calculated
by reducing the range of implied enterprise values by the amount of Pace’s projected net debt (calculated as debt
less cash and cash equivalents) as of September 30, 2015. This analysis indicated a per-share equity value
reference range of approximately £3.36 to £4.44 for Pace.
Other Factors
Evercore also reviewed and considered other factors, which were not considered part of its financial
analyses in connection with rendering its advice, but were referenced for informational purposes, including,
among other things, the analysts’ price targets, 52-week trading range and precedent premia analyses described
below.
Analyst Price Targets
Evercore reviewed publicly available share price targets of research analysts’ estimates known to Evercore
as of April 21, 2015, noting that the low and high share price targets ranged from $29.00 to $40.00 for ARRIS
and that the low and high share price targets ranged from £2.80 to £5.10 for Pace. Evercore calculated an implied
adjusted exchange ratio reference range by dividing the high end of the share price target range for Pace, less the
Cash Consideration, by the low end of the share price target range for ARRIS and by dividing the low end of the
share price target range for Pace, less the Cash Consideration, by the high end of the share price target range for
ARRIS. This analysis indicated an implied adjusted exchange ratio reference range of 0.0550 to 0.1943 of a New
ARRIS ordinary share for each Pace share as compared to the exchange ratio of 0.1455 of a New ARRIS ordinary
share for each Pace share in the Combination.
52-Week Trading Range
Evercore reviewed historical trading prices of Pace and ARRIS shares during the 52-week period ended
April 21, 2015, noting that the low and high closing prices during such period ranged from $23.71 to $35.83 for
ARRIS and £2.84 to £4.19 for Pace. Evercore calculated an implied adjusted exchange ratio reference range by
dividing the high end of the historical trading price range for Pace, less the Cash Consideration, by the low end
of the historical trading price range for ARRIS and by dividing the low end of the historical trading price range
for Pace, less the Cash Consideration, by the high end of the historical trading price range for ARRIS. This
analysis indicated an implied adjusted exchange ratio reference range of 0.0632 to 0.1801 of a New ARRIS
ordinary share for each Pace share as compared to the exchange ratio of 0.1455 of a New ARRIS ordinary share
for each Pace share in the Combination.
Precedent Premia
Evercore reviewed and analyzed premia paid in precedent transactions where the target is based in the UK.
Evercore calculated the premium paid in each transaction by dividing the per-share consideration announced in
the announcement of such transaction by the closing share price of the target one day prior
64
TABLE OF CONTENTS
to the announcement of the transaction. In addition, Evercore calculated the premium paid in each transaction
by dividing the per-share consideration announced in the announcement of such transaction by the volume
weighted average price (“VWAP”) per-share of the target, calculated by multiplying the number of shares traded
on a respective date by the average share price and then dividing by the total shares traded for the day. For the
purposes of calculating the premium paid in each transaction, Evercore used as reference dates the following: the
calendar month prior to the announcement of the transaction, the three calendar months prior to the
announcement of the transaction, and the six calendar months prior to the announcement of the transaction.
Evercore calculated the average premia paid in precedent transactions reviewed by Evercore as set forth in the
table below:
1-Day
UK Takeover Premia
2014
2013
2012
2011
2010
2009
2008
2007
38.0 %
43.7 %
49.7 %
44.3 %
45.9 %
59.9 %
47.9 %
31.3 %
1-Month VWAP
40.8 %
40.5 %
54.3 %
45.2 %
48.9 %
66.9 %
48.4 %
33.8 %
3-Month VWAP
38.6 %
41.5 %
57.8 %
47.2 %
53.7 %
82.2 %
45.6 %
34.4 %
6-Month VWAP ​
34.5 %
40.7 %
59.9 %
41.3 %
54.6 %
71.4 %
39.3 %
36.4 %
Evercore then applied a reference range of premia of 35% to 45%, derived by Evercore based on its review
of the precedent premia paid in prior takeover transactions in the UK and in inversion transactions, to the Pace 3month VWAP as of April 21, 2015 of £3.48. This analysis indicated a per share equity value reference range of
approximately £4.70 to £5.04 for Pace. Evercore calculated an implied adjusted exchange ratio reference range
by dividing each of the low and the high ends of the per share equity value reference range based on the premia
paid analysis for Pace, less the Cash Consideration, by the ARRIS closing share price as of April 21, 2015. This
analysis indicated an implied exchange ratio reference range of 0.1669 to 0.1841 of a New ARRIS ordinary share
for each Pace share as compared to the exchange ratio of 0.1455 of a New ARRIS ordinary share for each Pace
share in the Combination.
Miscellaneous
Under the terms of Evercore’s engagement, Evercore provided ARRIS with financial advisory services and
delivered a fairness opinion to the ARRIS Board in connection with the Combination. Pursuant to the terms of
its engagement letter, ARRIS has agreed to pay Evercore certain fees for its services in connection with its
engagement, including an opinion fee and a success fee. Evercore is entitled to receive an opinion fee of $3.3
million, which Evercore earned upon delivery of its fairness opinion to the ARRIS Board. In addition, Evercore
is entitled to receive a success fee currently estimated to be approximately $9.8 million, which Evercore will
earn upon the consummation of the Combination and the amount of which may vary based on the value of the
stock consideration issued in the Combination.
In addition, ARRIS has agreed to reimburse Evercore for its reasonable expenses (including legal fees,
expenses and disbursements) incurred in connection with its engagement and to indemnify Evercore and any of
its members, partners, officers, directors, advisors, representatives, employees, agents, affiliates or controlling
persons, if any, against certain liabilities and expenses arising out of Evercore’s engagement, any services
performed by Evercore in connection therewith or any transaction contemplated thereby.
Evercore has in the past provided and currently is providing certain financial advisory services to ARRIS,
and in the future may provide certain financial and other services to New ARRIS and certain of its affiliates, for
which Evercore has received and may receive compensation, including, in the past three years, having advised
ARRIS on the acquisition of Motorola Home (for which Evercore received $13.0 million from ARRIS).
During the two-year period prior to the date hereof, no material relationship existed between Evercore
Group L.L.C. and its affiliates and Pace pursuant to which compensation was received by Evercore Group L.L.C.
or its affiliates as a result of such a relationship.
65
TABLE OF CONTENTS
With respect to the Combination, Evercore did not recommend any specific amount of consideration to the
ARRIS Board or ARRIS management or that any specific amount of consideration constituted the only
appropriate consideration in the Combination for the holders of ARRIS shares.
In the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related
derivative securities, or financial instruments of ARRIS, Pace and their respective affiliates, for its own account
and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such
securities or instruments.
The issuance of Evercore’s opinion was approved by an Opinion Committee of Evercore.
The ARRIS Board engaged Evercore to act as a financial advisor based on its qualifications, experience and
reputation, as well as its familiarity with the business of ARRIS. Evercore is an internationally recognized
investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and
acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and
other purposes.
66
TABLE OF CONTENTS
THE SCHEME OF ARRANGEMENT
The Scheme of Arrangement
The Combination will be implemented in two main steps: the Pace Acquisition (which will be implemented
by means of the Scheme) and the Merger. Under the terms of the Scheme, the Pace Scheme shareholders will be
entitled to receive 132.5 pence in cash and will be issued 0.1455 New ARRIS ordinary shares in consideration
for each Pace ordinary share held.
As a result of the Scheme, Pace will become a wholly-owned subsidiary of New ARRIS, and Pace Scheme
shareholders will become New ARRIS shareholders. Upon completion of the Scheme, we estimate that Pace
Scheme shareholders will receive approximately £438.4 million (or approximately $672.8 million based on the
exchange rate as of August 31, 2015) in cash in the aggregate and will own approximately 24% of New ARRIS
ordinary shares. The Pace Acquisition is conditioned on, among other things, the adoption of the Merger
Agreement by the holders of a majority of the ARRIS shares outstanding and entitled to vote.
In the UK, for the takeover of a UK public company, the practice is to either effect this by way of (i) a
contractual takeover offer by the bidder for the shares of the target or (ii) by a scheme of arrangement under
which the court, using a statutory procedure, gives effect to the takeover. A scheme is put to a meeting of
members of the target, convened by order of the court, and if the requisite majority approves the scheme, the
court is then asked to sanction it. Once the scheme is sanctioned and becomes effective, it is binding on all
members, regardless of whether they originally objected to the proposal.
Which of the two options is chosen will depend on a variety of different circumstances and each option has
its advantages and disadvantages. ARRIS and Pace have elected to utilize a scheme. In a scheme, the parties can
initiate the process by the bidder making a formal announcement of an intention to make an offer, which must
comply with the requirements in Rule 2.7 of the Takeover Code and therefore is known as a “Rule 2.7
announcement.” The Scheme and the Merger were announced pursuant to the Rule 2.7 Announcement on
April 22, 2015
The Scheme
Basic Terms
It is proposed that the Pace Acquisition will be implemented by way of a scheme of arrangement between
Pace and the Pace Scheme shareholders sanctioned by the Court, although ARRIS and New ARRIS reserve the
right, subject to the consent of the Takeover Panel (where necessary) and subject to the provisions of the Cooperation Agreement, to seek to implement the Pace Acquisition by way of the Contractual Offer for the entire
issued and to be issued share capital of Pace and to make appropriate amendments to the terms of the Pace
Acquisition arising from the change from the Scheme to a Contractual Offer.
Upon the Scheme becoming effective it will be binding upon Pace Scheme shareholders. Pursuant to the
Scheme, New ARRIS will become the owner of the entire issued and to be issued share capital of Pace and will
issue New ARRIS ordinary shares to existing Pace Scheme shareholders. It is expected that the New ARRIS
ordinary shares to be issued to Pace shareholders under the Scheme will be issued in reliance upon the
exemption from the registration requirements of the Securities Act provided by Section 3(a)(10) thereof. For
more information, see the section captioned “Listing of New ARRIS Ordinary Shares to be Issued in Connection
with the Combination” beginning on page 75.
If any dividend or other distribution or return of capital is proposed, declared, made, paid or becomes
payable by Pace in respect of a Pace share on or after April 22, 2015 and prior to completion of the Merger (other
than the $0.0475 dividend to be paid by Pace on July 3, 2015), New ARRIS reserves the right, with the consent
of the Takeover Panel, to reduce the value of the consideration payable per Pace share by up to the amount per
Pace share of such dividend, distribution or return of capital except where the Pace share is or will be acquired
pursuant to the Scheme on a basis which entitles New ARRIS to receive the dividend, distribution or return of
capital and to retain it.
67
TABLE OF CONTENTS
Conditions to the Pace Acquisition and the Scheme
The Pace Acquisition is conditional on, among other things:
(a) the Court Meeting and General Meeting being held on or before the 22 nd day after the expected date
of the meetings to be set out in the Scheme Circular or such later date (if any) as ARRIS and Pace may
agree;
(b) the hearing of the Court to sanction the Scheme being held on or before the 22 nd day after the
expected date of the hearing to be set out in the Scheme Circular, or such later date (if any) as ARRIS
and Pace may agree;
(c) the Scheme becoming unconditional and becoming effective by no later than April 22, 2016 or such
later date (if any) as ARRIS and Pace may agree and (if required) the Court may allow;
The Scheme is conditional on, among other things:
(i)
the registration statement of which this proxy statement/prospectus is a part having become effective
under the Securities Act and not having been the subject of any stop order suspending its
effectiveness, and no proceedings seeking any such stop order having been initiated or threatened by
the SEC;
(ii) the Merger Agreement being duly adopted by the ARRIS stockholders at the Special Meeting;
(iii) NASDAQ having authorized the listing of all of the New ARRIS shares and not having withdrawn such
authorization;
(iv) approval of the Scheme by a majority in number representing not less than 75% in value of the Pace
Scheme shareholders entitled to vote and present and voting, either in person or by proxy, at the Court
Meeting (or at any adjournment thereof) and at any separate class meeting which may be required by
the Court (or at any adjournment thereof);
(v) all resolutions required to approve and implement the Scheme (including, without limitation, to
amend Pace’s articles of association) being duly passed by the requisite majority or majorities of the
Pace shareholders at the General Meeting, or at any adjournment thereof;
(vi) the sanction of the Scheme by the Court with or without modifications, on terms reasonably
acceptable to ARRIS and Pace and the delivery of a copy of the order sanctioning the Scheme to the
Registrar of Companies in England and Wales; and
(vii) all notifications and filings as may be required under the HSR Act, having been made in connection
with the acquisition of Pace shares by ARRIS and all applicable HSR Act waiting periods (including
any extensions thereof) relating to the acquisition of Pace shares by ARRIS having expired or been
terminated.
The Scheme is also subject to the conditions and other terms of Appendix I to the Rule 2.7 Announcement,
which is attached to this proxy statement/prospectus as Annex B. To the extent permitted by law and subject to
the requirements of the Takeover Panel, ARRIS has reserved the right to waive all or any of the conditions (other
than the conditions set out in (a) – (c) and (i)-(vi) above).
ARRIS is permitted to invoke a condition to the Scheme (other than certain conditions relating to the
approval of the Scheme by Pace shareholders and the Court) only where the circumstances underlying the failure
of the condition are of material significance to ARRIS in the context of the Pace Acquisition. Because of this
limitation, the conditions may provide ARRIS with less protection than the customary conditions in a
comparable combination between U.S. corporations. Please see the section captioned “Risk Factors — Risks
Relating to the Combination” beginning on page 20.
Treatment of Pace Share Plans
Participants in the Pace share plans will be contacted regarding the effect of the Combination on their rights
under the Pace share plans and appropriate proposals will be made to such participants in due course in relation
to exercise and vesting of options and awards. In relation to the options that subsist under the Pace Sharesave
Plan, the proposals will include a choice for participants to allow their options to vest and become exercisable or
to agree to the rollover of their options into New ARRIS shares.
68
TABLE OF CONTENTS
THE CO-OPERATION AGREEMENT
Pace, ARRIS and New ARRIS entered into the Co-operation Agreement on April 22, 2015, that is attached
to this proxy statement/prospectus as Annex C and pursuant to which Pace has agreed to provide ARRIS with
information and assistance which ARRIS may reasonably require for the purposes of obtaining regulatory
clearances in connection with the Combination and making any submission, filing or notification to any
regulatory authority.
ARRIS has agreed that it shall use reasonable efforts to obtain such regulatory clearances as soon as
reasonably practicable.
By way of compensation for any loss suffered by Pace in connection with the preparation and negotiation
of the Combination, the Co-operation Agreement and any other document relating to the Combination, ARRIS
has undertaken that, on the occurrence of a Break Payment Event (as defined below), ARRIS will pay or procure
the payment to Pace of an amount in cash equal to $20 million (the “Break Payment”) in the event that on or
prior to April 22, 2016:
(a) on April 22, 2016, any “Regulatory Condition” (as defined in the Rule 2.7 Announcement) shall not
have been satisfied or waived by ARRIS or New ARRIS;
(b) ARRIS or New ARRIS invokes any Regulatory Condition; or
(c) the ARRIS Board withdraws or qualifies its recommendation without Pace’s consent and either: (i) the
Merger Agreement has not been adopted at the Special Meeting; (ii) the Special Meeting has not
occurred; (iii) the Co-operation Agreement has been terminated in accordance with its terms; or
(iv) the Scheme has not become effective by April 22, 2016,
(each a “Break Payment Event”).
ARRIS will have no obligation to pay the Break Payment to Pace if: (i) the failure of ARRIS to satisfy a
Regulatory Condition or the invoking of a Regulatory Condition is due to a material breach of Pace’s
undertakings to provide certain information and assistance to ARRIS for the purposes of satisfying the
Regulatory Conditions; or (ii) Pace withdraws or qualifies its recommendation before a Break Payment Event
referred to in (b) or (c) above occurs.
The Co-operation Agreement further provides that, in the event that the ARRIS stockholders do not adopt
the Merger Agreement at the Special Meeting but ARRIS has not withdrawn its recommendation, ARRIS will
indemnify Pace for all costs and expenses (including irrevocable VAT) incurred by Pace in connection with the
Merger up to an aggregate amount of $12 million (“Expense Reimbursement Payment”).
ARRIS is only obliged to pay one Break Payment, and any Break Payment will be reduced by the amount
of the Expense Reimbursement Payment, with such payment to be Pace’s exclusive remedy in connection with
any claim it may have in respect of any or all Break Payment Events or the circumstances giving rise to the
Expense Reimbursement Payment.
ARRIS may switch the Scheme to a Contractual Offer for the entire issued and to be issued share capital of
Pace with the consent of the Takeover Panel only after having received the prior written consent of Pace (such
consent not to be unreasonably withheld or delayed).
ARRIS has agreed to certain customary restrictions on the conduct of its business during the period pending
completion of the Combination.
The Co-operation Agreement also contains provisions in relation to the Pace share incentive plans.
The Co-operation Agreement can be terminated by either of the parties by written agreement, under certain
circumstances set forth in the Co-operation Agreement or if the Combination has not completed by April 22,
2016.
ARRIS has also separately agreed to reimburse Pace for the fees incurred by Pace in connection with its
appointment of Ernst & Young LLP to provide advice to Pace on the conversion of its consolidated financial
statements for the year ended and quarter ended December 31, 2014 from IFRS to U.S. GAAP.
69
TABLE OF CONTENTS
THE MERGER AND THE MERGER AGREEMENT
Structure
The Merger will be implemented pursuant to the Merger Agreement. In the Merger, Merger Sub will be
merged with and into ARRIS, and each ARRIS share will be converted into the right to receive one New ARRIS
ordinary share. ARRIS will be the surviving corporation in the Merger and the separate corporate existence of
ARRIS with all its rights, privileges, immunities, powers and franchises will continue unaffected by the Merger,
except as described in the Merger Agreement.
As a result of the Merger, ARRIS will become an indirect wholly-owned subsidiary of New ARRIS, and
ARRIS stockholders will become New ARRIS shareholders. Upon completion of the Combination, we estimate
that ARRIS stockholders will own approximately 76% of the New ARRIS ordinary shares. The consummation of
the Merger is conditioned on the approval of the Merger Agreement Proposal by the affirmative vote of holders
of a majority of the ARRIS shares outstanding and entitled to vote, the completion of the Scheme and the
completion of certain internal steps that New ARRIS and ARRIS Holdings have committed to take relating to
the issuance of the New ARRIS ordinary shares in the Merger.
Consummation of the Merger
The consummation of the Merger is expected to take place as soon as reasonably practicable following (and
to the extent possible, immediately following or, failing that, to the extent possible on the same day as) the
completion of the Scheme.
Governing Documents; Directors and Officers
At the effective time, the certificate of incorporation of ARRIS in effect immediately prior to the effective
time will continue to be the certificate of incorporation of ARRIS following the Merger until thereafter amended
as provided therein or by applicable law, except that the authorized number of shares of capital stock will be
reduced to 1,000. At the effective time, the bylaws of ARRIS in effect immediately prior to the effective time will
be the bylaws of ARRIS following the Merger until thereafter amended as provided therein or by applicable law.
The parties to the Merger Agreement will take all actions necessary so that the directors of ARRIS Holdings
at the effective time will become the directors of ARRIS following the Merger and the officers of ARRIS
Holdings at the effective time will become the officers of ARRIS following the Merger.
Merger Consideration
At the effective time of the Merger, each ARRIS share issued and outstanding immediately prior to the
effective time (other than any treasury shares or any shares owned of record by ARRIS Holdings or Merger Sub)
will, by virtue of the Merger and without any action on the part of New ARRIS, Pace, ARRIS Holdings or Merger
Sub or the holders of any ARRIS shares, be converted into, and thereafter only evidence, the right to receive,
without interest, one (1) validly issued and fully paid New ARRIS ordinary share (such consideration per ARRIS
share, the “Merger Consideration”) and all such ARRIS shares shall cease to be outstanding, shall be cancelled
and shall cease to exist and each certificate representing ARRIS shares or non-certificated ARRIS share
represented by book-entry (other than any treasury shares or any shares owned of record by ARRIS Holdings or
Merger Sub) will thereafter represent only the right to receive the Merger Consideration and the right, if any, to
receive any distribution or dividend payable pursuant to the Merger Agreement.
Also as a result of the Merger, each treasury share and each share owned of record by ARRIS Holdings or
Merger Sub shall be cancelled or redeemed without payment of any Merger Consideration therefor.
Payment of the Merger Consideration
Immediately prior to the consummation of the Merger, New ARRIS will have issued New ARRIS ordinary
shares and will have deposited them or cause them to be deposited with DTC.
70
TABLE OF CONTENTS
Certificated Shares
Promptly after completion of the Merger, ARRIS will cause an exchange agent to mail to each holder of
record of a certificate formerly representing any of ARRIS shares a letter of transmittal and instructions for
effecting the surrender of the certificates (or affidavit of loss) to the exchange agent in exchange for delivery of
the Merger Consideration.
Upon surrender of certificates (or affidavit of loss) for cancellation to the exchange agent, together with a
duly completed and validly executed letter of transmittal (and any other documentation as the exchange agent
may reasonably require), the holder of such certificate (or affidavit of loss) will be entitled to receive (i) New
ARRIS ordinary shares in non-certificated book-entry form and (ii) a check in the amount of U.S. dollars equal to
any cash dividends or other distributions that such holder may have the right to receive pursuant to the Merger
Agreement (none of which are currently anticipated), in each case subject to any applicable withholding and
without interest thereon.
Uncertificated Shares
Promptly after the effective time, New ARRIS will cause the exchange agent to mail to each holder of
uncertificated ARRIS shares materials advising such holder of the effectiveness of the Merger and the
conversion of their ARRIS shares into the right to receive the Merger Consideration and deliver the Merger
Consideration to such holder in the form of (i) New ARRIS ordinary shares in non-certificated book-entry form
and (ii) a check in the amount of U.S. dollars equal to any cash dividends or other distributions that such holder
may have the right to receive pursuant to the Merger Agreement (none of which are currently anticipated), in
each case subject to any applicable withholding and without interest thereon.
Conditions of the Merger
The closing of the Merger is subject to (i) the adoption of the Merger Agreement Proposal by the affirmative
vote of holders of a majority of the ARRIS shares outstanding and entitled to vote; (ii) the completion of the
Scheme (or, if the Scheme is converted to a Contractual Offer, completion of the Contractual Offer); and (iii) the
completion of certain internal steps that New ARRIS and ARRIS Holdings have committed to take relating to
the issuance of the New ARRIS ordinary shares as Merger Consideration.
Termination of the Merger
Subject to Pace’s rights described below, the Merger Agreement may be terminated at any time prior to the
effective time of the Merger by a written instrument executed by each of ARRIS, New ARRIS, ARRIS Holdings
and Merger Sub, whether before or after adoption of the Merger Agreement by the ARRIS stockholders and the
sole member of Merger Sub.
Treatment of ARRIS Equity-Based Awards
Treatment of ARRIS Options
At the effective time of the Merger, each ARRIS Option, whether vested or unvested, that is outstanding
immediately prior to the effective time of the Merger shall be converted into a New ARRIS Option relating to the
same number of shares and at the same exercise price per share. Except as required in order to comply with
applicable law, such New ARRIS Option will continue to have, and be subject to, the same terms and conditions
that were applicable to the corresponding ARRIS Option immediately prior to the effective time of the Merger.
Treatment of ARRIS Restricted Shares
At the effective time of the Merger, each ARRIS Restricted Share that is outstanding immediately prior to
the effective time of the Merger shall be converted into a New ARRIS Restricted Share and, except as required in
order to comply with applicable law, such New ARRIS Restricted Share will continue to have, and be subject to,
the same terms and conditions that were applicable to the corresponding ARRIS Restricted Share immediately
prior to the effective time of the Merger.
71
TABLE OF CONTENTS
Treatment of ARRIS RSUs
At the effective time of the Merger, each ARRIS RSU that is outstanding immediately prior to the effective
time of the Merger shall be converted into a New ARRIS RSU relating to the same number of shares. Except as
required in order to comply with applicable law, such New ARRIS RSU will continue to have, and be subject to,
the same terms and conditions that were applicable to the corresponding ARRIS RSU immediately prior to the
effective time of the Merger (including settlement in cash or shares, as applicable).
Treatment of ARRIS ESPPs
At the effective time of the Merger, each ARRIS ESPP that is outstanding immediately prior to the effective
time of the Merger shall be converted into a New ARRIS ESPP relating to the same number of shares and at the
same exercise price per share. Except as required in order to comply with applicable law, such New ARRIS ESPP
will continue to have, and be subject to, the same terms and conditions that were applicable to the
corresponding ARRIS ESPP immediately prior to the effective time of the Merger.
Indemnification and Insurance
New ARRIS and ARRIS Holdings, respectively, have agreed to maintain in effect all rights to
indemnification, advancement of expenses or exculpation (including all limitations on personal liability)
existing as of the date of the Merger Agreement in favor of each present and former director, officer or employee
of ARRIS in respect of actions or omissions occurring at or prior to the effective time of the Merger (including
actions or omissions arising out of the transactions contemplated by the Merger Agreement) and to keep such
rights in full force and effect in accordance with their terms. For a period of six (6) years after the effective time,
New ARRIS and ARRIS Holdings, respectively, will maintain in effect the provisions for indemnification,
advancement of expenses or exculpation in the organizational documents of ARRIS and its subsidiaries or in
any agreement to which ARRIS or any of its subsidiaries is a party and will not amend, repeal or otherwise
modify such provisions in any manner that would adversely affect the rights thereunder of any individuals who
at any time prior to the effective time were directors, officers or employees of ARRIS or any of its subsidiaries in
respect of actions or omissions occurring at or prior to the effective time (including actions or omissions
occurring at or prior to the effective time arising out of the transactions contemplated by the Merger Agreement).
In the event any claim, action, suit, proceeding or investigation is pending, asserted or made either prior to the
effective time or within the following six-year period, all rights to indemnification, advancement of expenses or
exculpation required to be continued will continue until disposition thereof.
At and after the effective time, New ARRIS, ARRIS Holdings and ARRIS will, to the fullest extent permitted
by law, indemnify and hold harmless each present and former director, officer or employee of ARRIS or any of its
subsidiaries and each person who served at the request or for the benefit of ARRIS or any of its subsidiaries
against all costs and expenses (including advancing attorneys’ fees and expenses in advance of the final
disposition of any actual or threatened claim, suit, proceeding or investigation), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any actual or threatened claim, action, suit,
proceeding or investigation (whether arising before, at or after the effective time), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or omission in such person’s capacity
as a director, officer or employee of ARRIS or any of its subsidiaries or if such service was at the request or for
the benefit of ARRIS or any of its subsidiaries, in each case occurring or alleged to have occurred at or before the
effective time (including actions or omissions occurring at or prior to the effective time arising out of the
transactions contemplated by the Merger Agreement).
For a period of six years from the effective time of the Merger, New ARRIS and ARRIS Holdings,
respectively, will maintain in effect (i) the coverage provided by the policies of directors’ and officers’ liability
insurance and fiduciary liability insurance maintained by ARRIS and its subsidiaries as of the effective time of
the Merger with respect to matters arising on or before the effective time (provided that New ARRIS and ARRIS
Holdings may substitute policies with a carrier with comparable credit ratings to the existing carrier of at least
the same coverage and amounts containing terms and conditions that are no less favorable to the insured) or
(ii) a “tail” policy (which ARRIS may purchase at its option prior to the
72
TABLE OF CONTENTS
effective time of the Merger) under ARRIS’ existing policy that covers those persons who are currently covered
by ARRIS’ directors’ and officers’ insurance policy in effect as of the date of the Merger Agreement for actions
and omissions occurring at or prior to the effective time of the Merger, is from a carrier with comparable credit
ratings to ARRIS’ existing insurance policy carrier and contains terms and conditions that are no less favorable
to the insured than those of ARRIS’ applicable policy in effect as of the date hereof.
In the event either New ARRIS or ARRIS Holdings (or both) later consolidates with or merges into another
person, or transfers more than 50% of its properties and assets to any person, proper provision will be made such
that the surviving company will assume the indemnification and insurance obligations of New ARRIS and/or
ARRIS Holdings set forth in the Merger Agreement.
Pace’s Rights with respect to the Merger Agreement
Under the Co-operation Agreement, New ARRIS and ARRIS have agreed (i) to comply with their
obligations under the Merger Agreement; (ii) not to make any amendments to the Merger Agreement that are
adverse to the holders of Pace shares or which are otherwise material; and (iii) not to terminate the Merger
Agreement, in each case, without the prior written consent of Pace (which shall not be unreasonably withheld,
conditioned or delayed).
73
TABLE OF CONTENTS
IRREVOCABLE UNDERTAKINGS
In connection with the Scheme, the Pace directors who hold Pace shares, being Mike Pulli, Allan Leighton,
Pat Chapman-Pincher, John Grant and Mike Inglis, have irrevocably undertaken to vote in favor of the Scheme
at the Court Meeting and the resolutions to be proposed at the General Meeting in respect of their holdings of
Pace shares which amount, in aggregate, to 1,743,455 shares representing approximately 0.54% of the
outstanding Pace shares as of August 31, 2015.
These irrevocable undertakings will cease to be binding if:
•
the Scheme Circular is not sent to Pace shareholders on or before September 22, 2015 or such later
time as may be agreed by the Takeover Panel;
•
the Scheme does not become effective on or before April 22, 2016; or
•
ARRIS announces that it does not intend to make or proceed with the Scheme and the Scheme is
withdrawn and no new replacement scheme of arrangement is announced by ARRIS within five
business days of such withdrawal.
REGULATORY APPROVALS
The Pace Acquisition is subject to clearance by antitrust authorities in the United States, Brazil, Colombia,
Germany, Portugal and South Africa (the “Regulatory Approvals”).
Under the HSR Act, the Combination cannot be consummated until, among other things, notifications have
been made to the Federal Trade Commission (“FTC”) and the Antitrust Division of the U.S. Department of
Justice (the “Antitrust Division”) and all applicable waiting periods have expired or been terminated. ARRIS
and Pace each filed a “Pre-Merger Notification and Report Form” pursuant to the HSR Act with the Antitrust
Division and the FTC. The parties have received a request for additional information and documentary material
(referred to as a “second request”) from the Antitrust Division regarding the Combination. The parties are
continuing to work with the Antitrust Division to respond promptly to its requests for information and currently
expect that the Antitrust Division will conclude its review of the Combination by or before the middle of
December.
ARRIS and Pace derive revenues in other jurisdictions where merger or acquisition control filings or
clearances are or may be required, including clearances in Brazil, Colombia, Germany, Portugal and South
Africa. Generally, the Combination cannot be consummated until after the applicable waiting periods have
expired or the relevant approvals have been obtained under the antitrust and competition laws of the countries
where merger control filings or approvals are or may be required. ARRIS and Pace have obtained approval of the
Pace Acquisition from the relevant authorities in Germany and South Africa. ARRIS and Pace have filed
documentation relating to the Pace Acquisition with the relevant authorities in Brazil, Colombia and Portugal.
In relation to the conditions to the Scheme that relate to obtaining the Regulatory Approvals, the Takeover
Code only permits ARRIS to invoke any such condition where the circumstances which give rise to the right to
invoke the condition are of material significance to ARRIS in the context of the Combination.
74
TABLE OF CONTENTS
OWNERSHIP OF NEW ARRIS AFTER COMPLETION OF THE COMBINATION
We estimate that, after the completion of the Combination, the former ARRIS stockholders and Pace
shareholders will own approximately 76% and 24% of New ARRIS ordinary shares, respectively. Our estimate is
based on the following assumptions:
•
•
The fully diluted number of Pace ordinary shares is approximately 330.9 million, which is calculated
as follows:
◦
approximately 320.2 million issued and outstanding Pace ordinary shares as of August 31, 2015,
plus
◦
additional Pace ordinary shares which may be issued on or after August 31, 2015 on the exercise
of options or vesting of awards under Pace’s share plans, in the aggregate amount of
approximately 12.6 million (based on information relating to Pace’s share plans as of August 31,
2015), minus
◦
approximately 1.9 million Pace ordinary shares held by the Pace plc Employee Benefit Trust as of
August 31, 2015.
The fully diluted number of ARRIS shares is approximately 154.8 million, which is calculated as
follows:
◦
approximately 146.6 million issued and outstanding ARRIS shares as of August 31, 2015, plus
◦
additional ARRIS shares which may be issued on or after August 31, 2015 on the exercise of
options or settlement of awards under ARRIS’ equity award plans, in the aggregate amount of
approximately 8.2 million (based on information relating to ARRIS’ equity award plans as of
August 31, 2015).
LISTING OF NEW ARRIS SHARES TO BE ISSUED IN CONNECTION WITH THE COMBINATION
New ARRIS ordinary shares currently are not traded or quoted on a stock exchange or quotation system.
NASDAQ has advised ARRIS that NASDAQ will treat the Combination as a “Substitution Listing Event” under
its rules. New ARRIS is required to provide prior notice of the Combination to NASDAQ, and upon notice of
completion of the Combination the New ARRIS ordinary shares will be listed on NASDAQ. New ARRIS expects
that the New ARRIS ordinary shares will trade under the symbol “ARRS.”
Upon the completion of the Combination, the ARRIS shares will be deregistered under the Exchange Act
and delisted from NASDAQ.
The New ARRIS ordinary shares to be issued to Pace shareholders under the Scheme will be issued in
reliance upon the exemption from the registration requirements of the Securities Act provided by Section 3(a)
(10) thereof. Section 3(a)(10) exempts securities issued in exchange for one or more bona fide outstanding
securities from the general requirement of registration where the fairness of the terms and conditions of the
issuance and exchange of the securities have been approved by any court or authorized government entity, after
a hearing upon the fairness of the terms and conditions of exchange at which all persons to whom the securities
will be issued have the right to appear and to whom adequate notice of the hearing has been given. The High
Court of Justice in England and Wales will be advised before the Scheme Court Hearing that, if the terms and
conditions of the Scheme are approved, its sanctioning of the Scheme will constitute the basis for the New
ARRIS ordinary shares to be issued pursuant to the Scheme, without registration under the Securities Act in
reliance of the exemption from registration provided by Section 3(a)(10).
75
TABLE OF CONTENTS
FINANCING
On June 18, 2015, ARRIS, ARRIS Enterprises, Inc., New ARRIS and certain ARRIS subsidiaries, as
borrowers, and Bank of America, N.A., as administrative agent, swing line lender and L/C lender and the other
lender parties thereto entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which
amends and restates ARRIS’ existing Credit Agreement dated March 27, 2013, as amended (the “Existing Credit
Agreement”). The Credit Agreement provides for senior secured credit facilities comprised of (i) a “U.S.
Revolving Credit Facility” of $13,968,604, (ii) a “Multicurrency Revolving Credit Facility” of $486,031,396,
(iii) a “Term Loan A Facility” of $990 million, (iv) a delayed draw “Term A-1 Loan Facility” of $800 million
and (v) a “Term Loan B Facility” of $543,812,500. Funding of the Term Loan A Facility refinanced the term
loan A facility under the Existing Credit Agreement while the Term Loan B Facility is a continuation of the term
loan B facility under the Existing Credit Agreement. Funding of the Term A-1 Loan Facility under the Credit
Agreement will be available at the closing of the previously-announced combination (the “Combination”) of
ARRIS with Pace plc (“Pace”). The proceeds of the loans under the Term A-1 Loan Facility will be used to
finance: (i) the payment of the cash consideration by New ARRIS to holders of Pace shares being acquired by
New ARRIS in the Pace Acquisition; (ii) the payment of cash consideration to holders of options or awards to
acquire Pace shares pursuant to any proposal under the Takeover Code; (iii) the fees, costs and expenses related
to the Combination and issuance of new debt, refinancing, prepayment, repayment, redemption, discharge,
defeasance and/or amendment of all existing debt of Pace and (iv) the payment or refinancing of existing debt at
Pace. In the event ARRIS abandons the Combination (both as a scheme and takeover) up to $400 million of the
Term A-1 Loans may be used for general corporate purposes with the remaining $400 million of Term A-1 Loans
only available to refinance debt of ARRIS.
Borrowing under the Term A-1 Loan Facility of the Credit Agreement is conditioned on, among other
things, the absence of certain events of default and the accuracy of certain representations made in the Credit
Agreement. Under the Credit Agreement, if the closing date of the Combination does not occur prior to the
Certain Funds Termination Date (as defined in the Credit Agreement) the commitments for the Term A-1 Loan
Facility will terminate unless ARRIS has abandoned the Combination (by means of a scheme and a takeover), in
which case the commitments for the Term A-1 Loan Facility will terminate sixty (60) days after such
abandonment. The Revolving Credit Facility and Term Loan A Facility will mature on June 18, 2020, the Term
Loan B Facility will continue to mature on April 17, 2020, and the Term A-1 Loan Facility will mature on
June 18, 2020.
The Credit Agreement contains customary “certain funds provisions” with respect to the Term A-1 Loan
Facility intended to make it “certain” that the funds under the Term A-1 Loan Facility will be available and that
prevent the lenders from refusing to make the Term A-1 Loan Facility available or cancelling their commitments
unless a major default has occurred and is continuing or a major representation remains incorrect. Major defaults
include (but are not limited to) in particular a payment default under with respect to the Term A-1 Loan Facility
and certain limited covenant defaults. The duration of the certain funds availability period of the Credit
Agreement commenced on June 18, 2015 and ends on the earlier of the date on which a mandatory cancellation
event occurs or October 31, 2016.
Loans made under the U.S. Revolving Credit Facility, the Term Loan A Facility, the Term A-1 Loan Facility
and the Term B Loan Facility were made or will be available in U.S. dollars. Loans under the Multicurrency
Revolving Credit Facility are available in Sterling, euros, yen, dollars, or any other currency approved by the
lenders. Amounts outstanding under the Credit Agreement will bear interest: (a) in the case of the U.S.
Revolving Credit Facility, the Multicurrency Revolving Credit Facility, the Term Loan A Facility and the Term
A-1 Loan Facility, at the base rate defined as the highest of (i) Bank of America, N.A.’s prime rate, (ii) the federal
funds rate plus 0.50%, (iii) the Eurocurrency Rate (as defined in the Credit Agreement) for a one month interest
period plus 1.00%, and (iv) 0.00% or (b) at the Eurocurrency Rate for the Interest Period (as defined in the Credit
Agreement) for the advances, in each case plus an applicable margin which will vary depending on ARRIS’
Consolidated Net Leverage Ratio, as stated in a compliance certificate to be delivered quarterly to the lenders.
The applicable margin ranges for loans under the U.S. Revolving Credit Facility, the Multicurrency Revolving
Credit Facility, the Term Loan A Facility and the Term A-l Loan Facility from 1.50% to 2.25% per annum for
Eurocurrency Rate advances and 0.50% to 1.25% per annum for base rate advances, and for loans under the
Term Loan B Facility from 2.50% to
76
TABLE OF CONTENTS
2.75% per annum for Eurocurrency Rate advances and 1.50% to 1.75% per annum for base rate advances.
Interest on base rate advances shall be payable in arrears on the last Business Day of each March, June,
September and December. Interest on Eurocurrency Rate advances shall be paid on the last day of the applicable
Interest Period, or for Interest Periods longer than three months, every three months.
Borrowings under the senior secured credit facilities will be secured by first priority liens on substantially
all of the assets of ARRIS and certain of its present and future subsidiaries that are or become parties to, or
guarantors under, the Credit Agreement, as well as by first priority liens on substantially all of the assets of New
ARRIS and, within a period of time after the completion of the Combination, by substantially all of the assets of
Pace and/or certain of its subsidiaries located in the United States, Canada and England. The Credit Agreement
contains usual and customary limitations on indebtedness, liens, restricted payments, acquisitions and asset
sales in the form of affirmative, negative and financial covenants, which are customary for financings of this
type. The Credit Agreement provides terms for mandatory prepayments and optional prepayments and
commitment reductions. The Credit Agreement also includes events of default, which are customary for facilities
of this type (with customary grace periods, as applicable), including provisions under which, upon the
occurrence of an event of default, all amounts outstanding under the credit facilities may be accelerated, subject,
however, to the “funds certain” provisions with respect to the Term A-l Loan Facility.
ARRIS may voluntarily prepay the loans and terminate the commitments under the Credit Agreement at any
time without premium or penalty (subject, in the case of Eurocurrency Rate advances, to customary breakage
costs). The Credit Agreement requires mandatory prepayments to be made with the net cash proceeds of certain
asset sales, debt incurrences and equity issuances, subject to customary exceptions, reinvestment rights and
minimums. ARRIS must repay all outstanding loans on the maturity date.
The Credit Agreement contains customary affirmative covenants, including, among others, covenants
regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements,
transactions with affiliates, compliance with applicable laws and regulations and the Combination. The Credit
Agreement contains customary negative covenants limiting the ability of the ARRIS parties to, among other
things, grant liens, incur indebtedness, effect certain fundamental changes and make certain asset dispositions.
The affirmative and negative covenants are subject to certain customary qualifications and carveouts. The Credit
Agreement also contains two financial covenants that are tested beginning on the last day of the first full fiscal
quarter ending after the Closing Date. The ratio of consolidated total debt to consolidated EBITDA of ARRIS (or
after consummation of the Combination, New ARRIS) may not exceed 3.75 to 1.00 which ratio will reduce to
3.50 to 1.00 one year after the completion of the Combination. The ratio of consolidated EBITDA to
consolidated interest expense of ARRIS (or after consummation of the Combination, New ARRIS) may not be
less than 3.50 to 1.00.
The Credit Agreement also contains customary events of default, including, among others, the failure by
any ARRIS party to make a payment of principal or interest due under the Credit Agreement, the making of a
materially incorrect representation or warranty by any ARRIS party in the Credit Agreement and the failure by
ARRIS to perform or observe any term or covenant in the Credit Agreement, subject to customary notice and
cure provisions. Upon the occurrence of an event of default, and so long as such event of default is continuing,
the amounts outstanding under the Credit Agreement will accrue interest at an increased rate, and subject to the
certain funds provisions, payments of such outstanding amounts could be accelerated by the lenders. ARRIS has
agreed that it will not, without the consent of Bank of America, N.A., as administrative agent, amend or waive
any term of certain documents relating to the Scheme in a manner materially adverse to the interests of the
lenders from those in the Rule 2.7 Announcement, as the case may be unless required by the Takeover Panel, the
Takeover Code, a court or any other applicable law, regulation or regulatory body.
A copy of the Credit Agreement was filed as Exhibit 10.1 to the Current Report on Form 8-K filed by
ARRIS on June 19, 2015 and is incorporated herein by reference.
Combination Related Costs
ARRIS currently estimates that, upon the effective time of the Combination, Combination related costs
incurred by the combined company, including fees and expenses relating to the financing, will be
approximately $92.7 million.
77
TABLE OF CONTENTS
Miscellaneous
New ARRIS, ARRIS and various related entities have entered into a Credit Agreement that has an aggregate
maximum commitment amount of approximately $2.834 billion from Bank of America, N.A. and various other
lenders to finance the cash portion of the consideration, pay related fees and expenses and provide financing for
New ARRIS’ future needs. After giving effect to the acquisition, and assuming payment of estimated fees
including estimated financing costs, and assuming a late 2015 acquisition closing, New ARRIS, expects to have
total external debt aggregating approximately $2.4 billion.
CREATION OF DISTRIBUTABLE RESERVES OF NEW ARRIS
Under English law, New ARRIS, like other English companies, will only be able to declare dividends, make
distributions or repurchase shares (other than by using the proceeds of a new issuance of shares made for that
purpose) out of distributable reserves.
Distributable reserves are a company’s accumulated realized profits, to the extent not previously utilized by
distribution or capitalization, less its accumulated realized losses, to the extent not previously written off in a
reduction or reorganization of capital duly made. Immediately following the Combination, New ARRIS will not
have any distributable reserves. In order to have sufficient distributable reserves to repurchase shares and/or to
pay dividends or make distributions for the foreseeable future, New ARRIS will seek to have an amount
approximately equal to the total amount of New ARRIS’ share premium account as of a date after the
Combination created as distributable reserves following a reduction of capital of New ARRIS implemented
through a customary process in the UK, which is subject to the approval of the Court.
Please see “Risk Factors — English law requires that companies meet certain additional financial
requirements before they can declare dividends or repurchase shares following the Combination” for more
information.
In particular, prior to the closing of the Combination, the current sole shareholder of New ARRIS (which is
ARRIS) will pass a resolution to reduce the capital of New ARRIS to allow the creation of distributable reserves.
Following the Combination, New ARRIS will therefore seek to obtain the approval of the Court through a
customary procedure, which is required in this instance for the creation of distributable reserves to be effective,
as soon as practicable. The Court has discretion as to whether to approve the reduction of capital. The Court may
not approve the reduction of capital if, among other things, the interests of creditors are not adequately
safeguarded. The approval of the Court is expected to be received within six weeks after the completion of the
Combination. In the future, earnings of New ARRIS will form part of the distributable reserves of New ARRIS.
78
TABLE OF CONTENTS
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income tax consequences of the
Combination to ARRIS and New ARRIS, and the material U.S. federal income tax consequences of the Merger to
U.S. Holders and Non-U.S. Holders (each as defined below) of ARRIS shares, and of the subsequent ownership
and disposition of New ARRIS shares received by such holders in the Merger.
This discussion is based on provisions of the Code, the Treasury Regulations promulgated thereunder
(whether final, temporary, or proposed), administrative rulings of the IRS, judicial decisions, and the United
Kingdom-United States Tax Treaty (the “Tax Treaty”), all as in effect on the date hereof, and all of which are
subject to differing interpretations or change, possibly with retroactive effect. This discussion does not purport
to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a
holder as a result of the Merger and the Combination or as a result of the ownership and disposition of New
ARRIS shares. In addition, this discussion does not address all aspects of U.S. federal income taxation that may
be relevant to particular holders nor does it take into account the individual facts and circumstances of any
particular holder that may affect the U.S. federal income tax consequences to such holder, and accordingly, is
not intended to be, and should not be construed as, tax advice. This discussion does not address the U.S. federal
3.8% Medicare tax imposed on certain net investment income or any aspects of U.S. federal taxation other than
those pertaining to the income tax, nor does it address any tax consequences arising under any U.S. state and
local, or non-U.S. tax laws. Holders should consult their own tax advisors regarding such tax consequences in
light of their particular circumstances.
No ruling has been requested or will be obtained from the IRS regarding the U.S. federal income tax
consequences of the Merger, the Combination or any other related matter; thus, there can be no assurance that
the IRS will not challenge the U.S. federal income tax treatment described below or that, if challenged, such
treatment will be sustained by a court.
This summary is limited to considerations relevant to U.S. Holders and Non-U.S. Holders that hold ARRIS
shares, and, after the completion of the Merger, New ARRIS shares, as “capital assets” within the meaning of
section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects
of U.S. federal income taxation that may be important to holders in light of their individual circumstances,
including holders subject to special treatment under the U.S. tax laws, such as, for example:
•
banks or other financial institutions, underwriters, or insurance companies;
•
traders in securities who elect to apply a mark-to-market method of accounting;
•
real estate investment trusts and regulated investment companies;
•
tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other taxdeferred accounts;
•
expatriates or former long-term residents of the United States;
•
partnerships or other pass-through entities or investors in such entities;
•
dealers or traders in securities, commodities or currencies;
•
grantor trusts;
•
persons subject to the alternative minimum tax;
•
U.S. persons whose “functional currency” is not the U.S. dollar;
•
persons who received ARRIS shares through the issuance of restricted stock under an equity incentive
plan or through a tax-qualified retirement plan or otherwise as compensation;
•
persons who own (directly or through attribution) 5% or more (by vote or value) of the outstanding
ARRIS shares, or, after the Merger, the outstanding New ARRIS shares; or
79
TABLE OF CONTENTS
•
holders holding ARRIS shares, or, after the Merger, New ARRIS shares, as a position in a “straddle,” as
part of a “synthetic security” or “hedge,” as part of a “conversion transaction,” or other integrated
investment or risk reduction transaction.
As used in this proxy statement/prospectus, the term “U.S. Holder” means a beneficial owner of ARRIS
shares, and, after the Merger, New ARRIS shares received in the Merger, that is, for U.S. federal income tax
purposes:
•
an individual who is a citizen or resident of the United States;
•
a corporation (or other entity that is classified as a corporation for U.S. federal income tax purposes)
that is created or organized in or under the laws of the United States or any State thereof or the District
of Columbia;
•
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
•
a trust (i) if a court within the United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the authority to control all substantial
decisions of the trust, or (ii) that has a valid election in effect under applicable Treasury Regulations to
be treated as a U.S. person for U.S. federal income tax purposes.
For purposes of this discussion, a Non-U.S. Holder means a beneficial owner of ARRIS shares, and, after the
Merger, New ARRIS shares received in the Merger, that is neither a U.S. Holder nor a partnership (or an entity or
arrangement treated as a partnership) for U.S. federal income tax purposes.
If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S.
federal income tax purposes, holds ARRIS shares, and, after the completion of the Merger, New ARRIS shares
received in the Merger, the U.S. federal income tax treatment of a partner in such partnership generally will
depend on the status of the partner and the activities of the partnership. A holder that is a partnership and the
partners in such partnership should consult their own tax advisors with regard to the U.S. federal income tax
consequences of the Merger and the subsequent ownership and disposition of New ARRIS shares received in the
Merger.
THIS SUMMARY DOES NOT PURPORT TO BE A COMPREHENSIVE ANALYSIS OR DESCRIPTION OF
ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE COMBINATION. ARRIS
STOCKHOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS REGARDING THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE COMBINATION AND OF THE OWNERSHIP AND DISPOSITION OF
NEW ARRIS SHARES AFTER THE COMBINATION, INCLUDING THE APPLICABILITY AND EFFECTS OF
U.S. FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS.
The discussion under “— U.S. Federal Income Tax Consequences of the Merger to ARRIS Stockholders”
constitutes the opinion of Troutman Sanders LLP, counsel to ARRIS, as to the material U.S. federal income tax
consequences of the Merger to U.S. Holders and Non-U.S. Holders of ARRIS shares and of the ownership and
disposition of New ARRIS shares received by such holders in the Merger, in each case subject to the limitations,
exceptions, beliefs, assumptions, and qualifications described in such opinion and otherwise herein.
U.S. Federal Income Tax Consequences of the Merger and the Combination to ARRIS and New ARRIS
U.S. Federal Income Tax Consequences of the Merger to ARRIS
ARRIS should not incur additional U.S. federal income tax solely by virtue of the consummation of the
Merger. However, ARRIS will continue to be subject to U.S. tax after the Merger. Furthermore, ARRIS (and its
U.S. affiliates) may be subject to limitations on the utilization of certain tax attributes, as described below.
U.S. Federal Withholding Tax Consequences of the Merger to New ARRIS
If, as described below, the Merger qualifies as a reorganization under Section 368(a) of the Code and
Section 367(a) of the Code does not apply, then, as described below, New ARRIS should be treated as receiving
a distribution from ARRIS Holdings immediately prior to the Merger. This deemed distribution
80
TABLE OF CONTENTS
should be treated as a taxable dividend to New ARRIS to the extent of ARRIS Holdings’ and ARRIS’ current and
accumulated earnings and profits for the year of the deemed distribution (which should include the accumulated
earnings and profits of ARRIS from such year and years prior to the year of the deemed distribution) and should
be subject to U.S. withholding tax (at a rate of 5%) in accordance with the Tax Treaty. The amount of ARRIS
Holdings’ and ARRIS’ current and accumulated earnings and profits for the year of the deemed distribution
(which is expected to be the 2015 calendar year) is uncertain, but could be substantial. Notwithstanding the
foregoing, if it is determined that Section 367(a) of the Code does apply (because, for example, the New ARRIS
income amount does not exceed the U.S. shareholders gain amount, as those terms are defined below), the
deemed distribution and U.S. withholding tax rules would not apply to ARRIS Holdings.
Tax Residence of New ARRIS for U.S. Federal Income Tax Purposes
Under current U.S. federal income tax law, a corporation generally will be considered to be a tax resident for
U.S. federal income tax purposes in its country of organization or incorporation. Accordingly, under generally
applicable U.S. federal income tax rules, New ARRIS, which is incorporated under the laws of England and
Wales, would be classified as a non-U.S. corporation (and, therefore, not a U.S. tax resident) for U.S. federal
income tax purposes. Section 7874, however, contains rules that may cause a non-U.S. corporation to be treated
as a U.S. corporation for U.S. federal income tax purposes. These rules are relatively new and complex and there
is limited guidance as to their application.
Under Section 7874, a corporation created or organized outside the United States (i.e., a non-U.S.
corporation) will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes (and,
therefore, a U.S. tax resident subject to U.S. federal income tax on its worldwide income) if each of the following
three conditions are met: (i) the non-U.S. corporation acquires, directly or indirectly, substantially all of the
assets held, directly or indirectly, by a U.S. corporation (including through the direct or indirect acquisition of
all of the outstanding shares of the U.S. corporation); (ii) after the acquisition, the non-U.S. corporation’s
“expanded affiliated group” does not have substantial business activities in the non-U.S. corporation’s country
of organization or incorporation relative to the expanded affiliated group’s worldwide activities (as determined
under the Treasury Regulations); and (iii) after the acquisition, the former stockholders of the U.S. corporation
hold at least 80% (by either vote or value) of the shares of the acquiring non-U.S. corporation by reason of
holding shares of the U.S. corporation (which includes the receipt of the non-U.S. corporation’s shares in the
acquisition), which requirement is referred to in this proxy statement/prospectus as the “Ownership Test.”
For purposes of Section 7874, at the Merger effective time, the first two conditions described above will be
met because (i) New ARRIS will indirectly acquire all of the assets of ARRIS through the indirect acquisition of
all of the ARRIS shares, and (ii) New ARRIS, including its expanded affiliated group, is not expected to have
substantial business activities in the United Kingdom for purposes of Section 7874. As a result, the application
of Section 7874 to the Combination will depend on the satisfaction of the Ownership Test.
Based on the rules for determining share ownership under Section 7874 and the Treasury Regulations
promulgated thereunder, and certain factual assumptions, after the Merger ARRIS stockholders are expected to
be treated as holding less than 80% (by both vote and value) of the New ARRIS shares by reason of their
ownership of ARRIS shares. As a result, under current law, New ARRIS should be treated as a non-U.S.
corporation for U.S. federal income tax purposes. However, whether the Ownership Test has been satisfied must
be finally determined after the completion of the Combination, by which time there could be adverse changes to
the relevant facts and circumstances.
Any changes to the rules in Section 7874 or the Treasury Regulations promulgated thereunder, or other
changes in law, could adversely affect New ARRIS’ status as a non-U.S. corporation for U.S. federal income tax
purposes.
Recent legislative proposals have aimed to expand the scope of Section 7874, or otherwise address certain
perceived issues arising in connection with so-called inversion transactions. In particular, recent proposals
introduced in both houses of the U.S. Congress would, if enacted in their present form and if made retroactively
effective to transactions completed during the period in which the Combination occurs,
81
TABLE OF CONTENTS
would cause New ARRIS to be treated as a U.S. corporation for U.S. federal income tax purposes. It is presently
uncertain whether any such legislative proposals or any other legislation relating to Section 7874 or so-called
inversion transactions will be enacted into law and, if so, what impact such legislation would have on the tax
status of New ARRIS.
In addition, the U.S. Treasury has indicated that it is considering regulatory action in connection with socalled inversion transactions, including, most recently, in the Notice. The regulations described in the Notice
would, among other things, make it more difficult for the Ownership Test to be satisfied and would limit or
eliminate certain tax benefits to so-called inverted corporations, including with respect to access to certain
foreign earnings and/or the ability to restructure the non-U.S. members of the ARRIS group. Although the
promulgation of the Treasury Regulations described in the Notice is not expected to affect the tax status of New
ARRIS following the Combination, the precise scope and application of the regulatory proposals will not be
clear until proposed Treasury Regulations are actually issued. Accordingly, until such regulations are
promulgated and fully understood, there can be no assurance that such regulations would not cause New ARRIS
to be treated as a U.S. corporation for U.S. federal income tax purposes.
If New ARRIS were to be treated as a U.S. corporation for U.S. federal income tax purposes, it could be
subject to substantial additional U.S. tax liability. The remainder of this discussion assumes that New ARRIS
will not be treated as a U.S. corporation for U.S. federal income tax purposes under Section 7874.
Potential Limitation on the Utilization of ARRIS’ (and its U.S. Affiliates’) Tax Attributes
Following the acquisition of a U.S. corporation by a non-US corporation, Section 7874 can limit the ability
of the acquired U.S. corporation and its U.S. affiliates to utilize certain U.S. tax attributes (including net
operating losses and certain tax credits) to offset U.S. taxable income resulting from certain transactions.
Specifically, if (i) the non-U.S. corporation acquires, directly or indirectly, substantially all of the assets held,
directly or indirectly, by the U.S. corporation (including through the direct or indirect acquisition of all of the
outstanding shares of the U.S. corporation), (ii) after the acquisition, the non-U.S. corporation’s “expanded
affiliated group” does not have substantial business activities in the non-U.S. corporation’s country of
organization or incorporation relative to the expanded affiliated group’s worldwide activities (as determined
under the Treasury Regulations), and (iii) after the acquisition, the former stockholders of the U.S. corporation
hold at least 60% (but less than 80%), by either vote or value, of the shares of the acquiring non-U.S. corporation
by reason of holding shares of the U.S. corporation, then the taxable income of the U.S. corporation (and any
person related to the U.S. corporation) for any given year, within a period beginning on the first date the U.S.
corporation’s properties were acquired and ending 10 years after the last date the U.S. corporation’s properties
were acquired, will be no less than that person’s “inversion gain” for that taxable year. A person’s inversion gain
includes gain from the transfer of shares or any other property (other than property held for sale to customers)
and income from the license of any property that is either transferred or licensed as part of the acquisition or after
the acquisition to a non-U.S. related person.
As discussed above, at the Merger effective time, the first two conditions described above will be met. In
addition, the ARRIS stockholders are expected to receive at least 60% (but less than 80%) of the vote and value
of the New ARRIS shares by reason of holding ARRIS shares in the Merger. As a result, ARRIS and its U.S.
affiliates would be limited in their ability to utilize certain U.S. tax attributes to offset their inversion gain, if
any. Neither ARRIS nor its U.S. affiliates expects to recognize any inversion gain as part of the Merger, nor do
they currently intend to engage in any transaction in the near future that would generate a material amount of
inversion gain. If, however, ARRIS or its U.S. affiliates were to engage in any transaction that would generate
any inversion gain in the future, such transaction may be fully taxable to ARRIS or its U.S. affiliates
notwithstanding that such entity may have certain deductions and other U.S. tax attributes which, but for the
application of Section 7874, would be able available to offset some or all of such gain. Moreover, because the
ARRIS stockholders are expected to receive at least 60% of the vote and value of the New ARRIS shares, and
because (as discussed in “U.S. Federal Income Tax Consequences of the Merger to ARRIS Stockholders – U.S.
Federal Income Tax Consequences of the Merger to U.S. Holders” below) ARRIS stockholders are expected to
recognize gain in the Merger, Section 4985 of the Code and rules related thereto should impose an excise tax on
the value of certain ARRIS stock-based compensation held directly or indirectly by certain “disqualified
individuals” (including officers and directors of ARRIS) at a rate equal to 15%.
82
TABLE OF CONTENTS
U.S. Federal Income Tax Consequences of the Merger to ARRIS Stockholders
U.S. Federal Income Tax Consequences of the Merger to U.S. Holders
The Merger is intended to, and is structured so that it will, qualify as a “reorganization” within the meaning
of Section 368(a) of the Code. Notwithstanding such fact, as discussed above, it is expected that New ARRIS
should be respected as a non-U.S. corporation for U.S. federal income tax purposes. As such, it is expected that
special rules contained in Section 367(a) of the Code and the Treasury Regulations promulgated thereunder will
require that U.S. Holders exchanging ARRIS shares for New ARRIS shares pursuant to the Merger recognize
gain, if any, but not loss on such exchange. The amount of gain recognized will equal the excess, if any, of the
fair market value of the New ARRIS shares received in the Merger over the U.S. Holder’s adjusted tax basis in the
ARRIS shares exchanged therefor. Any such gain will be capital gain, and will be long-term capital gain if the
U.S. Holder’s holding period in its ARRIS shares is more than one year on the closing date of the Merger.
A U.S. Holder’s adjusted tax basis in the New ARRIS shares received will be equal to the adjusted tax basis
of the ARRIS shares exchanged therefor, increased by the amount of any gain recognized. If gain is recognized,
it is unclear whether a U.S. Holder’s holding period for the New ARRIS shares will include the holding period for
the ARRIS shares surrendered in exchange therefor.
While it is expected that U.S. Holders of ARRIS shares will recognize gain, but not loss, under Section
367(a) of the Code, this tax treatment is not certain. An exception promulgated in the Treasury Regulations
provides that Section 367(a) will not apply to certain triangular reorganizations (including those like the
Merger) if certain specified conditions (discussed in detail below) are satisfied. Non-recognition treatment
provided by the exception depends on certain facts that are subject to change, that could be affected by actions
taken by ARRIS and events beyond ARRIS’ control, and that cannot be known prior to the end of the taxable
year in which the Merger is completed. For example, decreases in the price of ARRIS shares prior to the Merger
may decrease the U.S. shareholders gain amount (as defined below) and make it more likely that U.S. Holders
will not be required to recognize gain on the Merger. See “— Detailed Discussion of the Exception to Section
367(a) of the Code for Certain Outbound Stock Transfers” beginning on page 83. In addition, the New ARRIS
income amount (as defined below) cannot be known until after the end of the taxable year in which the Merger is
completed.
Following the completion of the Combination, New ARRIS intends to notify ARRIS shareholders via one
or more website announcements regarding whether the specified conditions have been satisfied. These
announcements will be updated once actual year-end information becomes available.
Detailed Discussion of the Exception to Section 367(a) of the Code for Certain Outbound Stock Transfers
As noted, Section 367(a) of the Code and Treasury Regulations promulgated thereunder generally require
U.S. shareholders to recognize gain (but not loss) if stock of a U.S. corporation is exchanged for stock of a nonU.S. corporation in an otherwise non-taxable reorganization and the U.S. shareholders receive more than 50%
(by vote or value) of the stock of the non-U.S. corporation. However, under Treasury Regulations and public
pronouncements by the IRS, if certain specified conditions (discussed below) are satisfied, Section 367(a)
generally will not apply to a reorganization in which a U.S. subsidiary of a non-U.S. corporation purchases stock
of the non-U.S. corporation and uses the purchased stock to acquire another corporation from such corporation’s
shareholders. Pursuant to the Merger Agreement and the overall plan of reorganization, for U.S. for federal
income tax purposes, (i) ARRIS Holdings, a U.S. corporation, should be treated as acquiring New ARRIS shares
from New ARRIS, a non-U.S. corporation, in exchange for one or more promissory notes, and (ii) such New
ARRIS shares should be treated as used by ARRIS Holdings to acquire ARRIS in the Merger, which is the
structure described in the preceding sentence. Accordingly, while it is expected that U.S. Holders of ARRIS
shares will recognize gain under Section 367(a) of the Code, if the conditions discussed below are satisfied,
Section 367(a) should not apply and the U.S. Holders of ARRIS shares should not recognize any gain or loss on
the Merger.
Under the applicable Treasury Regulations and public pronouncements by the IRS, under specified
circumstances, the acquisition of the New ARRIS shares by ARRIS Holdings in exchange for one or more
promissory notes is treated as a deemed distribution by ARRIS Holdings to New ARRIS (referenced herein
83
TABLE OF CONTENTS
as the “deemed distribution”) in an amount equal to the fair market value of the promissory note. The deemed
distribution is subject to Section 301 of the Code. The specified conditions referenced above are satisfied if, as a
factual and legal matter: (1) a portion of the deemed distribution to New ARRIS would be treated as a dividend
under Section 301(c)(1) of the Code (which is determined based on the current and accumulated earnings and
profits of ARRIS Holdings (as determined for U.S. federal income tax purposes and as adjusted under the
applicable Treasury Regulations and public pronouncements by the IRS to include the earnings and profits of
ARRIS)), (2) New ARRIS is subject to U.S. withholding tax on such amount, and (3) the sum of (a) the portion of
the deemed distribution to New ARRIS that is treated as a dividend and (b) the portion of the deemed
distribution that is treated as gain under Section 301(c)(3) of the Code that is subject to U.S. federal income tax
in the hands in New ARRIS (such sum referenced herein as the “New ARRIS income amount”), exceeds the
aggregate built-in gain (generally, fair market value minus adjusted tax basis) in the ARRIS shares transferred to
ARRIS Holdings by all U.S. Holders in the Merger (such built-in gain is referenced herein as the “U.S.
shareholders gain amount.”) As noted above, if, instead, the U.S. shareholders gain amount is equal to or exceeds
the New ARRIS income amount, the deemed distribution rule of the applicable Treasury Regulations and public
pronouncements by the IRS will not be applicable to New ARRIS, but then U.S. Holders will be subject to
Section 367(a) as described above.
For purposes of determining New ARRIS income amount, the amount of ARRIS Holdings applicable
earnings and profits, which should include the current and accumulated earnings and profits of ARRIS under
public pronouncements by the IRS, for the taxable year that includes the Merger (which is expected to be the
2015 calendar year) will depend on overall business conditions and the overall tax position of ARRIS Holdings
and ARRIS for that taxable year. Such earnings and profits, if any, will take into account, among other things,
taxable operating income and loss as well as taxable non-operating income and loss (including dispositions
outside the ordinary course of business and extra-ordinary items), subject to certain adjustments, and cannot be
determined until the end of the taxable year in which the Merger is completed. If ARRIS Holdings has positive
applicable earnings and profits, and if the New ARRIS income amount exceeds the U.S. shareholders gain
amount, New ARRIS will be subject to withholding on the deemed dividend received from ARRIS Holdings.
It is uncertain whether the New ARRIS income amount will exceed the U.S. shareholders gain amount,
because the U.S. shareholders gain amount cannot be known with certainty until after the closing date of the
Merger. The U.S. shareholders gain amount will depend on the trading price of the ARRIS shares and the tax
basis of such stock at the time of the Merger, neither of which can be predicted with certainty. In particular,
increases in the ARRIS share price prior to the Merger would increase the U.S. shareholders gain amount and
make it more likely that U.S. Holders of ARRIS shares will be required to recognize gain (but not loss) on the
Merger. Similarly decreases in the ARRIS share price make it less likely. Moreover, because ARRIS is a public
company, information as to the tax basis of the ARRIS shares will not be determinable with certainty or
obtainable from all U.S. Holders and is subject to change based on trading activity in the shares. Following
closing, New ARRIS will undertake a study to estimate the tax basis of the ARRIS shares at the time of the
Merger in order to assist in evaluating whether U.S. Holders of ARRIS shares will be required to recognize gain
(but not loss) on the Merger. Further, the sampling methodology used to determine the U.S. shareholders gain
amount or the amount of gain so determined may be challenged by the IRS, and if the IRS were to make such a
challenge, there is no assurance that a court would not agree with the IRS.
U.S. Holders should consult their own tax advisors as to the particular consequences to them of the
exchange of ARRIS shares for New ARRIS shares pursuant to the Merger. The remainder of this discussion
assumes that the Merger will qualify as a reorganization and that New ARRIS will be considered a non-U.S.
corporation.
84
TABLE OF CONTENTS
U.S. Federal Income Tax Consequences of the Merger to Non-U.S. Holders
A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain recognized in the
Merger unless:
•
the recognized gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business
in the United States, and if required by an applicable tax treaty, is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; or
•
the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more
during the taxable year in which the Merger occurs, and certain other requirements are met.
Unless an applicable treaty provides otherwise, the recognized gain described in the first bullet point above
generally will be subject to U.S. federal income tax on a net income basis in the same manner as if such Non-U.S.
holder were a U.S. person, as described under “— U.S. Federal Income Tax Consequences of the Merger to U.S.
Holders” above). A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax equal to
30% (or such lower rate specified by an applicable tax treaty) of its effectively connected earnings and profits for
the taxable year, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any
applicable tax treaties that may provide for different rules.
Recognized gain described in the second bullet point above generally will be subject to U.S. federal
income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset
by U.S.-source capital losses of the Non-U.S. Holder, if any.
U.S. Federal Income Tax Consequences to U.S. Holders of the Ownership and Disposition of New ARRIS
Shares
The following discussion is a summary of certain material U.S. federal income tax consequences of the
ownership and disposition of New ARRIS shares to ARRIS stockholders who receive such New ARRIS shares
pursuant to the Merger.
Distributions on New ARRIS Shares
The gross amount of any distribution on New ARRIS shares that is made out of New ARRIS’ current or
accumulated earnings and profits (as determined for U.S. federal income tax purposes) generally will be taxable
to a U.S. Holder as ordinary dividend income on the date such distribution is actually or constructively received
by such U.S. Holder. Any such dividends paid to corporate U.S. Holders generally will not qualify for the
dividends-received deduction that may otherwise be allowed under the Code. In general, the dividend income
would be treated as foreign source, passive income for U.S. federal foreign tax credit limitation purposes.
Dividends received by non-corporate U.S. Holders (including individuals), subject to the discussion below
under “— Passive Foreign Investment Company Status,” from a “qualified foreign corporation” may be eligible
for reduced rates of taxation, provided that certain holding period requirements and other conditions are
satisfied. For these purposes, a non-U.S. corporation will be treated as a qualified foreign corporation if it is
eligible for the benefits of a comprehensive income tax treaty with the United States which is determined by the
U.S. Treasury to be satisfactory for purposes of these rules and which includes an exchange of information
provision. The U.S. Treasury has determined that the Tax Treaty meets these requirements. A non-U.S.
corporation is also treated as a qualified foreign corporation with respect to dividends paid by that corporation
on shares that are readily tradable on an established securities market in the United States. U.S. Treasury
guidance indicates that shares listed on the NASDAQ (which the New ARRIS shares are expected to be) will be
considered readily tradable on an established securities market in the United States. There can be no assurance
that the New ARRIS shares will be considered readily tradable on an established securities market in future
years. Non-corporate U.S. Holders that do not meet a minimum holding period requirement during which they
are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant
to Section 163(d)(4) of the Code (dealing with the deduction for investment interest expense) will not be
eligible for the reduced rates of taxation regardless of New ARRIS’ status as a qualified foreign corporation. In
addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related
payments with respect to
85
TABLE OF CONTENTS
positions in substantially similar or related property. This disallowance applies even if the minimum holding
period has been met. Finally, New ARRIS will not constitute a qualified foreign corporation for purposes of
these rules if it is a passive foreign investment company, or “PFIC,” for the taxable year in which it pays a
dividend or for the preceding taxable year. See the discussion below under “— Passive Foreign Investment
Company Status.”
The amount of any dividend paid in foreign currency will be the U.S. dollar value of the foreign currency
distributed by New ARRIS, calculated by reference to the exchange rate in effect on the date the dividend is
includible in the U.S. Holder’s income, regardless of whether the payment is in fact converted into U.S. dollars
on the date of receipt. Generally, a U.S. Holder should not recognize any foreign currency gain or loss if the
foreign currency is converted into U.S. dollars on the date the payment is received. However, any gain or loss
resulting from currency exchange fluctuations during the period from the date the U.S. Holder includes the
dividend payment in income to the date such U.S. Holder actually converts the payment into U.S. dollars will be
treated as ordinary income or loss. That currency exchange income or loss (if any) generally will be income or
loss from U.S. sources for foreign tax credit limitation purposes.
To the extent that the amount of any distribution made by New ARRIS on the New ARRIS shares exceeds
New ARRIS’ current and accumulated earnings and profits for a taxable year (as determined under U.S. federal
income tax principles), the distribution will first be treated as a tax-free return of capital, causing a reduction in
the adjusted basis of the U.S. Holder’s New ARRIS shares, and to the extent the amount of the distribution
exceeds the U.S. Holder’s tax basis, the excess will be taxed as capital gain recognized on a sale or exchange as
described below under “— Sale, Exchange, Redemption or Other Taxable Disposition of New ARRIS Shares.”
It is possible that New ARRIS is, or at some future time will be, at least 50% owned by U.S. persons.
Dividends paid by a foreign corporation that is at least 50% owned by U.S. persons may be treated as U.S. source
income (rather than foreign source income) for foreign tax credit purposes to the extent the foreign corporation
has more than an insignificant amount of U.S. source income. The effect of this rule may be to treat a portion of
any dividends paid by New ARRIS as U.S. source income. Treatment of the dividends as U.S. source income in
whole or in part may limit a U.S. holder’s ability to claim a foreign tax credit with respect to foreign taxes
payable or deemed payable in respect of the dividends paid by New ARRIS or on other items of foreign source,
passive income for U.S. federal foreign tax credit limitation purposes. The Code permits a U.S. Holder entitled to
benefits under the Tax Treaty to elect to treat dividends paid by New ARRIS as foreign source income for
foreign tax credit purposes if that dividend income is separated from other income items for purposes of
calculating the U.S. holder’s foreign tax credit. U.S. Holders should consult their own tax advisors about the
desirability and method of making such an election.
Sale, Exchange, Redemption or Other Taxable Disposition of New ARRIS Shares
Subject to the discussion below under “— Passive Foreign Investment Company Status,” a U.S. Holder
generally will recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of New
ARRIS shares in an amount equal to the difference between the amount realized on the disposition and such U.S.
Holder’s adjusted tax basis in such shares. Any gain or loss recognized by a U.S. Holder on a taxable disposition
of New ARRIS shares generally will be capital gain or loss and will be long-term capital gain or loss if the
holder’s holding period in such shares exceeds one year at the time of the disposition. Preferential tax rates may
apply to long-term capital gains of non-corporate U.S. Holders (including individuals). The deductibility of
capital losses is subject to limitations. Any gain or loss recognized by a U.S. Holder on the sale or exchange of
New ARRIS shares generally will be treated as U.S. source gain or loss.
Passive Foreign Investment Company Status
Notwithstanding the foregoing, certain adverse U.S. federal income tax consequences could apply to a U.S.
Holder if New ARRIS is treated as a PFIC for any taxable year during which such U.S. Holder holds New ARRIS
shares. A non-U.S. corporation, such as New ARRIS, will be classified as a PFIC for U.S. federal income tax
purposes for any taxable year in which, after the application of certain look-through rules, either (i) 75% or more
of its gross income for such year is “passive income” (as defined in the relevant provisions of the Code) or
(ii) 50% or more of the value of its assets (determined on the basis of a quarterly
86
TABLE OF CONTENTS
average) during such year produce or are held for the production of passive income. Passive income generally
includes dividends, interest, royalties, rents, annuities, net gains from the sale or exchange of property producing
such income and net foreign currency gains.
New ARRIS is not currently expected to be treated as a PFIC for U.S. federal income tax purposes, but this
conclusion is a factual determination made annually and, thus, is subject to change. With certain exceptions, the
New ARRIS ordinary shares would be treated as stock in a PFIC if New ARRIS were a PFIC at any time during a
U.S. Holder’s holding period in such U.S. Holder’s New ARRIS shares. There can be no assurance that New
ARRIS will not be treated as a PFIC for any taxable year or at any time during a U.S. Holder’s holding period.
If New ARRIS were to be treated as a PFIC, unless a U.S. Holder elects to be taxed annually on a mark-tomarket basis with respect to its New ARRIS shares, gain realized on any sale or exchange of such NEW ARRIS
shares and certain distributions received with respect to such shares could be subject to additional U.S. federal
income taxes, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. In
addition, dividends received with respect to New ARRIS shares would not constitute qualified dividend income
eligible for preferential tax rates if New ARRIS is treated as a PFIC for the taxable year of the distribution or for
its preceding taxable year. U.S. Holders should consult their own tax advisors regarding the application of the
PFIC rules to their investment in the New ARRIS shares.
U.S. Federal Income Tax Consequences to Non-U.S. Holders of the Ownership and Disposition of New ARRIS
Shares
In general, a Non-U.S. Holder of New ARRIS shares will not be subject to U.S. federal income tax or, subject
to the discussion below under “— Information Reporting and Backup Withholding,” U.S. federal withholding
tax on any dividends received on New ARRIS shares or any gain recognized on a sale or other disposition of
New ARRIS shares (including any distribution to the extent it exceeds the adjusted basis in the Non-U.S.
Holder’s New ARRIS shares) unless:
•
the dividend or gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business
in the United States, and if required by an applicable tax treaty, is attributable to a permanent
establishment maintained by the Non-U.S. Holder in the United States; or
•
in the case of gain only, the Non-U.S. Holder is a nonresident alien individual present in the United
States for 183 days or more during the taxable year of the sale or disposition, and certain other
requirements are met.
A Non-U.S. Holder that is a corporation may also may be subject to a branch profits tax at a rate of 30% (or
such lower rate specified by an applicable tax treaty) on its effectively connected earnings and profits for the
taxable year, as adjusted for certain items.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to dividends received by U.S. Holders of New
ARRIS shares, and the proceeds received on the disposition of New ARRIS shares effected within the United
States (and, in certain cases, outside the United States), in each case, other than U.S. Holders that are exempt
recipients (such as corporations). Backup withholding (currently at a rate of 28%) may apply to such amounts if
the U.S. Holder fails to provide an accurate taxpayer identification number (generally on an IRS Form W-9
provided to the paying agent or the U.S. Holder’s broker) or is otherwise subject to backup withholding.
Certain U.S. Holders holding specified foreign financial assets with an aggregate value in excess of the
applicable dollar threshold are required to report information to the IRS relating to New ARRIS shares, subject to
certain exceptions (including an exception for New ARRIS shares held in accounts maintained by U.S. financial
institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with
their tax return, for each year in which they hold New ARRIS shares. Such U.S. Holders should consult their own
tax advisors regarding information reporting requirements relating to their ownership of New ARRIS shares.
87
TABLE OF CONTENTS
Dividends paid with respect to New ARRIS shares and proceeds from the sale or other disposition of New
ARRIS shares received in the United States by a Non-U.S. Holder through certain U.S.-related financial
intermediaries may be subject to information reporting and backup withholding unless such Non-U.S. Holder
provides to the applicable withholding agent the required certification as to its non-U.S. status, such as by
providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-ECI, or otherwise establishes an
exemption, and otherwise complies with the applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules
may be allowed as a refund or credit against a holder’s U.S. federal income tax liability, if any, provided the
required information is timely furnished to the IRS.
88
TABLE OF CONTENTS
CERTAIN UNITED KINGDOM TAX CONSIDERATIONS
The comments set out below summarize the material aspects of the United Kingdom taxation treatment of
New ARRIS shareholders in respect of their holding of shares in New ARRIS and do not purport to be either (i) a
complete analysis of all tax considerations relating to the New ARRIS shares or (ii) an analysis of the tax
position of New ARRIS, ARRIS or Pace. They are based on current UK legislation and what is understood to be
current HM Revenue and Customs (“HMRC”) practice, both of which are subject to change, possibly with
retrospective effect.
The comments are intended as a general guide and apply only to New ARRIS shareholders who are resident
for tax purposes in the UK, who hold their New ARRIS shares as an investment (other than under a personal
equity plan or individual savings account) and who are the absolute beneficial owners of their New ARRIS
shares. These comments do not deal with certain types of New ARRIS shareholders such as charities, dealers in
securities, persons holding or acquiring shares in the course of a trade, persons who have or could be treated for
tax purposes as having acquired their New ARRIS shares by reason of their employment, collective investment
schemes, persons subject to UK tax on the remittance basis and insurance companies. New ARRIS shareholders
are encouraged to consult an appropriate independent professional tax advisor in respect of their tax position.
The discussion hereunder constitutes the opinion of Herbert Smith Freehills LLP, counsel to ARRIS, as to
the material UK tax consequences of the holding of New ARRIS shares to New ARRIS shareholders who are
resident for tax purposes in the UK, subject to the limitations, exceptions, beliefs, assumptions, and
qualifications described in such opinion and otherwise herein.
Disposal of New ARRIS Shares
A disposal or deemed disposal of New ARRIS shares by a shareholder who is resident in the United
Kingdom for tax purposes may, depending on the particular circumstances of the New ARRIS shareholder and
subject to any available exemptions or reliefs, give rise to a chargeable gain or an allowable loss for capital
gains tax purposes.
Individuals
An individual New ARRIS shareholder who is resident in the United Kingdom for tax purposes and whose
total taxable gains and income in a given tax year, including any gains made on the disposal or deemed disposal
of his New ARRIS shares, are less than or equal to the upper limit of the income tax basic rate band applicable in
respect of that tax year (currently £31,785, or approximately $48,777 based on the exchange rate as of August
31, 2015)) (the “Band Limit”) will generally be subject to capital gains tax at a flat rate of 18% in respect of any
gain arising on a disposal or deemed disposal of his New ARRIS shares.
An individual New ARRIS shareholder who is resident in the United Kingdom for tax purposes and whose
total taxable gains and income in a given tax year, excluding any gains made on the disposal or deemed
disposal of his New ARRIS shares, are more than the Band Limit will generally be subject to capital gains tax at
a flat rate of 28% in respect of the gain arising on a disposal or deemed disposal of his New ARRIS shares.
Corporation Tax Payers
A gain on the disposal or deemed disposal of New ARRIS shares by a person within the charge to UK
corporation tax will form part of the person’s profits chargeable to corporation tax (the rate of which is currently
20%). For such New ARRIS shareholders tax indexation allowance may be available in respect of the full period
of ownership of the New ARRIS shares to reduce any chargeable gain arising (but not to create or increase any
allowable loss).
Overseas Shareholders and Temporary Non-residents
Subject to the paragraph below (dealing with temporary non-residents) New ARRIS shareholders who are
not resident in the UK for UK tax purposes will not generally be subject to UK tax on chargeable gains, unless
they carry on a trade, profession or vocation in the UK through a branch or agency or (in the case of a company)
permanent establishment and the New ARRIS shares disposed of are used or held for the purposes of that branch,
agency or permanent establishment.
89
TABLE OF CONTENTS
However, New ARRIS shareholders who are not resident in the UK may be subject to charges to foreign
taxation depending on their personal circumstances.
A New ARRIS shareholder who is an individual, who has ceased to be resident for tax purposes in the UK
for a period of less than five years and who disposes of New ARRIS shares during that period may be liable to
UK taxation on capital gains (subject to any available exemption or relief). If applicable, the tax charge will
arise in the tax year that the individual returns to the UK.
Taxation of Dividends on New ARRIS Shares
New ARRIS will not be required to withhold in respect of UK tax at source from dividend payments it
makes.
Individuals – Pre-April 6, 2016
A New ARRIS shareholder who is an individual resident in the UK for tax purposes and who receives a
dividend from New ARRIS will be entitled to a tax credit which may be set off against his total income tax
liability. The tax credit will be equal to 10% the aggregate of the dividend and the tax credit (the “Gross
Dividend”), which is also equal to one-ninth of the amount of the cash dividend received.
In the case of such a New ARRIS shareholder who is not liable to UK income tax at either the higher or the
additional rate, that New ARRIS shareholder will be subject to UK income tax on the Gross Dividend at the rate
of 10%. The tax credit will, in consequence, satisfy in full the New ARRIS shareholder’s liability to UK income
tax on the Gross Dividend.
In the case of a New ARRIS shareholder who is liable to UK income tax at the higher rate, the New ARRIS
shareholder will be subject to UK income tax on the Gross Dividend, at the rate of 32.5%, to the extent that the
Gross Dividend falls above the threshold for the higher rate of UK income tax but below the threshold for the
additional rate of UK income tax when it is treated as the top slice of the New ARRIS shareholder’s income. The
tax credit will, in consequence, satisfy only part of the New ARRIS shareholder’s liability to UK income tax on
the Gross Dividend and the New ARRIS shareholder will have to account for UK income tax equal to 22.5% of
the Gross Dividend (which is also equal to 25% of the cash dividend received). For example, if the New ARRIS
shareholder received a dividend of £80 (or approximately $123 based on the exchange rate as of August 31,
2015) from New ARRIS, the dividend received would carry a tax credit of £8.89 (or approximately $13.64 based
on the exchange rate as of August 31, 2015) and therefore represent a Gross Dividend of £88.89 (or
approximately $136.41 based on the exchange rate as of August 31, 2015). The New ARRIS shareholder would
then be required to account for UK income tax of £20 (or approximately $31 based on the exchange rate as of
August 31, 2015) on the Gross Dividend (being £28.89 (i.e. 32.5% of £88.89) less £8.89 (i.e. the amount of the
tax credit)).
In the case of a New ARRIS shareholder who is liable to UK income tax at the additional rate, the New
ARRIS shareholder will be subject to UK income tax on the Gross Dividend, at the rate of 37.5%, to the extent
that the Gross Dividend falls above the threshold for the additional rate of UK income tax when it is treated as
the top slice of the New ARRIS shareholder’s income. After setting off the tax credit comprised in the Gross
Dividend, the New ARRIS shareholder will, accordingly, have to account for UK income tax equal to 27.5% of
the Gross Dividend (which is also equal to 30.55% of the cash dividend received). For example, if the New
ARRIS shareholder received a dividend of £80 from New ARRIS, the dividend received would carry a tax credit
of £8.89 and therefore represent a Gross Dividend of £88.89. The New ARRIS shareholder would then be
required to account for UK income tax of £24.44 on the Gross Dividend (being £33.33 (i.e. 37.5% of £88.89)
less £8.89 (i.e. the amount of the tax credit)).
A UK resident individual New ARRIS shareholder whose liability to UK income tax in respect of a dividend
received from New ARRIS is less than the tax credit attaching to the dividend will not be entitled to any
payment from HMRC in respect of any part of the tax credit attaching to the dividend.
Individuals – Post April 6, 2016
The UK Government announced in its Summer Budget 2015 that the taxation of dividends received by
individuals will change from April 6, 2016 onwards. The legislation enacting this change has not yet been made
available and may differ from the details announced thus far. The summary set out below is based on information
published as of the Summer Budget 2015.
90
TABLE OF CONTENTS
The U.K. Government announced that from April 6, 2016 the dividend tax credit referred to above will be
replaced by a new £5,000 tax-free dividend allowance.
A New ARRIS shareholder who is an individual resident in the UK for tax purposes and who receives a
dividend from New ARRIS after April 6, 2016 will not pay any income tax on the first £5,000 of dividend
income they receive.
A New ARRIS shareholder who is not liable to UK income tax at either the higher or the additional rate will
be subject to UK income tax on any dividend income in excess of £5,000 at the rate of 7.5%.
A New ARRIS shareholder who is liable to UK income tax at the higher rate will be subject to UK income
tax on any dividend income in excess of £5,000 at the rate of 32.5% to the extent that the dividend income in
excess of £5,000 falls above the threshold for the higher rate of UK income tax but below the threshold for the
additional rate of UK income tax when it is treated as the top slice of the New ARRIS shareholder’s income.
A New ARRIS shareholder who is liable to UK income tax at the additional rate will be subject to UK
income tax on any dividend income in excess of £5,000, at the rate of 38.1% to the extent that the dividend
income in excess of £5,000 falls above the threshold for the additional rate of UK income tax when it is treated
as the top slice of the New ARRIS shareholder’s income.
Companies
New ARRIS shareholders within the charge to UK corporation tax which are “small companies” (for the
purposes of UK taxation of dividends) will not generally be subject to tax on dividends paid on the New ARRIS
shares, provided certain conditions are met.
Other New ARRIS shareholders within the charge to UK corporation tax will not be subject to tax on
dividends on the New ARRIS shares so long as (i) the dividends fall within an exempt class and (ii) do not fall
within certain specified anti-avoidance provisions and (iii) the New ARRIS shareholder has not elected for the
dividends not to be exempt. Each New ARRIS shareholder’s position will depend on its own individual
circumstances, although it would normally be expected that dividends paid on the New ARRIS shares would fall
within an exempt class. Examples of dividends that are within an exempt class are dividends in respect of
portfolio holdings, where the recipient owns less than 10% of the issued share capital of the payer (or any class
of that share capital). New ARRIS shareholders will need to ensure that they satisfy the requirements of an
exempt class before treating any dividend as exempt, and seek appropriate professional advice where necessary.
Stamp duty and stamp duty reserve tax (“SDRT”)
The Pace Acquisition
The transfer of the Pace shares will be subject to stamp duty at the rate of 0.5% of the amount or value of the
consideration given in cash and New ARRIS shares (the liability being rounded up to the nearest £5). SDRT will
also be payable on the agreement to transfer the Pace shares (again at 0.5% of the amount or value of the
consideration), but this liability would be discharged if stamp duty is duly paid on the Court order transferring
the Pace shares within six years of the agreement. New ARRIS will be responsible for paying any such stamp
duty or SDRT payable in connection with the transfer of the Pace shares to it under the Scheme.
Issue of the New ARRIS Ordinary Shares
No SDRT should generally be payable, and no liability to stamp duty should arise, in respect of the
issuance of the New ARRIS shares as part of the Combination to Cede, as nominee of DTC for the benefit of New
ARRIS shareholders.
Subsequent Transfers of the New ARRIS Ordinary Shares
Transfers of the New ARRIS shares within the DTC should not be subject to stamp duty or SDRT provided
that no instrument of transfer is entered into and that no election that applies to the New ARRIS shares is or has
been made by DTC or Cede under section 97A of the Finance Act 1986 (the “Finance
91
TABLE OF CONTENTS
Act”). In this regard DTC has confirmed that neither DTC nor Cede has made an election under section 97A of
the Finance Act which would affect the New ARRIS shares to be issued to Cede, as nominee of DTC, as part of
the Combination.
Transfers of New ARRIS shares within DTC where an election that applies to the New ARRIS shares is or
has been made under section 97A of the Finance Act generally will be subject to SDRT at the rate of 0.5% of the
amount or value of the consideration for such transfer.
Transfers of New ARRIS shares that are held in certificated form generally will be subject to stamp duty of
the amount or value of the consideration given (the liability being rounded up to the nearest £5). SDRT will also
be payable on an agreement to transfer such New ARRIS shares, generally at the rate of 0.5% of the amount or
value of the consideration given under the agreement to transfer the New ARRIS shares, but this liability would
be discharged if stamp duty is duly paid on the instrument transferring the New ARRIS shares within six years of
the agreement.
If New ARRIS shares (or interests therein) are subsequently transferred into a clearance system (including
DTC) or to a depositary, stamp duty or SDRT will generally be payable the rate of 1.5% of the amount or value
of the consideration given or, in certain circumstances, the value of the shares (save to the extent that an election
which applies to the New ARRIS shares is or has been made under section 97A of the Finance Act).
The purchaser or the transferee of the New ARRIS shares will generally be responsible for paying any stamp
duty or SDRT payable.
Inheritance Tax
The New ARRIS shares will be assets situated in the UK for the purposes of UK inheritance tax. A gift or
settlement of such assets by, or on the death of, an individual holder of such assets may give rise to a liability to
UK inheritance tax even if the holder is not a resident of or domiciled in the UK. A charge to UK inheritance tax
may also arise in certain circumstances where New ARRIS shares are held by close companies and trustees of
settlements. However, pursuant to the Treaty, a gift or settlement of New ARRIS shares by New ARRIS
shareholders who are domiciled in the US for the purposes of the Treaty should generally not give rise to a
liability to UK inheritance tax.
92
TABLE OF CONTENTS
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In considering the recommendation of the ARRIS Board to adopt the Merger Agreement, ARRIS
stockholders should be aware that non-employee directors and executive officers of ARRIS have certain
interests in the Combination that may be different from, or in addition to, the interests of ARRIS
stockholders generally. These interests are described in more detail below. The ARRIS Board was aware of
and considered these interests, among other matters, in evaluating, negotiating and approving the Merger
Agreement and the Combination and in making its recommendation that the ARRIS stockholders adopt the
Merger Agreement.
U.S. Tax Code Section 4985 Excise Tax
Excise Tax Reimbursement
Section 4985 of the Code imposes a 15% excise tax on the value of certain equity compensation held by
ARRIS’ executive officers and directors if they hold that compensation at any time during the period
commencing six months before and ending six months after the closing of the Combination. The excise tax is
payable by the executive officer or director (and is in addition to the income and other taxes imposed on equity
compensation) and applies where the value of the equity compensation is based upon (or determined by
reference to) the value or change in value of the stock of ARRIS (or New ARRIS). This includes the time-based
and performance-based restricted shares held by the executive officers and the stock units held by the directors.
The excise tax does not apply to interests in ARRIS’ Employee Stock Purchase Plan and any outstanding
qualified incentive stock options. In addition, the excise tax will not apply to equity compensation that is
included in individual’s income (for U.S. income tax purposes) prior to the closing of the Combination. It also
does not apply in the event that the Merger is not taxable to ARRIS stockholders and Section 367(a) of the Code
applies.
As of June 30, 2015, the directors and executive officers held approximately 2.3 million shares and units
that, absent action by ARRIS, will be subject to the excise tax at the closing of the Combination.
The ARRIS Board considered the excise tax at the time it approved the Combination. Based upon recent
similar transactions, it considered that ARRIS might reimburse the executive officers and directors for the tax as
well as for any additional taxes attributable to reimbursement, and the financial analysis considered by the
ARRIS Board at the time the Combination was approved included an estimate of that reimbursement. However,
at that time the ARRIS Board did not approve any reimbursements as part of its approval of the Combination,
with its intent being that the Compensation Committee of the ARRIS Board would consider the matter further
and determine the appropriate action, if any, to be taken by ARRIS with respect to the excise tax.
Following the announcement of the Combination, the Compensation Committee held several meetings to
consider the excise tax issue. As part of its analysis, the Compensation Committee was advised in this process by
Longnecker and Associates, an independent compensation consultant, as well as by independent legal counsel.
Under the current understanding of Section 4985 of the Code, they advised the Compensation Committee that
there were four viable alternatives with respect to the treatment of the excise tax payable by the executive
officers and directors:
•
Reimburse the executive officers and directors for the amount of the excise tax and for any additional
taxes attributable to reimbursement, which we refer to as a “tax equalization payment.”
◦
•
This was the most expensive alternative for ARRIS, but would have the benefit of insuring that
100% of the incentive and retention aspects of the equity awards remain in place.
Accelerate the vesting for some or all of the outstanding awards so as to reduce the value of the equity
compensation subject to the excise tax and reimburse the excise tax and additional taxes attributable
to reimbursement for any awards that are not accelerated.
◦
This would reduce the cash payable by ARRIS, but also potentially would reduce the incentive
and retention value of the awards. In addition, depending on what vesting rate was used for the
acceleration of the performance-based restricted shares, it could result in the executive officers
receiving more (or fewer) shares than he or she otherwise would receive based upon the ultimate
actual performance.
93
TABLE OF CONTENTS
•
Convert outstanding awards into cash-based awards not tied to the performance of ARRIS’ stock,
which would, depending upon the timing of the closing of the Combination, eliminate those new
awards from the applicability of the excise tax.
◦
•
This would eliminate any cash required for payment of the excise tax, but would still require
ARRIS to make significant cash payments at the time of vesting and would not eliminate the
excise tax if the Combination closed within six months of the conversion of the awards.
Take no action at all.
◦
While there would be no cash cost to ARRIS, this alternative would result in the executive
officers and directors not receiving the intended compensation benefits of the awards as a result
of the imposition of an excise tax that was not contemplated when the awards were issued.
Potential Excise Tax Payments of Executive Officers
In considering these options with respect to executive officers, the Compensation Committee considered
the number and value of the awards outstanding, the amount of the excise tax that would be due, and the amount
of the tax equalization payment that would be needed to fully reimburse the executive officers for the excise
taxes and any related reimbursements (assuming no acceleration or conversion to cash-based awards of
outstanding equity compensation):
​
No. of
Shares(1)
Value(2)
Excise Tax
Estimated Tax
Equalization
Payment ​
Jim Brennan
Vicki Brewster
Ron Coppock
Patrick Macken
Larry Margolis
Bruce McClelland
141,766
16,701
195,444
12,040
215,336
226,481
$
$
$
$
$
$
5,316,225
626,288
7,329,150
451,500
8,075,100
8,493,038
$ 797,434
$
93,943
$ 1,099,373
$
67,725
$ 1,211,265
$ 1,273,956
$
$
$
$
$
$
2,152,318
253,558
2,967,267
182,794
3,269,271
3,438,477
David Potts
253,598
$ 9,509,925
$ 1,426,489
$ 3,850,172
Larry Robinson
184,631
$ 6,923,663
$ 1,038,549
$ 2,803,102
Bob Stanzione
801,030
$30,038,625
$ 4,505,794
$12,161,387
2,047,029
$76,763,513
$11,514,527
$31,078,345
(1) Includes all time-based restricted shares and assumes that all outstanding performance-based restricted
shares vest at the 200% level.
(2) Based on an ARRIS share price of $37.50, which currently is the 52-week high.
The excise tax due by each individual will be calculated upon the value of his or her equity awards at the
closing of the Combination. Where an award can vest at different levels, e.g., as is in the case of the performancebased restricted shares (which can vest at between 0% and 200% of target) the excise tax is calculated upon the
maximum number of shares that can vest (i.e., 200% vesting). For purposes of its analysis, the Compensation
Committee assumed that the value of ARRIS shares at closing would be $37.50 per share (although it also
considered data with respect to certain issues based upon $37.00 per share), which was the 52-week high at the
time the Compensation Committee reached its conclusions regarding the excise tax. However, the
Compensation Committee recognized that the actual excise tax and, if approved, any related reimbursements,
would be based upon the value of ARRIS shares at the closing of the Combination. If the value is higher than the
52-week high, it would increase the amount of the excise tax and reimbursements beyond those described in this
discussion; however, the increase in the stock price would represent a more-than-offsetting benefit to the ARRIS
stockholders through price appreciation. A closing value lower than the 52-week high used by the
Compensation Committee would mean that excise taxes and reimbursements would be lower than those
described in this discussion.
94
TABLE OF CONTENTS
The Compensation Committee was advised that it is common practice where excise tax is reimbursed to
also reimburse for the federal and state tax, usually utilizing an estimated tax rate, resulting from the excise tax
and related reimbursements. This tax equalization payment ensures that the executive officer or director ends up
in the same place financially that he or she would have absent the excise tax. The “Estimated Tax Equalization
Payment” columns in the tables above and below reflect reimbursement of the excise tax and any additional
taxes attributable to reimbursement.
Based upon the advice of its independent advisers, as well as reports from management of ARRIS, the
Compensation Committee determined, among other things, that:
1.
The reimbursement of the excise and the additional taxes attributable to reimbursement would place
the executive officers and directors in the same position as other stockholders of ARRIS. Since the
Combination is being pursued for the benefit of all of ARRIS’ stockholders, the Compensation
Committee determined that the executive officers should not be financially penalized, relative to
stockholders in general, for either their efforts to complete the Combination or their mere status as
individuals covered by Section 4985 of the Code.
2.
As a matter of prudent business practice, ARRIS has an obligation to deliver to its executive officers a
“net amount” of compensation consistent with the amount ARRIS previously committed to deliver in
the absence of the imposition of the excise tax. Permitting the imposition of the excise tax without
reimbursement (or some other action that would protect these individuals from its cost) would be
inconsistent with ARRIS’ fundamental obligations to the impacted individuals and its compensation
philosophy as outlined previously in connection with the ARRIS annual meeting of stockholders.
3.
The continued service of its executive officers is important to ARRIS and its stockholders. Absent
some action on the part of ARRIS, these critical employees could be financially damaged from the
imposition of the excise tax, which could impact their loyalty to ARRIS, and might create an incentive
for them to leave ARRIS.
4.
As required by the SEC, other companies in similar situations also have submitted for non-binding
consideration by their stockholders the analogous compensation to be received by their named
executive officers as a result of their transactions. Stockholders have voted in favor of that similar
compensation in each instance.
For the reasons outlined above, the Compensation Committee concluded that it would be inappropriate to
take no action. It also concluded that converting the awards into cash-based awards was not appropriate given
the cash cost to ARRIS associated with the ultimate payment of the awards and the fact that it would not provide
the intended benefit if the Combination closed prior to the end of 2015 as currently anticipated (in which event
the excise tax still would be payable, notwithstanding the conversion of the awards). The Compensation
Committee concluded that, with respect to the executive officers, a mix of accelerations of vesting and
reimbursement of excise tax and other taxes was appropriate as it provided a good balance between reducing the
cash costs payable by ARRIS and maintaining a significant portion of the outstanding equity awards for both
long-term incentive and retention purposes. Therefore, the Compensation Committee then considered what
portion of the awards should be accelerated.
The Compensation Committee considered the nature of the different outstanding awards, which, for
executive officers, include time-based restricted shares that vest in equal installments over four years and
performance-based restricted shares that vest at the end of a three-year period. The Compensation Committee
noted that one-fourth of each original award of time-based restricted shares would vest in 2016, and the
performance-based restricted shares tied to the three-year performance period ending December 31, 2015, also
would vest in 2016. The table below sets forth for each executive officer the total number of shares scheduled to
vest in 2016 and in years beyond 2016.
95
TABLE OF CONTENTS
Executive Officer
% of Total Shares
Shares Subject to
Shares Subject to
Subject to Vesting
(1)
(1)
Vesting
in
2016
Vesting
Beyond
2016
​ ​
​ ​
​ ​ Beyond 2016 ​
Jim Brennan
Vicki Brewster
Ron Coppock
Patrick Macken
45,123
6,777
78,557
3,010
96,643
9,924
116,887
9,030
68 %
59 %
60 %
75 %
Larry Margolis
87,701
127,635
59 %
Bruce McClelland
92,845
133,636
59 %
102,627
150,971
60 %
Larry Robinson
67,207
117,424
64 %
Bob Stanzione
329,418
471,612
59 %
David Potts
(1) Includes all time-based restricted shares and assumes that all outstanding performance-based restricted
shares vest at the 200% level.
With respect to the time-based restricted shares scheduled to vest in 2016, the Compensation Committee
concluded that the retention and incentive value of those shares, particularly given that a significant number of
other time-based restricted shares would vest for each executive officer in subsequent years, was not, at the
current time, meaningful, particularly given the relatively short amount of time between the time of the expected
closing of the Combination in late 2015 and the scheduled vesting of such awards. Similarly, it reviewed the
likelihood of the vesting of the performance-based shares scheduled to vest in 2016. These shares can vest at a
level anywhere from 0% to 200% of the target amount awarded, and vest based upon the change in ARRIS’ share
price over the three-year period ending December 31, 2015, relative to changes in the NASDAQ Composite
Index over the same three-year period. The Compensation Committee recognized that the ARRIS share price is
substantially higher than the level needed to fully vest these shares at the 200% level — it has increased from
$15.31 per share as of January 2, 2013, to $26.42 per share as of August 31, 2015 — and that the likelihood that
ARRIS shares would decline in value, to the degree that these shares would not vest at the 200% level, was very
low. Accordingly, in considering what, if any, action to take, the Compensation Committee concluded that, as
with the time-based restricted shares scheduled to vest in 2016, the retention and incentive value of these shares
was not, at the current time, significant. In connection with this, ARRIS management confirmed that it did not
believe that accelerating the vesting of awards that otherwise would vest in 2016 would increase the likelihood
of any of the executive officers deciding to leave ARRIS following the Combination. The Compensation
Committee also considered the non-cash compensation expense associated with accelerating the awards
scheduled to vest in 2016 given the short remaining life of such awards (before they otherwise would vest in
2016) and the fact that a large portion of the cost of the awards already has been expensed.
ARRIS’ employment agreements with its executive officers provide that an officer age 62 or more, with at
least ten years’ of service with ARRIS, continues to vest in his equity-based compensation following resignation
or retirement. As a consequence, the retention value of awards held by officers over age 62 is not nearly as
significant as it is for younger executive officers because they will still receive the shares even if they retire prior
to their vesting. Of the current executive officers, only Messrs. Stanzione and Margolis are over the age of 62
and have ten years of service with ARRIS. As a result, the Compensation Committee separately considered
whether or not to accelerate all of the equity-based awards held by these individuals as a way to further reduce
the amount of any tax equalization payment to be made by ARRIS as a result of the excise tax. The
Compensation Committee also considered that awards to this group of executive officers are expensed over a
single year, thereby reducing the non-cash compensation expense attendant to acceleration.
In reviewing the retention value of the equity awards held by Messrs. Stanzione and Margolis, the
Compensation Committee again distinguished between time-based restricted shares and performance-based
restricted shares. The Compensation Committee did not approve (or, in the case of Mr. Stanzione, recommend
the full ARRIS Board approve) acceleration of the performance-based restricted shares
96
TABLE OF CONTENTS
scheduled to vest in 2017 and 2018 because they wanted to retain the alignment that those shares provide with
the interests of stockholders. While they believed that the acceleration of the vesting of these awards would not
have any impact on the ultimate actions by these two long-time officers, they determined that distinguishing
between the time-based restricted shares and the performance-base restricted shares was appropriate. First, the
performance-based shares were designed to tie the executive officers’ compensation to the performance of the
Company and thereby benefit investors. The Compensation Committee was reluctant to terminate this
relationship. Second, while the Compensation Committee considered the performance of ARRIS’ share price
over the portion of the performance period to date and the likelihood that the performance-based restricted
shares would vest in 2017 and 2018, there was greater uncertainty regarding the level of vesting than with
respect to the awards scheduled to vest in 2016 given that a significant portion of the three-year performance
period remained for these two sets of performance-based awards. Given such uncertainty, the Compensation
Committee was reluctant to estimate the percentage at which the performance-based awards would ultimately
vest in 2017 and 2018. The Compensation Committee also determined that while it could further reduce the
reimbursement of excise tax and other related taxes were it to accelerate all of Messrs. Stanzione’s and Margolis’
awards, it would not be in the best interests of ARRIS’ stockholders.
Based upon the factors and analysis discussed above, the Compensation Committee approved (or
recommended that the full ARRIS Board approve in the case of Mr. Stanzione) the following and determined
that such actions would be in the best interests of the ARRIS stockholders:
•
For all executive officers, the acceleration of the vesting of the awards that otherwise were scheduled
to vest in 2016 to a date immediately prior to the closing of the Combination (rather than making a tax
equalization payment with respect to these awards). This acceleration would reduce the aggregate tax
equalization payments by approximately $12.3 million.
•
For Messrs. Stanzione and Margolis, the additional acceleration of their time-based restricted shares
that otherwise would vest in 2017, 2018 and 2019 to a date immediately prior to the closing of the
Combination (rather than making a tax equalization payment with respect to these awards). This
acceleration would further reduce the aggregate tax equalization payments by an additional $3.0
million.
For all executive officers, the Compensation Committee approved (or recommended that the full ARRIS
Board approve in the case of Mr. Stanzione) the payment by ARRIS of a tax equalization payment in the amount
of the excise tax payable with respect to the equity compensation that remained unvested as of the closing of the
Combination and any additional taxes payable by the executive officers as a result of reimbursement.
As shown in the table below, by accelerating a portion of the unvested awards, ARRIS reduces by
approximately $15.3 million the amount of the tax equalization payments it otherwise would have made if it did
not accelerate the vesting of any outstanding awards held by the executive officers. In addition, notwithstanding
the acceleration, there remain both substantial incentive for the executive officers to remain with ARRIS and
substantial alignment of executive compensation with stockholder interests.
Potential Tax
Equalization Payment
Without Acceleration(1)
Executive Officer
Jim Brennan
Vicki Brewster
Ron Coppock
Patrick Macken
Larry Margolis
Bruce McClelland
David Potts
Larry Robinson
Bob Stanzione
$ 2,152,318
$
253,558
$ 2,967,267
$
182,794
$ 3,269,271
$ 3,438,477
$ 3,850,172
$ 2,803,162
$ 12,161,376
$ 31,078,345
Estimated Tax
Equalization Payment
With Acceleration(1) ​
$
$
$
$
$
$
$
$
$
$
1,467,251
137,095
1,774,596
137,095
1,290,030
2,028,880
2,292,070
1,782,747
4,826,569
15,749,909
(1) Based on an ARRIS share price of $37.50, which was the 52-week high as of June 30, 2015.
97
TABLE OF CONTENTS
While the Compensation Committee did not believe that the impact of accelerating the vesting of a portion
of the outstanding awards would be material relative to their retention and incentive purposes, it decided to
require the executive officers, as a condition to making any tax equalization payment to agree to reimburse
ARRIS for the full amount of the tax equalization payment in the event that, subject to various conditions, prior
to the first anniversary of the closing of the Combination, the executive officer resigned his or her employment
with ARRIS other than for “good reason” or was terminated for “cause.” Since this one-year period would extend
past the scheduled vesting in 2016, the Compensation Committee viewed this as substantially, if not fully,
offsetting any loss of the retention value of awards. Mr. Margolis previously had alerted the ARRIS Board that at
some point in the near- to mid-term future he was contemplating retirement (although no date or final
determination has been made). Given this, the Compensation Committee approved a shorter retention time
period for Mr. Margolis.
Potential Excise Tax Payments of Directors
The Compensation Committee also considered what action, if any, to take with respect to the stock units
held by the directors as a result of the possible imposition of the excise tax on their unvested equity
compensation. As with its consideration of the imposition of excise taxes upon executive officers, the
Compensation Committee was advised by Longnecker and Associates and independent legal counsel. Unlike
the unvested equity compensation held by the executive officers, as a result of Section 409A of the Code neither
accelerating the awards held by the directors nor converting them into cash-based awards will reduce the excise
tax, but instead would result in the imposition of a different excise tax. As a result, the Compensation Committee
considered both making tax equalization payments for the unvested stock units and taking no action.
In considering these options with respect to directors, the Compensation Committee considered the awards
outstanding, the amount of the excise tax and the amount of the tax equalization payments that would be
needed to fully compensate the directors:
Excise Tax
Estimated Tax
Equalization
Payment ​
41,950
—
72,600
23,400
10,450
4,200
9,400
14,950
53,100
$1,573,125
—
$2,722,500
$ 877,500
$ 391,875
$ 157,500
$ 352,500
$ 560,625
$1,991,250
$ 235,969
—
$ 408,375
$ 131,625
$ 58,781
$ 23,625
$ 52,875
$ 84,094
$ 298,688
$ 636,893
—
$ 1,102,227
$ 355,263
$ 158,654
$ 63,765
$ 142,713
$ 226,974
$ 806,174
230,050
$8,626,875
$1,294,031
$ 3,492,662
No. of
Shares
Alex Best
Tim Bryan (2)
Harry Bosco
Jim Chiddix
Andrew Heller
Jeong Kim
Doreen Toben
Debora Wilson
David Woodle
Value
(1)
(1) Based on an ARRIS share price of $37.50, which was the 52-week high as of June 30, 2015.
(2) Mr. Bryan joined the ARRIS Board in May 2015 and does not hold any unvested stock units.
The Compensation Committee considered a range of factors, including the four described above with
respect to executive officers, which they concluded largely applied to directors as well. Longnecker
recommended that the Compensation Committee should consider treating directors in a manner similar to how
executive officers were treated with respect to their awards that were not accelerated. Longnecker emphasized
that not providing a tax equalization payment to directors was inconsistent with ARRIS’ commitment to
compensate directors at an agreed-upon level. Moreover, Longnecker believed that it was significant that the
directors were not receiving extra compensation in connection with the additional time required of them in
connection with the Combination and that making tax equalization payments to them was consistent with the
practice at other companies in similar situations. The Compensation Committee also considered that the
aggregate estimated amount of the reimbursement, $3.5 million, was small relative to the purchase price for Pace,
which was approximately $2.1 billion at the time of ARRIS Board approval.
98
TABLE OF CONTENTS
Mr. Bosco, a member of the Compensation Committee, elected to recuse himself from the vote regarding
what action to take, if any, with respect to the directors’ equity compensation given the magnitude of the
potential total reimbursement to him — above $1 million — and his concern that the magnitude might be
perceived as being a material interest on his part.
Given the limited options available for handling the excise tax payable by the directors with respect to the
unvested stock units and the other factors described above, including the applicability of Section 409A to the
possible alternatives, the Compensation Committee approved the payment of tax equalization payments to the
directors for the excise tax and the attendant related taxes. As noted above, Mr. Bosco recused himself from such
approval.
Total Tax Reimbursements and Accelerated Vesting
The estimated tax equalization payments and shares subject to accelerated vesting approved by the
Compensation Committee are summarized below. The tax equalization payments with respect to Mr. Stanzione
(as well as the acceleration of his awards) were subject to approval by the full ARRIS Board, and that approval
subsequently was granted.
Value of
Accelerated
Awards for
Purposes of
Proposal 2 (1) ​
Shares
Subject to
Accelerated
Awards
Shares
Subject to
Awards Not
Accelerated
1,467,251
150,671
1,774,596
137,095
1,290,030
2,028,880
2,292,070
1,782,747
4,826,569
45,123
6,777
78,557
3,010
130,366
92,845
102,627
67,207
483,120
96,643
9,924
116,887
9,030
84,970
133,636
150,971
117,424
317,910
$ 1,362,266
$ 204,593
$ 2,371,643
$
90,872
$ 3,935,750
$ 2,803,003
$ 3,098,309
$ 2,028,992
$14,585,393
$15,749,909
1,009,643
1,037,394
$30,480,820
Executive Officers
Estimated Tax
Equalization
Payment
Jim Brennan
Vicki Brewster
Ron Coppock
Patrick Macken
Larry Margolis
Bruce McClelland
David Potts
Larry Robinson
Bob Stanzione
$
$
$
$
$
$
$
$
$
(1) For these purposes, the accelerated awards are value based upon the December 31, 2014, closing prices for
ARRIS shares of $30.19 per share.
Estimated Tax
Equalization
Payment
Directors
Alex Best
Tim Bryan
Harry Bosco
Jim Chiddix
Andrew Heller
Jeong Kim
Doreen Toben
Debora Wilson
David Woodle
$ 636,893
(1)
—
$1,102,227
$ 355,263
$ 158,654
$ 63,765
$ 142,713
$ 226,974
$ 806,174
$3,492,662
(1) Mr Bryan joined the ARRIS Board in May 2015 and does not hold any unvested stock units.
Because of the acceleration of a portion of the unvested share awards and the tax equalization payments,
the executive officers and directors have interests that are different from, and in addition to, the interests of
ARRIS’ other stockholders that you should consider when deciding how to vote on the matters presented at the
Special Meeting.
99
TABLE OF CONTENTS
Possible Modification to Acceleration of Vesting and Tax Equalization Payments
Recently the stock market has been volatile and the price of ARRIS shares has declined significantly from
the price at the time that the Combination was approved. While it is expected that gains recognized by ARRIS
stockholders in the Merger will be taxable, it is possible that as a result of stock price declines and other factors
they will not be. See “Material U.S. Federal Income Tax Considerations — U.S. Federal Income Tax
Consequences of the Merger to ARRIS Stockholders” above. In the event that the gains are not taxable, the
excise tax under Section 4985 of the Code will not apply. In the event that prior to the closing of the
Combination the Compensation Committee is able to conclude that it is unlikely that the excise tax will apply,
it may decide not to accelerate awards as described above and not to make any tax equalization payments.
Continuing Executive and Non-Employee Director Positions
It is currently expected that the non-employee directors of ARRIS immediately prior to the completion of
the Combination will continue to serve as non-employee directors of New ARRIS following the Combination.
Robert J. Stanzione (the current ARRIS Chairman and CEO) will be the Chairman and CEO of New ARRIS and
David B. Potts (the current ARRIS CFO) will be the CFO of New ARRIS.
Indemnification and Insurance
ARRIS’ directors and executive officers will be entitled to certain ongoing indemnification and coverage
under directors’ and officers’ liability insurance policies from New ARRIS. See “Comparison of the Rights of
ARRIS Stockholders and New ARRIS Shareholders” beginning on page 137 in this proxy statement/prospectus.
100
TABLE OF CONTENTS
PROPOSAL 2 — ADVISORY (NON-BINDING) VOTE ON MERGER-RELATED COMPENSATION FOR
ARRIS’ NAMED EXECUTIVE OFFICERS
Under Section 14A of the Exchange Act and Rule 14a-21(c) thereunder, ARRIS is required to submit a
proposal to ARRIS stockholders for an advisory (non-binding) vote on certain compensation that may become
payable to ARRIS’ Named Executive Officers in connection with the completion of the Merger. This proposal,
which we refer to as the Non-Binding Compensation Proposal, gives ARRIS stockholders the opportunity to
vote, on an advisory (non-binding) basis, at the Special Meeting on the compensation that may be paid or
become payable to ARRIS’ Named Executive Officers in connection with the Merger. This compensation is
summarized in the table in the section entitled “Interests of Certain Persons in Matters to be Acted Upon — Total Tax Reimbursements and Accelerated Vesting” beginning on page 99, including the footnotes to the table
and the associated narrative discussion.
Accordingly, ARRIS is requesting ARRIS stockholders to adopt the following resolution, on an advisory
(non-binding) basis:
“RESOLVED, that the compensation that may be paid or become payable to ARRIS’ Named Executive
Officers in connection with the Merger, as disclosed pursuant to Item 402(t) of Regulation S-K in the table in the
section of this proxy statement/prospectus entitled “Interests of Certain Persons in Matters to be Acted Upon — Total Tax Reimbursements and Accelerated Vesting,” including the footnotes to the table and the associated
narrative discussion, and the agreements or understandings pursuant to which such compensation may be paid or
become payable, are hereby APPROVED.”
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
ADOPTION OF THE FOREGOING RESOLUTION.
Required Vote
The vote on the Non-Binding Compensation Proposal is a vote separate and apart from the vote to adopt
the Merger Agreement. Accordingly, you may vote not to approve the Non-Binding Compensation Proposal and
vote to approve the Merger Agreement Proposal and vice versa. The completion of the Combination is not
conditioned on approval of this proposal.
Approval of the Non-Binding Compensation Proposal requires the affirmative vote of a majority of the
votes cast by the holders of ARRIS shares entitled to vote on this proposal. Because the vote required to approve
this proposal is based upon the total number ARRIS shares represented in person or by proxy, abstentions will
have the same effect as a vote “against” this proposal. If you fail to submit a proxy and to attend the Special
Meeting or if your ARRIS shares are held through a bank, brokerage firm or other nominee and you do not
instruct your bank, brokerage firm or other nominee to vote your ARRIS shares, your ARRIS shares will not be
voted, but this will not have an effect on the advisory vote to approve the compensation that may be paid or
become payable to ARRIS’ Named Executive Officers in connection with the completion of the Merger.
101
TABLE OF CONTENTS
PROPOSAL 3 — AUTHORITY TO ADJOURN THE SPECIAL MEETING
The Adjournment Proposal
If at the Special Meeting, the ARRIS Board determines it is necessary or appropriate to adjourn the Special
Meeting, ARRIS intends to move to adjourn the Special Meeting. For example, the ARRIS Board may make
such a determination if the number of ARRIS shares represented and voting in favor of the proposal to adopt the
Merger Agreement at the Special Meeting is insufficient to approve that proposal under the DGCL, in order to
enable the ARRIS Board to solicit additional votes in respect of such proposal. Under Delaware law, the board of
directors of ARRIS will be required to send out a new notice of the meeting if the special meeting is adjourned to
a date more than 30 days after October 21, 2015, the current date of the meeting. If the ARRIS Board determines
that it is necessary or appropriate, it will ask ARRIS stockholders to vote only upon the proposal to adjourn the
Special Meeting and not the Merger Agreement Proposal.
In this proposal, ARRIS stockholders are asked to authorize the holder of any proxy solicited by the ARRIS
Board to vote in favor of the proposal to adjourn the Special Meeting to another time and place. If the ARRIS
stockholders approve the proposal to adjourn the Special Meeting, ARRIS could adjourn the Special Meeting
and any adjourned session of the Special Meeting and use the additional time to solicit additional votes,
including the solicitation of votes from ARRIS stockholders that have previously voted. Among other things,
approval of the proposal to adjourn the Special Meeting could mean that, even if proxies representing a
sufficient number of votes against the Merger Agreement Proposal were received to defeat that proposal, the
Special Meeting could be adjourned without a vote on the Merger Agreement Proposal and ARRIS could seek to
convince the holders of those shares of ARRIS shares to change their votes to votes in favor of the Merger
Agreement Proposal.
ARRIS’ BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
ADOPTION OF THE FOREGOING RESOLUTION.
Required Vote
The vote on the Adjournment Proposal is a vote separate and apart from the vote to adopt the Merger
Agreement. Accordingly, you may vote not to approve the Adjournment Proposal and vote to approve the
Merger Agreement Proposal and vice versa. The completion of the Combination is not conditioned on approval
of this proposal.
Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the votes
cast by the holders of ARRIS shares entitled to vote on this proposal. Because the vote required to approve this
proposal is based upon the total number ARRIS shares represented in person or by proxy, abstentions will have
the same effect as a vote “against” this proposal. If you fail to submit a proxy and to attend the Special Meeting
or if your ARRIS shares are held through a bank, brokerage firm or other nominee and you do not instruct your
bank, brokerage firm or other nominee to vote your ARRIS shares, your ARRIS shares will not be voted, but this
will not have an effect on the vote to adjourn the Special Meeting.
The proxyholders will vote as directed on all proxy cards that are received at or prior to the meeting and
that are not subsequently revoked. If you are a stockholder of record and you submit your proxy through the
Internet or by telephone without indicating your vote, or if you sign and return an ARRIS proxy card without
giving specific voting instructions, then the proxyholders will vote your shares in the manner recommended by
the ARRIS Board on all matters presented in this proxy statement/prospectus and as the proxyholders may
determine in their discretion with respect to any other matters properly presented for a vote at the Special
Meeting. However, no proxy with instructions to vote against the Merger Agreement Proposal will be voted in
favor of the Adjournment Proposal.
102
TABLE OF CONTENTS
BOARD OF DIRECTORS AND MANAGEMENT AFTER THE COMBINATION
Board of Directors
The Board of New ARRIS is expected to expand to ten members, consisting of the ten current ARRIS
Directors.
Biographical information with respect to the current ARRIS directors can be found beginning on page 3 of
ARRIS’ Definitive Proxy Statement on Schedule 14A, filed on April 9, 2015 and is incorporated herein by
reference.
Committees of the New ARRIS Board of Directors
The New ARRIS Board is expected to form the following board committees: Audit, Compensation and
Nominating Corporate Governance. The membership of the various board committees has not been finalized at
this time.
Management
Robert J. Stanzione (the current ARRIS Chairman and CEO) will be the Chairman and CEO of New ARRIS
and David B. Potts (the current ARRIS CFO) will be the CFO of New ARRIS.
Biographical information with respect to the current management of ARRIS can be found beginning on
page 25 of ARRIS’ Annual Report on Form 10-K for the year ended December 31, 2014 and is incorporated
herein by reference.
Compensation of New ARRIS’ Executive Officers and Non-Employee Directors
As a newly formed company with no operations, New ARRIS has not paid any executive or non-employee
director compensation or adopted any executive or non-employee director compensation programs. Following
the Combination, it is expected that the compensation committee of the New ARRIS Board will, pursuant to the
responsibilities outlined in its articles of association, oversee and determine the compensation of the executive
officers and non-employee directors of New ARRIS. Information regarding the historical compensation paid by
ARRIS to its Named Executive Officers, all of whom are expected to be named executive officers of New ARRIS,
and its non-employee directors, all of whom are expected to be non-employee directors of New ARRIS, is
contained in ARRIS’ Definitive Proxy Statement on Schedule 14A for its 2014 Annual Meeting of Stockholders
and is incorporated by reference herein. See “Where You Can Find More Information” beginning on page 170.
103
TABLE OF CONTENTS
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The first table below reflects the number of ARRIS shares beneficially owned as of August 31, 2015, by
each director, the Named Executive Officers, and by all directors and executive officers of ARRIS as a group.
Name of Beneficial Owner(1)
Shares Beneficially
Owned(2)
Alex B. Best
Harry L. Bosco
J. Timothy Bryan (4)
Shares that May
be Acquired
Within 60 Days
Total Shares —
Percentage of
Class(3)
​
78,432
79,200
—
—
78,432
79,200
0.054 %
0.054 %
James A. Chiddix
Andrew T. Heller
Dr. Jeong H. Kim
Doreen A. Toben
Debora J. Wilson
1,172
42,800
20,900
4,200
9,400
35,132
—
—
—
—
—
—
1,172
42,800
20,900
4,200
9,400
35,132
0.001 %
0.029 %
0.014 %
0.003 %
0.006 %
0.024 %
David A. Woodle
65,751
—
65,751
0.045 %
696,419
—
696,419
0.475 %
72,498
—
72,498
0.049 %
Lawrence A. Margolis
449,276
—
449,276
0.306 %
Bruce McClelland
119,248
—
119,248
0.081 %
28,304
—
28,304
0.019 %
1,768,883
—
1,768,883
1.207 %
Robert J. Stanzione
David B. Potts
Lawrence Robinson
All directors and executive officers as a group
including the above named persons (18 persons)
*
Percentage of shares beneficially owned does not exceed one percent of the class.
(1) Unless otherwise indicated, each person has sole investment power and sole voting power with respect to
the securities beneficially owned by such person.
(2) Includes an aggregate of 228,422 stock units awarded to directors (other than Mr. Stanzione) that convert
on a one-for-one basis into shares of Common Stock at a time predetermined at the time of issuance.
(3) The shares underlying all equity awards that may be exercised within 60 days are deemed to be beneficially
owned by the person or persons for whom the calculation is being made and are deemed to have been
exercised for the purpose of calculating this percentage.
(4) Shares shown are held by the National Rural Telecommunications Cooperative (NRTC), which Mr. Bryan
may be deemed to beneficially own as a result of his service as CEO. Mr. Bryan disclaims beneficial
ownership of the shares held by NRTC.
104
TABLE OF CONTENTS
STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The table below reports the number of ARRIS shares beneficially owned as of August 31, 2015, by each
person who is known to ARRIS to own beneficially more than 5% of ARRIS’ outstanding common stock. Unless
otherwise indicated, the beneficial owner has sole voting and investment power and the information below is
based upon SEC filings by the person.
Amount and
Nature of
Beneficial
Ownership
Name and Address of Beneficial Owner
First Pacific
Advisors, LLC (1)
Percent of Class​
11,007,763
7.5 %
Google, Inc.(2)
9,703,500
6.6 %
The Vanguard Group, Inc.(3)
9,376,884
6.4 %
BlackRock, Inc.(4)
9,057,638
6.2 %
Hotchkis and Wiley Capital Management, LLC (5)
7,889,818
5.4 %
(1) First Pacific Advisors, LLC has shared voting power with respect to 2,434,900 shares and shared dispositive
power with respect to 11,007,763 shares. The address for First Pacific Advisors, LLC is 11400 West
Olympic Blvd., Suite 1200, Los Angeles, CA 90064.
(2) The address for Google, Inc. is 1600 Amphitheatre Parkway, Mountain View, California 94043.
(3) The Vanguard Group, Inc. has sole voting power with respect to 85,930 shares, sole dispositive power with
respect to 9,300,654 shares, and shared dispositive power with respect to 76,230 shares. The address for The
Vanguard Group, Inc. is 100 Vanguard Blvd, Malvern, PA 19355.
(4) BlackRock, Inc. has sole voting power with respect to 8,693,458 shares and sole dispositive power with
respect to 9,057,638 shares. The address for BlackRock, Inc. is 40 East 52 nd Street, New York, NY 10022.
(5) Hotchkis and Wiley Capital Management, LLC has sole voting power with respect to 7,368,518 shares and
sole dispositive power with respect to 7,899,818 shares. The address for Hotchkis and Wiley Capital
Management, LLC is 725 S. Figueroa Street, 39 th Fl, Los Angeles, CA 90017.
105
TABLE OF CONTENTS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information has been prepared to
illustrate the effect of the following: (i) the Combination; and (ii) the refinancing of ARRIS’ existing Term Loan
A Facility and Revolving Credit Facility and the incurrence of $800.0 million of indebtedness under the Term
A-1 Loan Facility (collectively referred to as the “Financing”).
The following unaudited pro forma condensed combined financial information gives effect to the
Combination under the acquisition method of accounting in accordance with Financial Accounting Standards
Board (FASB) Accounting Standard Codification (ASC) Topic 805, Business Combinations, which we refer to as
ASC 805, with ARRIS treated as the accounting acquirer. The historical consolidated financial information has
been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma
events that are (1) directly attributable to the Combination and Financing, (2) factually supportable and (3) with
respect to the statements of operations, expected to have a continuing impact on the combined results of ARRIS
and Pace. Although ARRIS has entered into the Co-operation Agreement and Merger Agreement, there is no
guarantee that the Combination will be completed.
The unaudited pro forma condensed combined balance sheet is based on the historical consolidated
balance sheets of ARRIS and Pace as of June 30, 2015, and has been prepared to reflect the Combination and the
incurrence of $800 million of indebtedness under the Term A-1 Loan Facility as if they occurred on June 30,
2015. The unaudited pro forma condensed combined statements of operations for the year ended December 31,
2014 and the six months ended June 30, 2015 combine the historical results of operations of ARRIS and Pace,
giving effect to the Combination and Financing as if they occurred on January 1, 2014.
The unaudited pro forma condensed combined statements of operations do not reflect future events that
may occur after the Combination, including, but not limited to, the anticipated realization of ongoing savings
from operating synergies and certain one-time charges New ARRIS expects to incur in connection with the
Combination, including, but not limited to, costs in connection with integrating the operations of ARRIS and
Pace.
This unaudited pro forma condensed combined financial information is for informational purposes only. It
does not purport to indicate the results that would actually have been obtained had the Combination and
Financing been completed on the assumed date or for the periods presented, or which may be realized in the
future.
To produce the pro forma financial information, ARRIS adjusted Pace’s assets and liabilities to their
estimated fair values. As of the date of this proxy statement/prospectus, ARRIS has not completed the detailed
valuation work necessary to arrive at the required estimates of the fair value of the Pace assets to be acquired and
the liabilities to be assumed and the related accounting for the business combination, nor has it identified all
adjustments necessary to conform Pace’s accounting policies to ARRIS’ accounting policies. A final
determination of the fair value of Pace’s assets and liabilities will be based on the actual net tangible and
intangible assets and liabilities of Pace that exist as of the date of completion of the Combination and, therefore,
cannot be made prior to that date. Additionally, the value of the portion of the per share Combination
consideration to be paid in New ARRIS shares will be determined based on the trading price of ARRIS common
stock at the time of the completion of the Combination. Accordingly, the accompanying unaudited pro forma
accounting for the business combination is preliminary and is subject to further adjustments upon the closing of
the Combination and as additional information becomes available and additional analyses are performed. The
preliminary unaudited pro forma accounting for the business combination has been made solely for the purpose
of preparing the accompanying unaudited pro forma condensed combined financial information. In accordance
with ASC 805, the assets acquired and the liabilities assumed have been measured at preliminary estimates of
fair value. These preliminary estimates are based on key assumptions related to the Combination and have been
developed using publicly disclosed information for other acquisitions in the industry, ARRIS’ historical
experience, data that were in the public domain and ARRIS’ due diligence review of Pace’s business. Until the
Combination is completed, both companies are limited in their ability to share information with each other.
Upon completion of the
106
TABLE OF CONTENTS
Combination, valuation work will be performed and any increases or decreases in the fair value of relevant
statement of financial position amounts will result in adjustments to the balance sheet and/or statements of
operations until the accounting for the business combination is finalized.
There can be no assurance that such finalization will not result in material changes from the preliminary
accounting for the business combination included in the accompanying unaudited pro forma condensed
combined financial information. The unaudited pro forma condensed combined financial information has been
derived from and should be read in conjunction with:
•
The accompanying notes to the unaudited pro forma condensed combined financial information;
•
ARRIS’ audited consolidated financial statements and related notes thereto contained in its Annual
Report on Form 10-K for the year ended December 31, 2014 and ARRIS’ Quarterly Report on Form 10Q for the quarterly period ended June 30, 2015;
•
Pace’s audited consolidated financial statements and related notes thereto for the years ended
December 31, 2014, 2013 and 2012, provided herein; and
•
Pace’s unaudited interim results for the six months ended June 30, 2015 included in Annex G.
107
TABLE OF CONTENTS
NEW ARRIS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2015
($ in thousands, except per share data)
​​​
​
Historical
​ ​ ARRIS
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments, at fair value
Total cash, cash equivalents and short-term investments
Accounts receivable (net of allowances for doubtful
accounts)
Trade and other receivables
Other receivables
Inventories (net of reserves)
Prepaid income taxes
Prepaids
Current deferred income tax assets
Other current assets
Total current assets
Property, plant and equipment (net of accumulated
depreciation)
Goodwill
Intangible assets (net of accumulated amortization)
Investments
Noncurrent deferred income tax assets
Other assets
TOTAL ASSETS
Historical
(IFRS)
$ 490,939 $ 254,162
128,852
—
619,791
254,162
785,869
—
11,268
389,556
26,413
36,746
105,384
108,134
2,083,161
$
—
582,833
—
237,627
6,068
—
—
—
1,080,690
324,154
57,813
1,017,430
464,806
923,837
272,050
75,381
—
87,291
27,488
47,421
—
$4,558,675 $1,902,847
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 608,133 $
—
Trade and other payables
—
704,060
Accrued compensation, benefits and related taxes
78,333
—
Accrued warranty
29,176
—
Deferred revenue
107,632
—
Current portion of long-term debt, financing lease obligations,
and short-term borrowings
48,594
41,362
Current income taxes liability
9,587
10,728
155,482
33,483
Other accrued liabilities
1,036,937
789,633
Total current liabilities
Long-term debt and financing lease obligations, net of current
portion
1,537,641
215,115
Accrued pension
68,865
—
Noncurrent income tax liability
43,586
—
Noncurrent deferred income tax liabilities
332
83,930
92,544
85,404
Other noncurrent liabilities
2,779,905 1,174,082
Total liabilities
Stockholders’ equity:
Common and ordinary shares
Capital in excess of par value
Treasury stock at cost
Retained earnings
Accumulated other comprehensive loss
Stockholders’ equity attributable to noncontrolling interest
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
Pace
Accounting
Policies and
US GAAP
Reclassifications Adjustments
(Note 3)
(Note 4)
1,814
29,528
1,765,804
196,432
(331,329 )
—
302,525
595,614
(12,664 )
(92,809 )
52,620
—
1,778,770
728,765
$4,558,675 $1,902,847
—
—
—
$
530,069
(582,833 )
41,577
—
—
11,187
—
—
—
$
—
—
—
—
—
—
—
$ 559,499
(704,060 )
16,962
27,200
4,016
$
​
Historical
(US GAAP)
New ARRIS
Pro Forma
Pro Forma
Adjustments
Condensed
(Note 6)
​ ​ Combined ​
— $ 254,162 $ (184,432 ) (a)
$ 560,669
—
—
—
128,852
—
254,162
(184,432 )
689,521
21,959
—
—
—
—
—
29,709
—
51,668
552,028
—
41,577
237,627
6,068
11,187
29,709
—
1,132,358
— 1,337,897
—
—
—
52,845
(b)
34,315
661,498
—
32,481
—
47,933
—
135,093
(c)
12,020
120,154
(138,097 ) 3,077,422
—
57,813
40,558 (d) 422,525
—
464,806
694,799 (e) 2,177,035
(87,850 )
184,200
915,800 (f) 2,023,837
—
—
—
75,381
(21,186 )
6,302
—
93,593
—
—
(937 ) (g) 46,484
$(57,368 ) $1,845,479 $1,512,123 $7,916,277
$
— $ 559,499 $
—
—
—
16,962
—
27,200
25,617
29,633
— $1,167,632
—
—
—
95,295
—
56,376
(8,289 ) (h) 128,976
—
—
96,383
—
21,959
(7,184 )
(43,700 )
(3,308 )
63,321
3,544
86,166
786,325
(21,614 ) (j)
90,301
—
13,131
(i)
26,351
267,999
(3,552 ) 1,819,710
—
—
—
—
—
—
—
—
9,055
(10,957 )
—
(5,210 )
215,115
—
9,055
72,973
85,404
1,168,872
561,894 (j) 2,314,650
—
68,865
—
52,641
(k)
277,344
350,649
—
177,948
835,686 4,784,463
—
—
—
—
—
—
—
—
—
29,528
(27,786 ) (l)
3,556
1,887
198,319 1,187,282 (l) 3,151,405
—
—
—
(331,329 )
(54,493 )
541,121
(575,420 ) (l) 268,226
448
(92,361 )
92,361 (l)
(12,664 )
—
—
—
52,620
(52,158 )
676,607
676,437 3,131,814
$(57,368 ) $1,845,479 $1,512,123 $7,916,277
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information
108
TABLE OF CONTENTS
NEW ARRIS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2015
($ in thousands, except per share data)
​ ​​
​​
Net sales
Cost of sales
Gross margin
​​ ​
Historical
ARRIS
​​
Historical
(IFRS)
$2,475,234 $1,078,578
1,774,317
827,856
700,917
250,722
Pace
Accounting
Policies and
US GAAP
Reclassifications Adjustments
(Note
3)
(Note 4)
​​
​
$
—
(870 )
870
$
​
Historical
(US GAAP)
(93 )
(800 )
707
$1,078,485
826,186
252,299
(2,067 )
1,722
—
—
(345 )
1,215
—
3,277
—
—
3,277
(2,570 )
64,933
70,729
24,342
4,986
164,990
87,309
—
—
3,545
—
(2,330 )
—
—
—
—
$
—
—
—
—
—
—
(2,570 )
(1,991 )
(579 )
—
$ (579 )
Pro Forma
Adjustments
(Note 6)
$
​
New ARRIS
Pro Forma
Condensed
Combined ​
—
$3,553,719
288 (m) 2,600,791
(288 )
952,958
Operating expenses:
Selling, general and administrative expenses
Research and development expenses
Amortization of intangible assets
Integration, acquisition, restructuring and other costs
Total operating expenses
Operating income
Other expense (income):
Interest expense
Loss on investments
Loss (gain) on foreign currency
Interest income
Other expense, net
Income before income taxes
Income tax expense (benefit)
Consolidated net income
Net loss attributable to noncontrolling interests
Net income
$
41,821
3,119
(6,639 )
(1,279 )
7,997
52,241
17,973
34,268
(1,615 )
35,883 $
Net income per common share:
Basic
$
0.25 $
0.27
$
0.25
$
0.24 $
0.26
$
0.24
Diluted
Weighted average common shares
Basic
Diluted
207,534
268,728
113,930
13,465
603,657
97,260
67,000
65,730
24,342
4,986
162,058
88,664
4,003
—
—
(434 )
—
85,095
(338 )
85,433
—
85,433
$
270 (n)
299 (o)
73,851 (p)
(13,105 ) (q)
61,315
(61,603 )
272,737
339,756
212,123
5,346
829,962
122,966
4,003
(5,405 ) (r)
—
—
3,545
—
(434 )
—
(2,330 )
—
82,525
(56,198 )
(2,329 )
16,298 (s)
84,854
(72,496 )
—
—
84,854 $(72,496 ) $
40,419
3,119
(3,094 )
(1,713 )
5,667
78,568
31,942
46,626
(1,615 )
48,241
145,823
314,634
49,245 (t)
195,068
149,132
324,867
48,563 (t)
197,695
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information
109
TABLE OF CONTENTS
NEW ARRIS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2014
($ in thousands, except per share data)
​ ​​
​​
Net sales
Cost of sales
Gross margin
Pace
​​ ​
Historical
ARRIS
​​
Historical
(IFRS)
$5,322,921 $2,620,030
3,740,425 2,087,601
1,582,496
532,429
Accounting
Policies and
US GAAP
Reclassifications Adjustments
(Note 3)
(Note 4)
​​
​
$
—
(1,497 )
1,497
Historical
(US GAAP)
$ 1,081 $2,621,111
(7,787 ) 2,078,317
8,868
542,794
New
ARRIS
Pro Forma
Pro Forma
Adjustments
Condensed
(Note 6) ​ ​ Combined ​
$
— $7,944,032
(96 ) (m) 5,818,646
96
2,125,386
Operating expenses:
Selling, general and administrative expenses
Research and development expenses
Amortization of intangible assets
Integration, acquisition, restructuring and other costs
Total operating expenses
Operating income
Other expense (income):
Interest expense
Loss on investments
Loss (gain) on foreign currency
Interest income
Other expense, net
Income before income taxes
Income tax expense (benefit)
Net income
62,901
7,702
10,961
—
2,637
—
(2,590 )
(2,542 )
28,195
—
239,230
175,680
(87,981 )
27,666
$ 327,211 $ 148,014
Net income per common share:
Basic
$
2.27 $
0.47
$
1.35
$
2.21 $
0.46
$
1.32
Diluted
Weighted average common shares
Basic
Diluted
410,568
556,575
236,521
37,498
1,241,162
341,334
161,981
129,316
52,936
7,356
351,589
180,840
(535 )
(4 )
—
—
(539 )
2,036
—
—
6,207
—
(4,171 )
—
—
—
—
20,760
—
—
20,760
(11,892 )
161,446
150,072
52,936
7,356
371,810
170,984
(91 ) (n) 571,923
(100 ) (o) 706,547
143,451 (p)
432,908
—
44,854
143,260
1,756,232
(143,164 )
369,154
—
7,702
14,170 (r)
84,773
—
—
—
10,961
—
6,207
—
8,844
—
(2,542 )
—
(5,132 )
—
(4,171 )
—
24,024
(11,892 )
163,788
(157,334 )
245,684
(s)
(558 )
27,108
45,627
(15,246 )
$(11,334 ) $ 136,680 $(202,961 ) $ 260,930
144,386
312,335
49,245 (t)
193,631
148,280
324,475
48,655 (t)
196,935
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information
110
TABLE OF CONTENTS
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1.
Description of Combination and Financing
As described more fully elsewhere in this proxy statement/prospectus, on April 22, 2015, the boards of
ARRIS and Pace reached agreement on the terms of the Combination whereby (i) New ARRIS will acquire all of
the outstanding shares of Pace by means of a court-sanctioned scheme of arrangement under English law and (ii)
ARRIS will merge with a subsidiary of New ARRIS, with ARRIS surviving the Merger (pursuant to the Merger
Agreement). Under the terms of the Combination, (a) Pace Scheme shareholders will receive 132.5 pence in cash
and 0.1455 shares of New ARRIS for each Pace share they hold and (b) ARRIS stockholders will receive one
New ARRIS share for each share of ARRIS common stock they hold. Upon completion of the Combination, Pace
shareholders will own approximately 24% of issued share capital of New ARRIS on a fully diluted basis and
ARRIS stockholders will own approximately 76% of the issued share capital of New ARRIS on a fully diluted
basis. It is expected that New ARRIS ordinary shares will be listed on NASDAQ under the symbol ARRS. The
Combination values the entire issued and to be issued share capital of Pace at approximately $2,317.1 million at
a closing share price of $28.62 on August 10, 2015 (the most recent practicable date used for preparation of the
pro forma condensed combined financial information) and an exchange rate of 1.5485. The value of the
consideration that Pace shareholders will receive when the Combination is completed will ultimately be based
on the ARRIS share price on the closing date of the Combination and could change materially.
At the effective time, certain awards of Pace stock options, deferred shares and performance shares will be
canceled and converted into the right to receive 132.5 pence in cash, without interest, and 0.1455 of New ARRIS
shares for each Pace award they hold. New ARRIS will include as consideration $72.0 million for the fair value
of the awards related to pre-combination services including (i) vested stock options, performance shares and
deferred shares; (ii) deferred shares for which vesting was accelerated as a result of the change in control
provision in the Deferred Share Plan; and (iii) shares for which vesting was accelerated as a result of the change
in control provisions in the Approved Option Scheme, Unapproved Option Scheme, Performance Share Plan and
International Performance Share Plan and as a result of entering into the Co-operation Agreement.
In addition, although no final employment decisions have been made as of the date of this proxy
statement/prospectus for the executive officers of Pace, each of the executive officers will be entitled to receive
severance compensation pursuant to executive employment agreements if the executive’s employment is
terminated under specific circumstances following the Combination; this will be recognized as postcombination expense. In addition, employees of Pace will be eligible to receive a retention bonus if the
employee stays for a period of 90 days after the Combination has been consummated. As of the date of this
proxy statement/prospectus, it is estimated and expected that New ARRIS will recognize post-combination
compensation expense of approximately $9.0 million over the service period for the retention bonus that is
offered to the employees of Pace. This retention bonus has been excluded from the unaudited pro forma
condensed combined financial information as it reflects charges directly attributable to the Combination that
will not have a continuing impact on New ARRIS’ operations.
Pursuant to the Merger Agreement, at the effective time of the merger between ARRIS and New ARRIS,
each outstanding ARRIS Option, ARRIS Restricted Share, ARRIS RSU and ARRIS ESPP will, subject to
applicable law, be converted into a New ARRIS Option, New ARRIS Restricted Share, New ARRIS RSU or New
ARRIS ESPP, respectively. The converted awards will relate to a number of New ARRIS shares equal to the
number of ARRIS shares subject to the corresponding pre-conversion award and will continue to have, subject to
applicable law and the accelerated vesting described below, the same terms and conditions that were applicable
to the corresponding pre-conversion ARRIS award (including settlement in cash or shares, as applicable). This
conversion is not expected to result in incremental value to the share/option holders; however if it is determined
that the exchange results in incremental value at the Combination date, ARRIS would recognize postcombination expense.
Non-employee directors and executive officers of ARRIS have certain interests in the Combination that
include the right to receive a payment to make the directors and executive officers whole for the excise tax
imposed pursuant to Section 4985 of the Internal Revenue Code (which excise tax is not applicable to other
ARRIS stockholders), accelerated vesting of certain outstanding equity awards (intended to avoid
111
TABLE OF CONTENTS
excise tax becoming due on such equity awards), continuing non-employee director and executive officer
positions with New ARRIS, and rights to ongoing indemnification and insurance coverage. For purposes of the
unaudited pro forma financial information, the closing share price of $28.62 on August 10, 2015 (the most
recent practicable date used for preparation of the pro forma condensed combined financial information) was
utilized to determine the excise tax make-whole payment for the non-employee directors and executive officers,
which, in aggregate, is estimated to be approximately $14.7 million.
As described elsewhere in this proxy statement/prospectus, on June 18, 2015, ARRIS, ARRIS Enterprises,
Inc., New ARRIS and certain ARRIS subsidiaries, as borrowers, and Bank of America, N.A., as administrative
agent, swing line lender and line of credit lender and the other lender parties thereto entered into the Credit
Agreement, which amends and restates ARRIS’ Existing Credit Agreement. The Credit Agreement provides for
senior secured credit facilities comprised of (i) a “U.S. Revolving Credit Facility” of $13,968,604, (ii) a
“Multicurrency Revolving Credit Facility” of $486,031,396, (iii) a “Term Loan A Facility” of $990 million,
(iv) a delayed draw “Term A-1 Loan Facility” of $800 million and (v) a “Term Loan B Facility” of $543,812,500. Funding of the Term Loan A Facility refinanced the term loan A facility under the Existing
Credit Agreement while the Term Loan B Facility is a continuation of the term loan B facility under the Existing
Credit Agreement. Funding of the Term A-1 Loan Facility under the Credit Agreement will be available at the
closing of the Combination. The proceeds of the loans under the Term A-1 Loan Facility will be used to finance:
(i) the payment of the cash consideration by New ARRIS to holders of Pace shares being acquired by New
ARRIS in the Combination; (ii) the payment of cash consideration to holders of options or awards to acquire
Pace shares pursuant to any proposal under the Takeover Code, (iii) the fees, costs and expenses related to the
Combination and issuance of new debt, refinancing, prepayment, repayment, redemption, discharge, defeasance
and/or amendment of all existing debt of Pace and (iv) the payment or refinancing of existing debt at Pace.
Although ARRIS uses derivative instruments to manage its interest rate and foreign currency exposure,
including the cash portion of the consideration, no pro forma adjustments have been reflected in the unaudited
pro forma condensed combined financial information with respect to any changes to derivative instruments that
may occur in connection with the Combination or the Financing.
2.
Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with U.S.
GAAP and pursuant to SEC Regulation S-X Article 11, and present the pro forma financial position and results
of operations of the combined companies based upon the historical information after giving effect to the
Combination, the Financing and adjustments described in these notes. The unaudited pro forma condensed
combined balance sheet is presented as if the Combination and the incurrence of $800 million of indebtedness
under Term A-1 Loan Facility had occurred on June 30, 2015; and the unaudited pro forma condensed combined
statement of operations for the year ended December 31, 2014 and the six month period ended June 30, 2015 is
presented as if the Combination and Financing had occurred on January 1, 2014.
The historical results of ARRIS have been derived from its financial statements incorporated by reference in
this proxy statement/prospectus. The historical results of Pace for the year ended December 31, 2014 have been
derived from its audited financial statements included elsewhere in this proxy statement/​p rospectus, and the
historical financial information as of and for the six months ended June 30, 2015 have been derived from
unaudited financial information, excerpts of which have been included elsewhere in this proxy
statement/prospectus. The historical financial information of Pace has been prepared in accordance with IFRS as
issued by the IASB. Identified measurement differences in accounting principles between IFRS and U.S. GAAP
as they apply to Pace have been adjusted to reflect such results in accordance with U.S. GAAP. See Note 4,
“Pace — IFRS to U.S. GAAP Adjustments.” Adjustments have also been made to conform Pace’s significant
accounting policies to ARRIS’ accounting policies. See Note 3, “Conforming Accounting Policies and
Reclassification Adjustments.”
The Combination is reflected in the unaudited pro forma condensed combined financial information as
being accounted for under the acquisition method in accordance with ASC 805, Business Combinations, with
ARRIS treated as the accounting acquirer. Under the acquisition method, the total estimated purchase price is
calculated as described in Note 5. In accordance with ASC 805, the assets acquired and the
112
TABLE OF CONTENTS
liabilities assumed have been measured at preliminary estimates of fair value. These preliminary estimates are
based on key assumptions related to the Combination, and have been developed using publicly disclosed
information for other acquisitions in the industry, ARRIS’ historical experience, data that was available in the
public domain and ARRIS’ due diligence review of Pace’s business. Due to the fact that the unaudited pro forma
condensed combined financial information has been prepared based on preliminary estimates, the final amounts
recorded for the Combination may differ materially from the information presented herein. These estimates are
subject to change pending further review of the fair value of assets acquired and liabilities assumed. In addition,
the final determination of the recognition and measurement of the identified assets acquired and liabilities
assumed will be based on the fair market value of actual net tangible and intangible assets and liabilities of Pace
at the closing date of the Combination.
Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not
included as components of consideration transferred but are accounted for as expenses in the period in which the
costs are incurred. For the six months ended June 30, 2015, ARRIS and Pace incurred approximately $10.3
million and $2.8 million, respectively, of Combination-related costs. These costs are considered to be directly
related to the Combination and are not expected to have a continuing impact and therefore have been excluded
from the unaudited pro forma statement of operations.
The unaudited pro forma condensed combined financial information does not reflect ongoing cost savings
that ARRIS expects to achieve as a result of the Combination or the costs necessary to achieve these costs
savings or synergies.
3.
Conforming Accounting Policies and Reclassification Adjustments
ARRIS performed certain procedures for the purpose of identifying any material differences in significant
accounting policies between ARRIS and Pace, and any accounting adjustments that would be required in
connection with adopting uniform policies. Procedures performed by ARRIS to identify material adjustments
involved a review of Pace’s publicly disclosed summary of significant accounting policies, including those
disclosed in Pace’s Annual Report for the year ended December 31, 2014 and preliminary discussion with Pace
management regarding Pace’s significant accounting policies. ARRIS expects to engage in additional
discussion with Pace’s management to continue to evaluate the impact of Pace’s accounting policies on its
historical results after completion of the Combination. As a result of that review, management may identify
differences that, had they been given effect, would have had a material impact on the unaudited pro forma
condensed combined financial information.
Additionally, the historical consolidated financial information of Pace presented herein has been adjusted
by condensing certain line items and by reclassifying certain line items in order to conform to ARRIS’ financial
statement presentation; these reclassifications are reflected in the column “Accounting Policies and
Reclassifications.”
The reclassification adjustments on the unaudited pro forma balance sheet pertain to the following:
•
Trade and other receivables have been reclassified into accounts receivable, prepaids and other
receivables;
•
Trade and other payables have been reclassified into accounts payable, accrued compensation,
benefits and related taxes, deferred revenue and other accrued liabilities;
•
Other accrued current liabilities have been reclassified into accrued warranty for warranty provisions
less than one year, deferred revenue, and accrued compensation, benefits and related taxes; and
•
Royalty accruals from accounts payables have been reclassified to other accrued liabilities.
The reclassification adjustments on the unaudited pro forma statements of operations include the
reclassification of foreign exchange gains and losses from cost of sales and other expense to loss (gain) on
foreign currency.
4.
Pace — IFRS to U.S. GAAP Adjustments
The unaudited pro forma condensed combined financial information includes information from
(1) historical audited financial statements of Pace for the year ended December 31, 2014 and (2) historical
113
TABLE OF CONTENTS
unaudited financial information for the six months ended June 30, 2015, prepared using IFRS, which have been
adjusted to reflect Pace’s consolidated financial statements on a U.S. GAAP basis consistent with ARRIS. The
adjustments to U.S. GAAP (which are unaudited) are as follows (in thousands):
(1)
​
(2)
(3)
Accounts receivable
$
— $
Current deferred income
taxes
—
Intangible assets
(87,850 )
Noncurrent deferred
income
taxes
—
Total Assets
(87,850 )
—
Deferred revenue
Current portion of longterm debt, financing
lease obligations, and
short-term borrowings
Current income taxes
liability
Other accrued liabilities
Noncurrent income tax
liability
Noncurrent deferred
income tax liability
Total Liabilities
Capital in excess of par
Retained earnings
Accumulated other
comprehensive loss
Total Liabilities and
Equity
Total U.S.
GAAP
Adjustments ​
U.S. GAAP Adjustment Reference
​
Balance Sheet Line Item
$
—
$21,959
22,953
—
516
—
—
—
29,709
(87,850 )
—
—
582
2,008
3,624
8,238
—
200
(25,392 )
(2,439 )
—
516
—
21,959
(21,186 )
(57,368 )
—
—
5,021
20,596
—
—
—
—
25,617
—
—
—
—
—
—
—
21,959
21,959
—
—
—
—
(7,605 )
—
421
—
—
—
—
—
(7,184 )
(43,700 )
—
—
9,055
—
—
—
9,055
(12,030 )
(12,030 )
7,238
(36,462 )
—
5,021
—
20,596
—
(76,268 )
—
36,462
—
(3,013 )
—
(12,358 )
448
$(87,850 ) $
—
—
—
—
$ 2,008
$ 8,238
(1,250 )
200
$
For the year ended December 31, 2014
$
—
(4,683 )
(4,262 )
—
—
—
1,823
—
—
200
$
(1)
Net sales
Cost of sales
Research and development expenses
Income tax expense (benefit)
Net income
$
—
—
20,760
(480 )
$(20,280 )
—
21,959
(10,957 )
(5,210 )
1,887
(1,139 )
—
—
1,887
(54,493 )
$ (2,439 ) $
—
—
516
21,959
For the six months ended June 30, 2015
(2)
(3)
(4)
—
(7,787 )
—
(1,206 )
$ 8,993
$2,670
—
—
934
$1,736
$(1,589 )
—
—
(556 )
$(1,033 )
$
(1)
$
—
—
3,277
220
$(3,497 )
(2)
(3)
(4)
—
(800 )
—
63
$ 737
$980
—
—
392
$588
$(1,073 )
—
—
(429 )
$ (644 )
$
—
—
—
(134 )
$ 134
$(57,368 )
Total U.S.
GAAP
Adjustments ​
—
—
—
750
$(750 )
$ 1,081
(7,787 )
20,760
(558 )
$(11,334 )
(7)
Total U.S.
GAAP
Adjustments ​
$
(6)
$
448
(7)
U.S. GAAP Adjustment Reference
Statement of Operations Line Item
$ 21,959
(232 )
(232 )
U.S. GAAP Adjustment Reference
Statement of Operations Line Item
Net sales
Cost of sales
Research and development expenses
Income tax expense (benefit)
Net income
—
(8)
200
—
—
—
(7)
4,614
—
—
(43,700 )
$
(6)
1,426
—
—
—
(5)
—
—
—
—
$
(4)
$
—
—
—
(2,103 )
$ 2,103
$
(93 )
(800 )
3,277
(1,991 )
$ (579 )
(1) Research and development activities — Adjustment reflects the research and product development
expenses that are expensed as incurred in accordance with U.S. GAAP. Under IFRS, Pace capitalizes certain
development costs which are amortized over a period between six and 30 months depending on the nature of the
development project.
(2) Royalty provisions — Adjustment reflects the reversal of the previously recognized loss contingencies
to reflect the difference in the definition of probable between IFRS and U.S. GAAP.
114
TABLE OF CONTENTS
(3) Deferral of revenue for post contract support — Adjustment reflects an increase to net sales resulting
from the additional revenue recognized from the prior period’s deferred revenue balance in accordance with U.S.
GAAP partially offset by the revenue previously recognized under IFRS that would otherwise be deferred in
accordance with U.S. GAAP.
(4) Deferral of software and services revenues for professional services and licenses — Adjustment
reflects the revenue previously recognized under IFRS that would otherwise be deferred in accordance with U.S.
GAAP.
(5) Uncertain tax positions — Adjustment reflects the reclassification of uncertain tax positions between
deferred and current tax accounts.
(6) Deferred tax assets and liabilities classification — Adjustment reflects the reclassification of deferred
tax assets and liabilities as current or noncurrent based on the nature of the related asset or liability in
accordance with U.S. GAAP.
(7) Deferred tax and equity impact of stock based compensation — Adjustment reflects the differences in
calculating the deferred tax assets for share-based payment arrangements related to exercised options.
(8) Transfer of receivables — Adjustment reflects the reversal of previously derecognized receivables
under IFRS as the transfer of receivables is accounted for as a secured borrowing under U.S. GAAP.
5.
Preliminary Consideration Transferred and Preliminary Fair Value of Net Assets Acquired
The Combination has been accounted for using the acquisition method of accounting in accordance with
ASC 805, which requires, among other things, that the assets acquired and liabilities assumed be recognized at
their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values
of the identifiable net assets acquired recorded as goodwill. In addition, ASC 805 establishes that the common
stock issued to effect the Combination be measured at the closing date of the Combination at the then-current
market price.
The preliminary estimate of the total consideration transferred is based on (1) the closing price of ARRIS’
common stock of $28.62 per share on August 10, 2015 (the most recent practicable date used for preparation of
the pro forma condensed combined financial information), (2) the number of Pace shares outstanding as of
June 30, 2015, and (3) the number of Pace stock options, deferred shares and performance shares at June 30,
2015. Using the assumptions above, the total consideration would approximate $2,317.1 million. Changes in
the price of ARRIS shares, or changes in the number of Pace’s outstanding shares, stock options, deferred shares
or performance shares could result in material differences in the consideration and, thus, the result of the related
accounting for the Combination. At the effective time, each outstanding Pace share will be cancelled and
converted into the right to receive (1) 132.5 pence in cash, without interest, (converted to $2.05 at an exchange
rate of 1.5485 as of August 10, 2015) and (2) 0.1455 New ARRIS shares.
The preliminary estimate of the consideration to be paid by ARRIS in the Combination is as follows (in
thousands):
Stock consideration
Cash consideration
Repayment of Pace indebtedness
Total consideration transferred
$1,380,491
680,178
256,477
$2,317,146
115
TABLE OF CONTENTS
The table below summarizes the details of the cash and stock consideration (in thousands, except share
information):
Conversion to
Total cash
Cash
Stock
Number of
New ARRIS
and stock
(1)
(2)
shares
​ ​ Pace shares ​ ​
​ ​ consideration ​ ​ consideration ​ ​ consideration ​
Outstanding shares
Equity awards
Total
319,922,770
11,590,641
331,513,411
46,548,763
1,686,438
48,235,201
$ 656,397
23,781
$ 680,178
$ 1,332,225
48,266
$ 1,380,491
$1,988,622
72,047
$2,060,669
(1) Cash consideration represents the cash payment of 132.5 pence (converted to $2.05 at an exchange rate of
1.5485) for each of Pace’s shares and equity awards outstanding.
(2) Stock consideration represents the conversion of each of Pace’s shares and equity awards outstanding at a
conversion rate of 0.1455 with a value of $28.62 at August 10, 2015.
The estimated value of the consideration does not purport to represent the actual value of the total
consideration that will be received by Pace’s shareholders when the Combination is completed. In accordance
with U.S. GAAP, the fair value of the equity securities issued as part of the consideration will be measured at the
closing date at the then-current market price. This requirement will likely result in a per share value component
different from the $28.62 per share on August 10, 2015 assumed in the calculation, and that difference may be
material. For example, an increase or decrease of 10% in the price of ARRIS shares on the closing date of the
Combination from the price of ARRIS shares assumed in the unaudited pro forma condensed combined financial
information would change the value of the consideration by approximately $133.2 million, which would be
reflected as an equivalent increase or decrease to goodwill.
The following is a summary of the preliminary estimated fair values of the net assets acquired (in
thousands):
Total estimated consideration transferred
Cash and cash equivalents
Accounts and other receivables
Inventories
Prepaids
Current deferred income tax assets
Property, plant and equipment
Intangible assets
Noncurrent deferred income tax assets
Accounts payable and other current liabilities
Deferred revenue
Short-term borrowings
Current income taxes liability
Other accrued liabilities
Other noncurrent liabilities
Net assets acquired
Goodwill
$2,317,146
254,162
593,605
271,942
17,255
29,709
98,371
1,100,000
6,302
(603,661 )
(21,344 )
(21,959 )
(3,544 )
(118,521 )
(444,776 )
1,157,541
$1,159,605
ARRIS has made preliminary allocation estimates based on limited access to information and will not have
sufficient information to make final allocations until after completion of the Combination. The final
determination of the accounting for the business combination is anticipated to be completed as soon as
practicable after completion of the Combination. ARRIS anticipates that the valuations of the acquired assets
and liabilities will include, but not be limited to inventory, property, plant, and equipment, customer contracts
and relationships, technology and patents and other intangibles, and deferred revenue. The valuations will
consist of physical appraisals, discounted cash flow analyses, or other appropriate valuation techniques to
determine the fair value of the assets acquired and liabilities assumed. For purposes of the unaudited pro forma
condensed combined financial information, it is assumed that the book value approximates fair value for current
assets and current liabilities, except for inventories, deferred revenue and other accrued liabilities as described in
Note 6(b), Note 6(h) and Note 6(i), respectively.
116
TABLE OF CONTENTS
The final consideration, and amounts allocated to assets acquired and liabilities assumed in the
Combination, could differ materially from the preliminary amounts presented in the unaudited pro forma
condensed combined financial information. A decrease in the fair value of assets acquired or an increase in the
fair value of liabilities assumed in the Combination from those preliminary valuations presented in the
unaudited pro forma condensed combined financial information would result in a dollar-for-dollar
corresponding increase in the amount of goodwill that will result from the Combination. In addition, if the value
of the acquired assets is higher than the preliminary indication, it may result in higher amortization and
depreciation expense than is presented in the unaudited pro forma condensed combined financial information.
6.
Preliminary Pro Forma Adjustments
The preliminary pro forma adjustments included in the unaudited pro forma condensed combined financial
information related to the Combination and Financing are as follows:
(a) Cash and cash equivalents — Adjustment reflects the preliminary net adjustment to cash in connection
with the Combination (in thousands):
Cash portion of Combination consideration (i)
Repayment of Pace debt (ii)
Payment for excise and other taxes(iii)
Payment of transaction related expenses(iv)
New ARRIS Term A-1 Loan Facility (v)
Pro forma adjustment to cash and cash equivalents
$(680,178 )
(256,477 )
(14,686 )
(33,091 )
800,000
$(184,432 )
Components of the adjustment include (i) a decrease in cash resulting from the payment of the cash
component of the Combination consideration, including cash related to the payment to holders of Pace stock
options, deferred shares and performance shares, of which $23.8 million relates to Combination consideration;
(ii) a decrease in cash related to the repayment of Pace’s debt; (iii) a decrease in cash related to the estimated
excise and other taxes for the make whole payment to ARRIS executive officers and non-employee directors of $14.7 million; (iv) a decrease in cash related to the estimated transaction related expenses of $33.1 million,
consisting of financing fees of $2.7 million, of which an estimated $2.3 million will be capitalized, and
advisory costs of $30.4 million expected to be expensed as incurred in connection with the Combination; and
(v) an increase in cash resulting from the proceeds in additional borrowings of an aggregate amount of $800.0
million for the Financing.
(b) Inventories — Adjustment reflects the preliminary estimated fair value adjustment of $34.3 million to
inventory acquired in the Combination. As the raw materials inventory was assumed to be at market value, the
preliminary adjustment is related to work-in-process and finished goods inventory. The preliminary fair value of
work-in-process inventory considered costs to complete inventory and estimated profit on these costs. The
preliminary fair value of finished goods inventory to be acquired in the Combination was determined based on
an analysis of estimated future selling prices, costs of selling effort, and profit on selling effort. The unaudited
pro forma combined statements of operations do not reflect the impact of this preliminary inventory increase in
cost of sales as such amounts are directly attributable to the Combination and will not have a continuing impact
on the combined results.
(c) Other current assets — Adjustment reflects the make whole payment of $12.0 million to the executive
officers of ARRIS for the estimated excise and other taxes estimated to be incurred upon consummation of the
Combination. The executive officers are required to continue in their executive officer positions in New ARRIS
for a year; if the executive officer resigns his or her employment with New ARRIS other than for “good reason”
or is terminated for “cause” prior to a year after the closing date of the Combination, the executive is required to
reimburse New ARRIS for the amount of excise and other taxes. This amount is expected to be recognized by
New ARRIS as compensation expense over the one-year service period.
(d) Property, plant and equipment — Adjustment reflects the preliminary fair market value of property,
plant and equipment acquired in the Combination. The preliminary amounts assigned to property, plant and
equipment are as follows (in thousands):
117
TABLE OF CONTENTS
Building and leasehold improvements
Machinery and equipment
Construction in progress
Total estimated preliminary fair value of property, plant and equipment
Less: Pace book value of property, plant and equipment
Pro forma adjustment to property, plant and equipment
$ 8,361
87,801
2,209
98,371
(57,813 )
$ 40,558
(e) Goodwill — Adjustment reflects the preliminary estimated adjustment to goodwill as a result of the
Combination. Goodwill represents the excess of the consideration transferred over the preliminary fair value of
the assets acquired and liabilities assumed as described in Note 5. The goodwill is attributable to the expected
synergies of the combined business operations, new growth opportunities, and the acquired assembled and
trained workforce of Pace. The goodwill is not expected to be deductible for tax purposes. The preliminary pro
forma adjustment to goodwill is calculated as follows (in thousands):
Consideration transferred
Less: Fair value of net assets to be acquired
Total estimated goodwill
Less: Pace book value of goodwill
Pro forma adjustment to goodwill
$ 2,317,146
(1,157,541 )
1,159,605
(464,806 )
$ 694,799
(f) Intangible assets — Adjustment reflects the preliminary fair market value related to identifiable
intangible assets acquired in the Combination. The preliminary fair market value was determined using a market
approach. The preliminary amounts assigned to the identifiable intangible assets are as follows (in thousands):
Customer contracts and relationships
Technology and patents
Other intangibles
Total estimated preliminary fair value of intangible assets
Less: Pace book value of intangible assets
Pro forma adjustment to intangible assets
$ 400,000
650,000
50,000
1,100,000
(184,200 )
$ 915,800
(g) Other assets — As of June 30, 2015, ARRIS incurred an estimated $2.3 million in capitalizable debt
issuance costs in conjunction with the Financing for the Term A-1 Loan that will be funded upon the closing of
the Combination. Of this $2.3 million, $1.4 million represents deferred financing fees and will be capitalized as
other assets on the balance sheet and amortized over the life of the underlying debt instrument. The remaining
$0.9 million represents original issuance discount for the Term A-1 Loan and is presented as a pro forma
adjustment to reclassify the original issuance discount from other assets to long-term debt.
(h) Deferred revenue — Adjustment reflects a reduction of $8.3 million related to the preliminary
valuation of Pace’s historical deferred revenue balance assumed in the Combination. ARRIS will record the
assumed deferred revenue at its acquisition date fair values. The process of determining the fair value of deferred
revenue may result in a significant downward adjustment. The revenues associated with this reduction will not
be recognized by ARRIS.
(i) Other accrued liabilities — Adjustment reflects (i) an estimated $20.0 million of Combination related
fees and expenses expected to be assumed by New ARRIS, which are payable subsequent to the closing of the
Combination, and (ii) the current deferred tax liabilities related to the fair value adjustment of inventory,
deferred revenue, acceleration of restricted stock for ARRIS executives, and the Combination related fees and
expenses. Refer to adjustment (k) below for additional information regarding current deferred income tax
liabilities.
(j) Current and long-term debt — To fund transaction-related items, the cash portion of the Combination
consideration and other one-time costs, New ARRIS is expected to incur upon the closing of the Combination
$800.0 million of additional debt under the Term A-1 Loan Facility with a maturity of
118
TABLE OF CONTENTS
five years and an annual interest rate of LIBOR plus 1.75 basis points on the principal amount of the debt. In
addition, in connection with the Term A-1 Loan Facility, ARRIS modified the terms of its existing Term Loan A
Facility to extend the term to five years. Refer to adjustment (r) below for additional information regarding pro
forma interest expense.
The preliminary adjustment to long-term debt is as follows (in thousands):
Proceeds from Term A-1 Loan
Less: Proceeds from Term A-1 Loan to be repaid within one year
Less: Original issuance discount, excluding $0.3 million to be amortized within one year
Less: Repayment of Pace historical long-term debt
$ 800,000
(20,000 )
(2,991 )
(215,115 )
Pro forma adjustment to long-term debt
$ 561,894
The preliminary adjustment to current portion of long-term debt is as follows (in thousands):
Proceeds from Term A-1 Loan to be repaid within one year
Less: Original issuance discount to be amortized within one year
Less: Repayment of Pace historical current portion of long-term debt
Pro forma adjustment to current portion of long-term debt
$ 20,000
(252 )
(41,362 )
$ (21,614 )
(k) Deferred income taxes — Management estimated the tax rate at 29.0% which approximates a blended
statutory tax rate for the tax jurisdictions where assets acquired and liabilities assumed reside. Adjustment
reflects the deferred income tax effects of the preliminary pro forma adjustments made to the pro forma balance
sheet, primarily as indicated in the table below (in thousands):
Current
Noncurrent
Deferred
Adjustment to
Deferred
Tax
Asset Acquired
Tax
(1)
Liability
(Liability Assumed) ​ ​
​ ​ Liability ​
Estimated fair value adjustment of identifiable intangible
assets acquired
Estimated fair value adjustment of property, plant and
equipment acquired
Estimated fair value adjustment of inventory acquired
Estimated fair value adjustment of deferred revenue
assumed
$ 915,800
—
$ 265,582
40,558
—
11,762
34,315
9,951
—
(8,289 )
2,404
—
Estimated tax impact of post-combination compensation
expense related to the acceleration of restricted stock
for ARRIS executives upon completion of the
Combination
N/A
(1,987 )
—
Estimated tax impact of Combination-related fees and
expenses expensed in connection with the
Combination
N/A
(4,017 )
—
Deferred tax liabilities related to estimated fair value
adjustments
$ 6,351
$ 277,344
(1) Current deferred tax liabilities related to the fair value adjustment of inventory, deferred revenue,
acceleration of restricted stock for ARRIS executives, and the Combination related fees and expenses are
reflected in Other accrued liabilities in the unaudited pro forma balance sheet.
(l) Stockholders’ equity — Adjustment reflects (i) the issuance of 46.5 million New ARRIS shares to
shareholders of Pace; (ii) the elimination of the historical equity balances of Pace; (iii) the pro forma reduction to
retained earnings of $26.8 million to reflect the estimated Combination related fees and expenses expected to
be incurred upon completion of the Combination ($30.8 million expected to be
119
TABLE OF CONTENTS
expensed, net of $4.0 million tax benefit); (iv) the pro forma reduction to retained earnings of $4.9 million to
reflect the estimated post-combination compensation expense associated with the acceleration of restricted stock
for ARRIS executive officers ($6.9 million expected to be expensed in connection with the Combination, net of $2.0 million tax benefit); and (vi) the pro forma reduction to retained earnings of $2.7 million to reflect the
make whole payment to ARRIS non-employee directors for excise and other taxes expected to be incurred upon
closing of the Combination.
The preliminary unaudited pro forma adjustment to common stock is calculated as follows (in thousands):
Shares from Combination (46,548,763 New ARRIS shares issued at par value of £0.01)
$
721
Shares from Pace stock options, deferred shares and performance shares converted into
New ARRIS shares (1,686,438 shares issued at par value of £0.01)
26
Shares of New ARRIS (181,400,000 shares issued at par value of £0.01)
995
Less: Pace historical shares
(29,528 )
Pro forma adjustment to shares
$  (27,786 )
The preliminary unaudited pro forma adjustment to capital in excess of par is calculated as follows (in
thousands):
Capital in excess of par from Combination (46,548,763 New ARRIS shares issued at
$28.62, less par value)
Capital in excess of par from Pace stock options, deferred shares and performance shares
converted into New ARRIS shares (1,686,438 shares issued at $28.62)
ARRIS unrecognized compensation expense for the acceleration of restricted stock for
ARRIS executives upon completion of the Combination
Less: Capital in excess of par of New ARRIS
Less: Pace historical capital in excess of par
Pro forma adjustment to capital in excess of par
$1,331,505
48,240
6,851
(995 )
(198,319 )
$1,187,282
The preliminary unaudited pro forma adjustment to retained earnings is calculated as follows (in
thousands):
Estimated Combination-related fees and expenses of $30.8 million expected to be
incurred upon completion of the Combination, net of tax of $4.0 million
Estimated post combination expense of $6.9 million related to the acceleration of
restricted stock for ARRIS executives upon completion of the Combination, net of
tax of $2.0 million
Estimated post combination expense related to the make whole payment to ARRIS
non-employee directors for excise and other taxes upon completion of the
Combination
Less: Pace historical retained earnings
Pro forma adjustment to retained earnings
$
(26,769 )
(4,864 )
(2,666 )
(541,121 )
$ (575,420 )
The estimated fees and expenses have been excluded from the unaudited pro forma condensed combined
statements of operations as they reflect charges directly attributable to the Combination that will not have a
continuing impact on ARRIS’ operations.
The preliminary unaudited pro forma adjustment to accumulated other comprehensive loss eliminates
Pace’s historical accumulated other comprehensive loss of $92.4 million.
(m) Cost of sales — Adjustment reflects the preliminary depreciation expense to be recorded in cost of
sales of $0.1 million and $0.3 million for the year ended December 31, 2014 and six months ended June 30,
2015, respectively, associated with the fair value of property, plant and equipment acquired in the Combination.
120
TABLE OF CONTENTS
The preliminary depreciation expense for property, plant and equipment acquired from Pace is as follows
(in thousands):
Property, plant and equipment
Buildings and leasehold improvements
Machinery and equipment
Construction in progress
Total
Estimated
Depreciation
weighted
Depreciation
expense for the
average
expense for the
six months
useful life Preliminary
year ended
ended
(years) ​ ​ fair value ​ ​ December 31, 2014 ​ ​ June 30, 2015 ​
9
3 – 4
—
$ 8,361
87,801
2,209
$ 98,371
Less: Pace historical depreciation expense
Pro forma adjustment to depreciation expense
$
929
27,784
—
28,713
(29,000 )
$
(287 )
$
465
13,892
—
14,357
(13,500 )
$
857
Depreciation expense has been estimated based upon the nature of activities associated with the property,
plant and equipment acquired. With other assumptions held constant, a 10% increase in the fair value
adjustment for property, plant and equipment would increase annual pro forma depreciation expense by
approximately $2.1 million. In addition, with other assumptions held constant, a one year change in the
estimated useful lives of property, plant and equipment would change annual depreciation expense by
approximately $7.2 million.
(n) Selling, general and administrative expenses — Adjustment reflects the preliminary depreciation
expense to be recorded in selling, general and administrative expenses of $0.1 million and $0.3 million for the
year ended December 31, 2014 and six months ended June 30, 2015, respectively, associated with the fair value
of property, plant and equipment acquired in the Combination. Refer to adjustment (m) above.
(o) Research and development expenses — Adjustment reflects the preliminary depreciation expense to be
recorded in research and development expenses of $0.1 million and $0.3 million for the year ended
December 31, 2014 and six months ended June 30, 2015, respectively, associated with the fair value of property,
plant and equipment acquired in the Combination. Refer to adjustment (m) above.
(p) Amortization of intangibles assets — Adjustment reflects the preliminary amortization expense
associated with the fair value of the identifiable intangible assets acquired in the Combination of $143.5
million and $73.9 million for the year ended December 31, 2014 and the six months ended June 30, 2015,
respectively.
The preliminary amortization expense for the intangible assets acquired from Pace is as follows (in
thousands):
Intangible assets
Customer contracts and relationships
Technology and patents
Other
Total
Amortization
Amortization
expense for
Estimated
expense for
the six months
useful life
Preliminary
the year ended
ended
​ ​ (years) ​ ​ fair value ​ ​ December 31, 2014 ​ ​ June 30, 2015 ​
7
6
3
Less: Pace historical amortization expense
Pro forma adjustment to amortization of
intangibles assets
$ 400,000
650,000
50,000
$1,100,000
$ 61,538
118,182
16,667
$ 30,769
59,091
8,333
196,387
98,193
(52,936 )
$ 143,451
(24,342 )
$ 73,851
The estimated fair value of amortizable intangible assets is expected to be amortized on a straight-line basis
over the estimated useful lives. The amortizable lives reflect the periods over which the assets are expected to
provide material economic benefit. With other assumptions held constant, a 10% increase in the fair value
adjustment for amortizable intangible assets would increase annual pro forma amortization by
121
TABLE OF CONTENTS
approximately $19.6 million. In addition, with other assumptions held constant, a one year change in the
estimated useful lives of customer contracts and relationships, technology and patents, and other intangible
assets would change annual amortization expense by approximately $8.2 million, $18.2 million, and $4.2
million, respectively.
(q) Integration, acquisition, restructuring and other costs — Adjustment reflects the removal of
Combination-related expenses of $2.8 million and $10.3 million incurred by Pace and ARRIS, respectively, as
of June 30, 2015. These expenses are considered to be directly related to the Combination and not expected to
have a continuing impact on New ARRIS; therefore, these expenses have been excluded from the unaudited pro
forma statement of operations.
(r) Interest expense — As described in Note 1, in connection with entering into the Co-operation
Agreement, ARRIS entered into a Credit Agreement with various lenders pursuant to which the lenders agreed to
amend and extend Term Loan A Facility and the Revolving Credit Facility, as well as enter into a new Term A-1
Loan Facility to fund part of the cash portion of the Combination consideration and fees and expenses in
connection with the transactions contemplated by the Co-operation Agreement. For purposes of the unaudited
pro forma condensed combined financial information, management assumed that the cash portion of the
Combination consideration and transaction costs would be funded by the Financing.
The pro forma adjustment to interest expense reflects the (i) the removal of financing fees of $12.3 million
incurred by ARRIS as of June 30, 2015, which are considered to be directly attributable to the Financing and not
expected to have a continuing impact on New ARRIS and, therefore, have been excluded from the unaudited pro
forma statement of operations; and (ii) additional interest expense that would have been incurred during the
historical periods presented assuming the Combination and the Financing had occurred as of January 1, 2014.
The preliminary interest expense for the new debt incurred in connection with the Combination is as
follows (in thousands):
Composition of new debt and related interest expense
Term A-1 Loan Facility
(1)
Weighted
Average
Interest
Rate(2)
Debt
2.67 % $800,000
Amortization of new and existing ARRIS debt
issuance costs
Total
Less: Reversal of Pace historical interest expense
Less: Reversal of ARRIS historical amortization of
existing debt issuance costs
Less: Reversal of ARRIS historical debt issuance
costs incurred
Pro forma adjustment to interest expense
Interest expense
for the year
ended
December 31, 2014
Interest expense
for the six
months ended
June 30, 2015 ​
$ 21,355
$ 10,678
9,552
4,573
30,907
(7,702 )
15,251
(4,003 )
(9,035 )
(4,321 )
—
(12,332 )
$ 14,170
$ (5,405 )
(1) The loan modification extended the term of the Term Loan A Facility to five years without change in
principal balance. In addition, the borrowing capacity of the Revolving Credit Facility increased from
$250 million to $500 million, all of which remains unused. Therefore, the interest expense only includes
interest incurred on the principal balance of $800 million of Term A-1 Loan Facility and the unused
commitment fee on the Revolving Credit Facility of 35 basis points.
(2) An increase (decrease) of 0.125% in the interest rate of Term A-1 Loan Facility and the incremental
Revolving Credit Facility would increase (decrease) annual pro forma interest expense by $0.1 million.
Debt issuance costs estimated to be incurred in conjunction with the Combination have been amortized
over the term of the respective debt instrument for the purposes of calculating the net pro forma adjustment to
interest expense.
122
TABLE OF CONTENTS
(s) Income tax expense (benefit) — Adjustment reflects the income tax impacts of the pro forma
adjustments made to the pro forma statement of operations, whereby management estimated the tax rate at 29.0%
which approximates a blended statutory tax rate for the tax jurisdictions where the certain assets acquired and
liabilities assumed reside.
(t) Basic and diluted net income per common share — The unaudited pro forma adjustment to shares
outstanding used in the calculation of basic and diluted earnings per share is calculated as follows (in shares):
​ Year ended December 31, 2014 Six months ended June 30, 2015
Basic
Diluted
Basic
Diluted
​
New ARRIS shares to be issued to shareholders of
Pace
46,548,763
46,548,763
46,548,763
46,548,763
Pace equity awards to be converted into New
ARRIS shares (11,590,641 Pace stock options,
deferred shares and performance shares converted
to 1,686,438 of New ARRIS shares at a 0.1455
conversion rate)
1,686,438
1,686,438
1,686,438
1,686,438
New ARRIS shares to be issued to ARRIS
executives related to the acceleration of restricted
stock upon completion of the Combination
1,009,643
420,203
1,009,643
327,583
49,244,844
48,655,404
49,244,844
48,562,784
New ARRIS shares to be issued
As all outstanding Pace shares will be eliminated in the Combination, the unaudited pro forma weighted
average number of basic shares outstanding is calculated by adding ARRIS’ historical weighted average number
of basic shares outstanding for the period and the number of New ARRIS shares expected to be issued to Pace’s
shareholders in the Combination. The unaudited pro forma weighted average number of diluted shares
outstanding is calculated by adding ARRIS’ historical weighted average number of diluted shares outstanding
for the period and the number of New ARRIS shares expected to be issued in the Combination. Each outstanding
stock option, deferred shares or performance shares issued under each of the Pace Share Plans, whether or not
then vested or exercisable, will be canceled and terminated at the effective time in exchange for the right to
receive New ARRIS shares.
123
TABLE OF CONTENTS
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following tables set forth certain historical, pro forma and pro forma equivalent per share financial
information for ARRIS and Pace shares. This pro forma information has not been approved by, nor prepared by,
Pace. The unaudited pro forma and pro forma equivalent per share financial information gives effect to the
Combination as if it had occurred on June 30, 2015 for book value per share data and as of January 1, 2014 for
net income per share data.
The pro forma per share balance sheet information combines ARRIS’ June 30, 2015 unaudited consolidated
balance sheet with Pace’s June 30, 2015 unaudited consolidated balance sheet. The pro forma per share income
statement information for the fiscal year ended December 31, 2014 combines ARRIS’ audited consolidated
statement of income for the fiscal year ended December 31, 2014 with Pace’s audited consolidated income
statement for the fiscal year ended December 31, 2014. The pro forma per share income statement information for
the six months ended June 30, 2015 combines ARRIS and Pace unaudited consolidated statement of income for
the six months ended June 30, 2015. New ARRIS was formed on April 20, 2015 for purposes of facilitating the
acquisition and does not maintain any material balances nor has it had any material activity since formation.
The Pace pro forma equivalent data per ordinary share financial information is calculated by multiplying the
combined unaudited pro forma data per ordinary share amounts by the exchange ratio 0.1455 New ARRIS share
for each Pace ordinary share. The exchange ratio does not include the 132.5 pence per share cash portion of the
acquisition consideration.
The following information should be read in conjunction with the audited and unaudited financial
statements of ARRIS, which are incorporated by reference in this proxy statement/prospectus, the audited and
unaudited financial statements of Pace, which are included elsewhere in this proxy statement/​p rospectus, and the
financial information contained in the “Unaudited Pro Forma Condensed Combined Financial Information,”
“Selected Historical Financial Data of ARRIS” and “Selected Historical Financial Data of Pace” sections of this
proxy statement/prospectus, beginning on pages 106, 39 and 40, respectively, of this proxy
statement/prospectus. The unaudited pro forma information below is presented for informational purposes only
and is not necessarily indicative of the operating results or financial position that would have occurred if the
Combination had been completed as of the periods presented, nor is it necessarily indicative of the future
operating results or financial position of the combined company. In addition, the unaudited pro forma
information does not purport to indicate balance sheet data or results of operations data as of any future date or
for any future period.
124
TABLE OF CONTENTS
As of and for the
six months ended
June 30, 2015
As of and for the
year ended
December 31, 2014 ​
$ 0.25
$ 0.24
$
—
$ 12.20
$ 2.27
$ 2.21
$
—
$ 11.71
$
$
$
$
$
$
$
$
ARRIS Historical Data per Common Share
Net income per common share:
Basic
Diluted
Cash dividends declared per common share
Book value per common share
(1)
Pace Historical Data per Common Share
Net income per common share:
Basic
Diluted
Cash dividends declared per common share
Book value per common share
New ARRIS Combined Unaudited Pro Forma Data per Common Share
Net income per common share:
Basic
Diluted
0.27
0.26
0.05
2.32
0.47
0.46
0.06
2.14
$ 0.25
$ 0.24
$ 1.35
$ 1.32
Cash dividends declared per common share(2)
$
$
Book value per common share(3)
$ 16.05
N/A
Basic
$ 0.04
$ 0.20
Diluted
$ 0.04
$ 0.19
Cash dividends declared per common share(2)
$
$
Book value per common share(3)
$ 2.34
Pace Unaudited Pro Forma Equivalent Data per Common Share
—
—
(4)
Net income per common share:
—
—
N/A
(1) The historical information of Pace as of and for the six months ended June 30, 2015 includes the historical
results as reported under IFRS.
(2) Same as ARRIS historical as there has been no change in dividend policy.
(3) Pro forma book value per share is not meaningful as of December 31, 2014, as accounting for the
Combination was calculated as of June 30, 2015.
(4) The per share amounts are calculated by multiplying the New ARRIS Unaudited Combined Pro Forma Data
per Common Share by the exchange ratio of 0.1455.
125
TABLE OF CONTENTS
COMPARATIVE PER SHARE
MARKET PRICE DATA AND DIVIDEND INFORMATION
ARRIS shares are listed on NASDAQ under the symbol “ARRS.” Pace ordinary shares are listed on the LSE
under the symbol “PIC.” The table below sets forth, for the calendar quarters indicated, the high and low sales
prices per share reported on NASDAQ and the LSE for ARRIS shares and Pace shares, respectively. No dividends
were declared on the ARRIS shares during the periods presented below. On August 31, 2015, the last practicable
date before the date of this proxy statement/prospectus, there were 146,590,746 ARRIS shares outstanding and
320,192,401 Pace ordinary shares outstanding.
ARRIS Group, Inc.
Pace plc
High
Low
Dividends
Declared
High
Low
Dividends
Declared
For the quarterly period ended:
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
$12.69
$13.98
$14.20
$15.90
$10.46
$10.89
$11.80
$12.40
—
—
—
—
£0.95
£1.10
£1.83
£2.03
£0.69
£0.68
£1.03
£1.59
$0.025
—
$0.014
—
March 31, 2013
June 30, 2013
September 30, 2013
December 31, 2013
$17.98
$17.55
$17.23
$24.40
$14.61
$14.07
$14.15
$16.34
—
—
—
—
£2.47
£2.73
£3.24
£3.32
£1.85
£2.24
£2.43
£2.48
$0.031
—
$0.018
—
March 31, 2014
June 30, 2014
September 30, 2014
December 31, 2014
$31.42
$34.22
$35.83
$30.99
$23.38
$24.76
$28.22
$23.71
—
—
—
—
£4.87
£4.61
£3.81
£3.71
£3.01
£3.28
£2.86
£2.84
$0.037
—
$0.023
—
March 31, 2015
June 30, 2015
$31.45
$37.50
$25.64
$28.57
—
—
£3.91
£4.77
£3.14
£3.28
$0.048
—
The following table shows, as of (i) April 22, 2015, the last full trading day before ARRIS and Pace
publicly announced the Combination, and (ii) August 31, 2015, the last practicable date before the date of this
proxy statement/prospectus, the closing price per ARRIS share on NASDAQ and the closing price per Pace
ordinary share on the LSE. For more information, please see “Comparative Per Share Market Price Data and
Dividend Information” beginning on page 126.
ARRIS
Common
Stock
April 22, 2015
August 31, 2015
Implied Equivalent
Value per Pace
Ordinary Share
Pace Ordinary
Shares
($)
(£)
($)
$30.54
£3.32
$ 4.99
$26.42
£3.41
$5.23
(2)
(3)
(£)
($)
£4.28
$ 6.44
£3.83
$ 5.88
(2)
(3)
(1) Implied equivalent value is calculated by multiplying the closing price per ARRIS share by 0.1455, the
exchange ratio for each Pace share cancelled in the Combination, and then adding to that amount the cash
portion of the consideration of 132.5 pence payable for each Pace share cancelled in the Combination.
(2) Based on an exchange rate of $1.5040 per £1.00 as of April 22, 2015.
(3) Based on an exchange rate of $1.5346 per £1.00 as of August 31, 2015.
The market prices of ARRIS and Pace shares are likely to fluctuate prior to the completion of the
Combination and cannot be predicted. We urge you to obtain current market information regarding ARRIS
and Pace shares.
126
TABLE OF CONTENTS
DESCRIPTION OF NEW ARRIS SHARES
Description of New ARRIS ordinary shares
The following description of New ARRIS ordinary shares is a summary. This summary does not purport to
be complete and is qualified in its entirety by reference to the complete text of the New ARRIS articles of
association that will be in effect immediately following the completion of the Combination, which will be
substantially in the form set forth in Annex D to this proxy statement/prospectus. You are urged to read the New
ARRIS articles of association and relevant provisions of the Companies Act for a more complete understanding
of the rights conferred by New ARRIS ordinary shares. The following summary is not a description of New
ARRIS’ articles of association currently in effect.
There are differences between ARRIS’ amended and restated certificate of incorporation (the “Charter”) and
bylaws (the “Bylaws”) and New ARRIS’ articles of association as they will be in effect after the effective time of
the Merger. Certain provisions of ARRIS’ Charter and Bylaws will not be replicated in New ARRIS’ articles of
association, and certain provisions that will be included in New ARRIS’ articles of association are not in ARRIS’
Charter and Bylaws. See the section captioned “Comparison of the Rights of ARRIS Stockholders and New
ARRIS Shareholders” beginning on page 137.
Except where otherwise indicated, the description below reflects the New ARRIS articles of association as
those documents will be in effect as of the effective time of the Merger. The statements in this section are
qualified in their entirety by reference to, and are subject to, the detailed provisions of the New ARRIS articles of
association as they will be in effect from and after the effective time of the Merger.
Capital Structure
The rights of and restrictions applicable to the New ARRIS ordinary shares are prescribed in the New ARRIS
articles of association, subject to the Companies Act.
Issued Share Capital
Based on the number of Pace shares outstanding as of August 31, 2015, New ARRIS is expected to issue
approximately 48.1 million New ARRIS ordinary shares to the Pace Scheme shareholders upon completion of
the Scheme. Additionally, in connection with the consummation of the Merger, a number of New ARRIS
ordinary shares will be issued to the ARRIS stockholders that are equal to the number of ARRIS shares (other
than treasury shares or any shares owned of record by ARRIS Holdings or Merger Sub) outstanding as of the
closing date of the Merger.
Under the New ARRIS articles of association, subject to the Companies Act, the New ARRIS Board (or an
authorized committee of the New ARRIS Board) is authorized to approve the allotment, issue, grant and disposal
of, or otherwise deal with, shares, options, equity awards, rights over shares, warrants, other securities and
derivatives (including unissued shares) or fractions thereof in or of New ARRIS to such persons, at such times
and on such terms as it thinks fit (including specifying the conditions of allotment of shares for the purpose of
the Companies Act).
Before the Merger occurs, the New ARRIS Board intends to take all actions that are necessary in order to
ensure that, as soon as practicable following the Merger, any equity interests in New ARRIS that are held by
ARRIS immediately prior to consummation of the Merger will be repurchased by New ARRIS or cancelled. See
the section captioned “Creation of Distributable Reserves” beginning on page 78.
Preemptive Rights, Share Warrants and Options
The Companies Act grants preemptive rights on the issue of New ARRIS shares. The New ARRIS articles of
association disapply the statutory preemption rights for issues up to the number of shares authorized for
allotment in the New ARRIS articles of association. Such disapplication needs to be renewed or extended by a
special resolution of the New ARRIS shareholders every five years and/or for issues of shares in excess of the
number authorized in the New ARRIS articles of association.
127
TABLE OF CONTENTS
Dividends
Under the Companies Act, New ARRIS may pay a dividend out of its distributable profits.
Under the New ARRIS articles of association, the New ARRIS Board may from time to time declare, and
New ARRIS may pay, dividends on its outstanding shares in the manner and upon the terms and conditions
provided by the Companies Act and the New ARRIS articles of association. Except as otherwise provided by the
rights attached to the shares, all shares will carry a pro rata entitlement to the receipt of dividends. At the New
ARRIS Board’s option, a dividend may be paid in part or in full in cash or by the distribution of assets
(including fully paid shares or debentures of another company) or by the issuance of New ARRIS shares. No
dividend or other money payable in respect of a New ARRIS share shall bear interest against New ARRIS, unless
otherwise provided by the rights attached to the share.
Any dividend or other money payable in respect of a New ARRIS share which has remained unclaimed for
12 years from the date when it became due for payment shall be forfeited (unless the New ARRIS Board decide
otherwise).
Share Repurchases, Redemptions and Conversions
Repurchase
Under the Companies Act, New ARRIS may purchase its own fully paid shares, including any redeemable
shares, from any source. However, the repurchase of shares cannot result in only redeemable or treasury shares
being in issue. A purchase of such shares must be financed out of New ARRIS’ distributable profits or the
proceeds of a fresh issue of shares.
New ARRIS is proposing to take authority to purchase its own shares under the Companies Act. New ARRIS
may only repurchase its own shares in accordance with specific procedures for “off-market” purchases. This is
because New ARRIS shares are to be listed on NASDAQ, which is not a “recognised investment exchange” for
the purposes of the Companies Act, and thus does not comply with the requirements for “market purchases.”
Under the Companies Act, such off-market repurchases may only be made pursuant to a form of share repurchase
contract which has been approved by a resolution of its shareholders.
New ARRIS intends to put in place two forms of share repurchase contract: (1) a contract to purchase shares
at such price and in such quantity as decided by the New ARRIS Board at any given time, subject to the
limitations in Rule 10b-18 of the Securities Exchange Act of 1934; and (2) a repurchase plan to purchase a
specified dollar amount of shares each day if New ARRIS’ shares are trading below a specified price. There shall
be an identifiable group of potential counterparties, also to be approved by a resolution of New ARRIS’
shareholders, with the actual counterparty or counterparties selected at the time of implementation of the
repurchase. New ARRIS shall contract with such identified counterparties, who shall commit to purchase the
shares as principal and sell any purchased shares to New ARRIS. The forms of contract and the counterparties are
to be approved by ARRIS, as the sole shareholder of New ARRIS, prior to the effective date of the Merger and
New ARRIS’ shares being listed on NASDAQ. Under the Companies Act, authorization of the share repurchase
contracts and the counterparties will be valid for five years.
Approval of the forms of contract does not make the repurchase of New ARRIS’ shares inevitable or
determine the amount or timing of any repurchase activity. The New ARRIS Board would retain discretion as to
whether to make any repurchase of shares, and if it chooses to do so, New ARRIS would have the option as to the
timing of the purchase and the number of shares to be purchased, although a maximum number of shares would
be specified. A minimum price is to be specified in the form of contracts and the maximum price will be
determined by a formula dependent on external factors, including the NASDAQ market price.
Redemption
Under the New ARRIS articles of association and subject to the Companies Act, New ARRIS may issue
shares which will or can be redeemed by New ARRIS or by the holder of such redeemable shares (“Redeemable
Shares”), on such terms and in such manner as the New ARRIS Board may decide. In
128
TABLE OF CONTENTS
addition, New ARRIS may convert existing non-redeemable shares (whether issued or not) into Redeemable
Shares on such terms and in such manner as may be determined by a resolution of New ARRIS shareholders
passed by a simple majority of the votes cast.
Treasury shares
Under the Companies Act, following the redemption or repurchase of shares, New ARRIS may hold the
shares in treasury (and subsequently cancel them, sell them, or transfer them for the purpose of or under an
employees’ share scheme) to the extent it is authorized to do so by an ordinary resolution (passed by a simple
majority of those voting in person or by proxy) of the New ARRIS shareholders. There must at all times be
sufficient shares in New ARRIS outstanding that are not held in treasury to satisfy the minimum share capital
requirements under the Companies Act.
Purchases by Subsidiaries of New ARRIS
Under the Companies Act, generally a subsidiary of New ARRIS cannot hold shares in New ARRIS.
However, this does not prevent a subsidiary which, at the time it becomes a subsidiary, is a New ARRIS
shareholder from continuing to hold New ARRIS ordinary shares, provided that it has no right to vote on any
matter presented to New ARRIS shareholders and provided it does not acquire additional shares in New ARRIS
except by way of the allotment to it of fully paid shares via a capitalization of reserves.
Consolidation and Division; Subdivision
Under the Companies Act, New ARRIS may, by ordinary resolution (passed by a simple majority of those
voting in person or by proxy), consolidate all or any of its share capital into shares of larger amount than its
existing shares, or subdivide all or any of its existing shares into shares of a smaller amount than its existing
shares.
Reduction of Share Capital
Under the Companies Act, New ARRIS may reduce its capital only by way of a court approved procedure,
preceded by the approval of a majority of three-quarters of its shareholders.
Annual General Meetings of Shareholders
New ARRIS must hold its annual general meeting in each period of six months beginning with the day
following its accounting reference date (which is its accounting year end of December 31).
The notice of the general meeting must state the time, date and place of the meeting and the general nature
of the business to be dealt with.
Under English law, an annual general meeting must be called by at least 21 clear days’ notice. This notice
period can be shortened if all shareholders who are permitted to attend and vote agree to the shorter notice. A
meeting other than the annual general meeting must be called by not less than 14 clear days’ notice, but this too
can be longer or shortened by agreement.
“Clear days” means calendar days and excludes (1) the date on which a notice is given or a request
received; and (2) the date of the meeting itself.
One or more shareholders holding at least 5% of the total voting rights of all shareholders who have the
right to vote on the resolution, or at least 100 shareholders who have a right to vote and hold (on average) at
least £100 per shareholder of paid-up share capital can require resolutions to be put before the annual general
meeting (including, for the avoidance of doubt, a resolution to appoint a director).
General Meetings of Shareholders
The Companies Act requires the New ARRIS Board, if it receives a written requisition from New ARRIS
shareholders representing at least 5% of such of the paid up capital of New ARRIS as carries the right of voting
at general meetings (the “Requisitioners”) to, within 21 days, call a general meeting of New ARRIS shareholders
or a meeting of the holders of that class of shares (the “Class Meeting”), as
129
TABLE OF CONTENTS
applicable, to be held as soon as practicable and in any event not later than 28 days after the date of the notice
convening the meeting. The requisition must state the business to be considered at the meeting, must be signed
by or on behalf of the Requisitioners, and must be submitted to New ARRIS’ registered office.
Under the Companies Act, if the New ARRIS Board does not, within 21 days of the date of the deposit of a
valid requisition from Requisitioners, call a meeting of New ARRIS shareholders to be held within 28 days of
the notice convening the meeting, the Requisitioners (or those representing more than a one half of the total
voting rights of the Requisitioners) may call a meeting of New ARRIS shareholders to be held within three
months of the date of deposit of the requisition. A meeting called by the Requisitioners in this manner must be
called in the same manner, as nearly as possible, as meetings are called by the New ARRIS Board. New ARRIS
must reimburse any reasonable expenses incurred by the Requisitioners in calling the meeting if the New ARRIS
Board has failed to properly call a requisitioned meeting.
Under the New ARRIS articles of association, a general meeting of New ARRIS shareholders may also be
called pursuant to a resolution by the New ARRIS Board.
Quorum for Meetings of Shareholders
Under the New ARRIS articles of association, except as otherwise provided by law or the New ARRIS
articles of association, two persons entitled to vote upon the business to be transacted in respect of a majority of
the issued shares of New ARRIS, each being a member or a proxy for a member or a duly authorised
representative of a corporation which is a member (including for this purpose two persons who are proxies or
corporate representatives of the same member), shall be a quorum.
The necessary quorum at a separate meeting of the holders of any class of New ARRIS shares shall be (i) at
any such meeting other than an adjourned meeting, two persons entitled to vote upon the business to be
transacted in respect of a majority in nominal value of the issued shares of the class in question (excluding any
shares of that class held as treasury shares), each being a member or a proxy for a member or a duly authorised
representative of a corporation which is a member (including for this purpose two persons who are proxies or
corporate representatives of the same member); or (ii) at an adjourned meeting, one person holding shares of the
class in question (other than treasury shares) or their proxy.
Voting
Under the New ARRIS articles of association, all resolutions at an annual general meeting or other general
meeting must be decided on a poll.
On a poll, each New ARRIS shareholder present in person or by proxy is entitled to one vote for each New
ARRIS share in the name of the shareholder on record at the relevant record date.
Under the Companies Act, an ordinary resolution proposed at an annual general meeting or other general
meeting of the shareholders requires approval by a simple majority of the voting rights represented in person or
by proxy at the meeting. Matters requiring an ordinary resolution under the Companies Act include the
following:
•
approval of directors’ long-term service contracts, substantial property transactions with or loans to
directors;
•
ratification of acts by directors;
•
the approval of the directors’ remuneration report and remuneration policy;
•
a subdivision or consolidation of share capital;
•
a redenomination of share capital; and
•
authorisation of off-market share purchases.
Under the Companies Act, a special resolution proposed at an annual general meeting or other general
meeting of the shareholders requires approval by not less than 75% of the voting rights represented in person or
by proxy at the meeting. Matters requiring a special resolution under the Companies Act include the following:
130
TABLE OF CONTENTS
•
altering a company’s articles of association;
•
re-registration of a company from public to private or from private to public;
•
changing the name of a company (unless otherwise provided for in the company’s articles of
association — the New ARRIS articles of association permit the company’s name to be changed by the
New ARRIS Board);
•
varying the class rights of shares, unless otherwise provided for in the articles of association;
•
reducing share capital;
•
implementing a scheme of arrangement; and
•
commencing or terminating a member’s voluntary winding up.
To shorten the notice requirements for a meeting (other than an annual general meeting) of the New ARRIS
shareholders or a class of New ARRIS shareholders, a resolution of shareholders entitled to attend and vote at the
meeting and holding not less than 95% of the total voting rights of shareholders who have that right is required.
Variation of Rights Attaching to a Class of Shares
Under the Companies Act, any variation of class rights attaching to the issued shares of New ARRIS
requires the approval of a special resolution passed by a majority of not less than 75% of the voting rights of that
class represented in person or by proxy at a separate meeting of the shareholders of the relevant class.
Under New ARRIS’ articles of association, if variation of the rights of New ARRIS shareholders could also
be effected by an amendment to the New ARRIS articles of association. See the section captioned “Comparison
of the Rights of ARRIS Shareholders and New ARRIS Shareholders — Amendments of Governing Documents”
beginning on page 165. Any such amendment to the New ARRIS articles of association varying the rights of
New ARRIS shareholders would require the approval of a special resolution passed by a majority of not less than
75% of the voting rights of that class represented in person or by proxy at a separate meeting of the shareholders
of the relevant class, in addition to the approval usually required for an amendment to the New ARRIS articles of
association.
Inspection of Books and Records
Under the Companies Act, a company’s register of shareholders must be kept available for inspection.
Inspection is free for New ARRIS shareholders but New ARRIS may charge a prescribed fee to any other person
who intends to inspect the register. In addition, anyone may request a copy of an English company’s register of
shareholders on payment of a prescribed fee and delivery to the company of a written request containing certain
information, including the purpose for which the copy register will be used.
English law also provides that certain corporate records of New ARRIS, including a register of its directors,
secretary, directors’ indemnities and directors’ service contracts, must be open for inspection for at least two
hours in each business day.
The accounting records of a public English company must be open at all times to inspection by its officers.
New ARRIS’ statutory books and records shall, to the extent required by the Companies Act, be kept in England.
Acquisitions
An English public limited company may be acquired in a number of ways, including by means of a “scheme
of arrangement” between the company and its shareholders or by means of a takeover offer.
Scheme of arrangement
A “scheme of arrangement” is a statutory procedure under the Companies Act pursuant to which the English
courts may approve an arrangement between an English company and some or all of its shareholders. In a
“scheme of arrangement”, the company would make an initial application to the court to
131
TABLE OF CONTENTS
convene a meeting or meetings of its shareholders at which a majority in number of shareholders representing
75% of the voting rights of the shareholders present and voting either in person or by proxy at the meeting must
agree to the arrangement by which they will sell their shares in exchange for the consideration being offered by
the bidder. If the shareholders so agree, the company will return to court to request the court to sanction the
arrangement. Upon such a scheme of arrangement becoming effective in accordance with its terms and the
Companies Act, it will bind the company and such shareholders.
Takeover offer
A takeover offer is an offer to acquire all of the outstanding shares of a company (other than shares which at
the date of the offer are already held by the offeror). The offer must be made on identical terms to all holders of
shares to which the offer relates. If the offeror, by virtue of acceptances of the offer, acquires or contracts to
acquire not less than 90% in par value of the shares to which the offer relates, the Companies Act allows the
offeror to give notice to any non-accepting shareholder that the offeror intends to acquire his or her shares
through a compulsory acquisition (also referred to as a “squeeze out”), and the shares of such non-accepting
shareholders will be acquired by the offeror six weeks later on the same terms as the offer, unless the shareholder
objects to the English court and the court enters an order that the offeror is not entitled to acquire the shares or
specifying terms of the acquisition different from those of the offer.
The Companies Act permits a scheme of arrangement or takeover offer to be made relating only to a
particular class or classes of a company’s shares.
Disclosure of Interests in Shares
New ARRIS shareholders will be subject to section 793 of the Companies Act, which is also incorporated in
the New ARRIS articles of association. Section 793 provides that a company may give notice to any person who
it knows or has reasonable cause to believe to be interested in the company’s shares (or to have been interested
in the previous three years) requiring that person to provide to the company details of the person’s interest.
If a New ARRIS shareholder fails to respond to such a request within 14 calendar days, New ARRIS can
impose sanctions on that holder which include the suspension of voting rights in the relevant shares and, where
the relevant shares represent at least 0.25% of the class (excluding treasury shares), the suspension of dividend
and share transfer rights. The New ARRIS Board may suspend or terminate any and all of the sanctions in its
discretion at any time. These sanctions automatically cease when the New ARRIS shareholder complies with the
request.
Anti-Takeover Provisions
Applicability of the UK Takeover Code
Takeover offers and certain other transactions in respect of certain public companies are regulated by the
Takeover Code, which is administered by the Takeover Panel, a body consisting of representatives of the City of
London financial and professional institutions which oversees the conduct of takeovers.
An English public limited company is potentially subject to the protections afforded by the Takeover Code
if, among other factors, a majority of its directors are resident within the UK, the Channel Islands or the Isle of
Man. Based upon New ARRIS’ current and intended plans for its directors, it is anticipated that the Takeover
Code will not apply to New ARRIS.
Rights and share issues in the context of an acquisition
The New ARRIS articles of association provide the New ARRIS Board with the power to establish a rights
plan and to grant rights to subscribe for New ARRIS shares pursuant to a rights plan, where in the opinion of the
New ARRIS Board to do so would improve the likelihood that:
•
any process which may result in an (a) acquisition or (b) change of control, of over 20% or more of the
issued voting shares of New ARRIS (“Change of Control”), is conducted in an orderly manner;
132
TABLE OF CONTENTS
•
all New ARRIS shareholders will be treated equally and fairly and in a similar manner;
•
an optimum price for New ARRIS shares would be received by or on behalf of all New ARRIS
shareholders;
•
the success of New ARRIS would be promoted for the benefit of its members as a whole;
•
the long term interests of New ARRIS, its employees, its members and its business would be
safeguarded;
•
New ARRIS would not suffer serious economic harm; or
•
the New ARRIS Board would have additional time to gather relevant information or pursue
appropriate strategies,
or all or any of the above.
The New ARRIS articles of association further provide that the New ARRIS Board may, in accordance with
the terms of a rights plan, subject to renewal by shareholder approval at least every five years, determine to
(i) allot shares pursuant to the exercise of rights or (ii) exchange rights for shares in New ARRIS, where in the
opinion of the New ARRIS Board to do so would improve the likelihood that:
•
the use of abusive tactics by any person in connection with any potential acquisition or Change of
Control would be prevented;
•
any potential acquisition or Change of Control which would be unlikely to treat all New ARRIS
shareholders equally and fairly and in a similar manner would be prevented;
•
any potential acquisition or Change of Control at a price which would undervalue New ARRIS or its
shares would be prevented;
•
any potential acquisition or Change of Control which would not be likely to promote the success of
New ARRIS for the benefit of its members as a whole would be prevented;
•
the long term interests of New ARRIS or its members, employees and its business would be
safeguarded or both; or
•
New ARRIS would not suffer serious economic harm,
or all or any of the above.
Under the Takeover Code, the board of a public UK company is constrained from implementing such
defensive measures. However, as discussed above, these measures are included in the New ARRIS articles of
association as the Takeover Code is not expected to apply to New ARRIS and these measures are included
commonly in the constitution of U.S. companies.
These provisions will apply for so long as New ARRIS is not subject to the Takeover Code.
Corporate Governance
Under English law and the New ARRIS articles of association, the authority for the overall management of
New ARRIS is vested in the New ARRIS Board. The New ARRIS Board may delegate any of its powers on such
terms as it thinks fit in accordance with the New ARRIS articles of association and English law. Despite this
delegation, the New ARRIS Board remains responsible, as a matter of English law, for the proper management of
the affairs of New ARRIS and the directors are not allowed to leave the performance of their duties to others. The
directors must ensure that any delegation is and remains appropriate and that an adequate system of control and
supervision is in place.
Committees may be established by the New ARRIS Board which may meet as they see fit, subject to the
requirements of the New ARRIS articles of association and such committee’s charter document adopted by the
New ARRIS Board from time to time. Under the New ARRIS articles of association, the quorum necessary for the
transaction of business at any committee meeting may be fixed by the New ARRIS Board. If the quorum is not
fixed by the New ARRIS Board, the quorum is a majority of the members of that committee then in office.
133
TABLE OF CONTENTS
Legal Name; Formation; Fiscal Year; Registered Office
The current legal and commercial name of New ARRIS is ARRIS International Limited. New ARRIS was
incorporated in England and Wales on April 20, 2015 as a private limited company with company number
09551763. Before or at the closing of the Combination, New ARRIS will convert to become a public company
and will be renamed ARRIS International plc. New ARRIS’ fiscal year ends on December 31 each year. New
ARRIS’ registered office address is 20-22 Bedford Row, London, United Kingdom, WC1R 4JS, United Kingdom.
For more information regarding New ARRIS, see the section captioned “Companies Involved in the
Combination” beginning on page 50.
Appointment of Directors
The New ARRIS articles of association provide that the number of directors shall, unless otherwise
determined by the New ARRIS shareholders, not be less than two. Immediately following the completion of the
Combination, the Board of New ARRIS is expected to expand to ten members, consisting of the ten current
ARRIS Directors.
Both New ARRIS shareholders and the New ARRIS Board have the power to appoint a person as a director
by simple majority resolution, either to fill a vacancy or as an additional position.
Removal of Directors and Vacancies
Under English law, the New ARRIS shareholders may remove a director without cause by ordinary
resolution, irrespective of any provisions in the New ARRIS articles of association, provided that 28 “clear
days’” notice of the resolution is given to the company.
Further, pursuant to the New ARRIS articles of association, New ARRIS shareholders may, by special
resolution, remove a director before the expiration of his period of office and may, by ordinary resolution,
appoint another person who is willing to act as a director, and is permitted by law to do so, to be a director
instead of him.
Under the New ARRIS articles of association a person ceases to be a director if:
•
that person ceases to be a director by virtue of any provision of the Companies Act or is prohibited
from being a director by law;
•
a bankruptcy order is made against that person;
•
a composition is made with that person’s creditors generally in satisfaction of that person’s debts; or
•
notification is received by New ARRIS from that person that he is resigning or retiring from his office
as director, and such resignation or retirement has taken effect in accordance with its terms.
Duration, Dissolution and Rights upon Liquidation
New ARRIS’ duration will be unlimited but New ARRIS may be dissolved and wound up at any time. There
are three types of winding up procedure under the Companies Act:
•
a member’s voluntary winding-up;
•
a creditors’ voluntary winding-up; and
•
a compulsory winding-up.
Generally, a member’s voluntary winding up occurs when the company is solvent and a creditors’ voluntary
winding up occurs when it is insolvent. Both processes are initiated by the company passing a special
resolution. A liquidator (a qualified insolvency practitioner) needs to be appointed for a creditors’ voluntary
winding up.
Upon dissolution, after satisfaction of the claims of creditors, the assets of New ARRIS would be distributed
to shareholders in accordance with their respective interests.
134
TABLE OF CONTENTS
Uncertificated Shares
Shares of New ARRIS may be held in either certificated or uncertificated form.
No Liability for Further Calls or Assessments
The shares to be issued in the Combination will be duly and validly issued and fully paid and nonassessable.
Transfer and Registration of Shares
New ARRIS will maintain a share register or otherwise cause a share register to be maintained. The
registration in that register will be used to determine which New ARRIS shareholders are entitled to vote at
meetings of New ARRIS shareholders. A New ARRIS shareholder who holds shares beneficially will not be the
holder of record of such shares. Instead, the depository or other nominee will be the holder of record of those
shares.
Accordingly, a transfer of shares from a person who holds such shares beneficially to a person who also
holds such shares beneficially through a depository or other nominee will not be registered in New ARRIS’
official share register, as the depository or other nominee will remain the record holder of any such shares.
Under the New ARRIS articles of association, subject to the Companies Act, certificated shares may be
transferred by an instrument of transfer (in any usual form), duly executed, with such evidence as the New ARRIS
Board may reasonably require to show the right of the transferor to make the transfer.
Indemnification of Directors and Officers; Insurance of Directors and Officers
Subject to exceptions, English law does not permit a company to exempt a director or certain officers from,
or indemnify a director against, liability in connection with any negligence, default, breach of duty or breach of
trust by a director in relation to the company.
The exceptions allow a company to:
•
purchase and maintain director and officer liability insurance (“D&O Insurance”) against any liability
attaching in connection with any negligence, default, breach of duty or breach of trust owed to the
company. D&O Insurance generally covers costs incurred in defending allegations and compensatory
damages that are awarded. However, D&O Insurance will not cover losses incurred in relation to
criminal acts, intentional malfeasance or other forms of dishonesty, certain regulatory offences or
excluded matters such as environmental fines and clean-up costs. In relation to these matters, D&O
Insurance generally only covers defense costs, subject to the obligation of the director or officer to
repay the costs if an allegation of criminality, dishonesty or intentional malfeasance is subsequently
admitted or found to be true;
•
provide a qualifying third party indemnity provision, or “QTPIP.” This permits a company to
indemnify its directors and certain officers (and directors and certain officers of an associated
company) in respect of proceedings brought by third parties (covering both legal costs and the amount
of any adverse judgment, except for: the legal costs of an unsuccessful defense of criminal proceedings
or civil proceedings including proceedings brought by the company itself or an associated company;
fines imposed in criminal proceedings; the legal costs of an unsuccesful claim for relief and penalties
imposed by regulatory bodies). New ARRIS can therefore indemnify directors and certain officers
against such third party actions as such class actions or actions following mergers and acquisitions or
share issuances; and
•
provide a qualifying pension scheme indemnity provision, or “QPSIP”. This permits a company to
indemnify its directors and certain officers (and certain officers of an associated company) in respect of
proceedings in connection with the company’s activities as a corporate trustee of an occupational
pension scheme (covering both legal costs and the amount of any adverse judgement, except for: the
legal costs of an unsuccessful defense of criminal proceedings, including
135
TABLE OF CONTENTS
proceedings brought by the company itself or an associated company; fines imposed in criminal
proceedings; and penalties imposed by regulatory bodies). New ARRIS can therefore indemnify
directors and certain officers in certain circumstances if New ARRIS acts as a corporate trustee of an
occupational pension scheme.
The New ARRIS articles of association include a provision which entitle every director to be indemnified
by New ARRIS to any extent permitted by law (including by funding any expenditure incurred or to be incurred
by him or her) against any loss or liability incurred in their capacity as a director. Any funds provided to a
director to meet any expenditure incurred by him in connection with defending himself or in an investigation of
any negligence, default, breach of duty or breach of trust by him or otherwise, must be repaid if (a) the director is
convicted in the criminal proceedings, (b) judgment is given against the director in civil proceedings, or (c) the
court refuses to grant the director the relief sought.
The New ARRIS articles of association also provides the New ARRIS Board with authority to purchase and
maintain insurance at the expense of New ARRIS for the benefit of any person who is or was at any time a
director or other officer or employee of the company or any associated company.
In addition to the provisions of the New ARRIS articles of association, it is common to set out the terms of
the QTPIP in the form of a deed of indemnity between the company and the relevant director or officer which
essentially indemnifies the director or officer against claims brought by third parties to the fullest extent
permitted under English law.
New ARRIS will be required to disclose in its annual directors’ report any QTPIP in force at any point
during the relevant financial year or in force when the directors’ report is approved. A copy of the indemnity or,
if it is not in writing, a memorandum setting out its terms must be open to inspection during the life of the
indemnity and for a period of one year from the date of its termination or expiration. Any shareholder may
inspect a directors’ indemnity without charge and is entitled to request, on payment of the prescribed fee, a copy
of the provisions.
136
TABLE OF CONTENTS
COMPARISON OF THE RIGHTS OF ARRIS STOCKHOLDERS AND
NEW ARRIS SHAREHOLDERS
The rights of the ARRIS stockholders and the relative powers of the ARRIS Board are governed by the laws
of the State of Delaware, including the DGCL, and ARRIS’ Charter and Bylaws. Each New ARRIS ordinary share
will be issued in accordance with, and will carry with it the rights and obligations set forth in, the New ARRIS
articles of association, substantially in the form set forth in Annex D to this proxy statement/prospectus. New
ARRIS is a private limited company incorporated under the laws of England and Wales but will, prior to the
effective time of the Combination, re-register as a public limited company incorporated under the laws of
England and Wales. The rights of the New ARRIS shareholders are governed by English law, including the
Companies Act, and by the New ARRIS articles of association.
Many of the principal attributes of ARRIS shares are similar to those of New ARRIS ordinary shares.
However, there are differences between the rights of ARRIS stockholders under the laws of the State of Delaware
and the rights of New ARRIS shareholders under English law. In addition, there are differences between ARRIS’s
Charter and Bylaws and the New ARRIS articles of association.
The following is a summary comparison of the material differences between the rights of ARRIS
stockholders under the DGCL and the ARRIS Charter and Bylaws and the rights of New ARRIS shareholders
under English law and the New ARRIS articles of association that will be in effect immediately following the
completion of the Combination. The discussion in this section does not include a description of rights or
obligations under the United States federal securities laws or NASDAQ listing requirements. Such rights and
obligations generally apply equally to ARRIS shares and the New ARRIS ordinary shares.
The statements in this section are qualified in their entirety by reference to, and are subject to, the detailed
provisions of ARRIS’s Charter and Bylaws and the New ARRIS articles of association, which are incorporated by
reference herein. See “Where You Can Find More Information” beginning on page 170 of this proxy
statement/prospectus. ARRIS’ Charter and Bylaws have been filed by ARRIS with the SEC. You are also urged
to carefully read the relevant provisions of the DGCL and English law for a more complete understanding of the
differences between being an ARRIS stockholder and a New ARRIS shareholder.
Provisions
Authorized and
Outstanding
Capital Stock
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
Under ARRIS’ Charter, the authorized
capital stock of ARRIS consists of 325
million shares, of which 320 million shares
have been designated common stock, each
having par value of $0.01, and 5 million
shares of which have been designated
preferred stock, each having par value of $1.00 per share.
The New ARRIS Board has a standing
authorization for five years to allot New
ARRIS shares up to an aggregate par
amount of £3,262,774 based on the number
of ARRIS and Pace shares outstanding as of
August 31, 2015 (which is subject to
change). The New ARRIS Board may issue
any unissued shares on such terms as it may
decide, provided that the shares are paid up
to at least one quarter of their nominal value
and the whole of any premium on it. Any
shares may be issued with such preferential
rights and privileges as determined by the
shareholders at a general meeting.
As of September 10, 2015, the Record Date
for the Special Meeting, ARRIS had
146,592,391 shares of common stock
issued and outstanding and 0 shares of
preferred stock issued and outstanding.
Under Delaware law, the number of
authorized shares of common stock or
preferred stock may be increased or
reduced (but not below the number of
issued shares of common stock or preferred
stock, as applicable) through an
amendment of ARRIS’ Charter.
Currently, pursuant to ARRIS’ Charter, the
Board may, by resolution, from time
137
Under English law, the directors of a
company may issue new ordinary or
preferred shares without shareholder
approval once authorized to do so by the
articles of association or by an ordinary
resolution adopted by the shareholders at a
general meeting. The authorization may be
granted for a maximum period of five years,
at which point it must be renewed
​
TABLE OF CONTENTS
Provisions
Consideration for
Shares
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
to time issue in one or more series any
unissued shares of preferred stock and may
fix, or alter in one or more respects from
time to time before issuance of such shares,
the number and designation of any series,
liquidation and dividend rights, preference
rights, voting rights, redemption rights,
conversion rights, and any other rights and
qualifications, limitations or restrictions
of, and the terms of any purchase,
retirement, or sinking fund which may be
provided for, such shares of preferred
stock.
by the shareholders by an ordinary
resolution. The New ARRIS articles of
association authorize the Board to allot New
ARRIS shares up to an aggregate par
amount of £3,262,774 based on the number
of ARRIS and Pace shares outstanding as of
August 31, 2015 (which is subject to
change) without shareholder approval for a
period of five years from the date of
adoption of the New ARRIS articles of
association.
Under DGCL, shares of stock with par
value may be issued for such
consideration, having a value not less than
the par value, as determined from time to
time by the board of directors, or by the
stockholders if the certificate of
incorporation so provides.
The New ARRIS Board may issue any
unissued shares on such terms as it may
decide, provided that the shares are paid up
to at least one quarter of their nominal value
and the whole of any premium on it.
ARRIS’ Charter is silent regarding the
consideration for shares.
Consolidation and
Division;
Subdivision
Under Delaware law, the outstanding
shares of a corporation may be combined
into a smaller number of shares or split
into a greater number of shares through an
amendment to its certificate of
incorporation. See the section captioned
“— Amendments of Governing
Documents.”
New ARRIS may, by ordinary resolution,
consolidate all or any of its share capital
into shares of larger amount than its existing
shares, or sub-divide all or any of its
existing shares into shares of a smaller
amount than its existing shares; and
determine that, as between the shares
resulting from the sub-division, any of them
may have any preference or advantage as
compared with the others.
Preemption
Rights, Share
Warrants and
Share Options
The ARRIS Charter does not grant
stockholders preemption rights.
Under English law, certain statutory
preemption rights apply automatically in
favor of shareholders where shares are to be
issued for cash. However, New ARRIS has
opted to disapply these preemption rights in
its articles of association in respect of New
ARRIS shares up to an aggregate par
amount of £3,262,774 based on the number
of ARRIS and Pace shares outstanding as of
August 31, 2015 (which is subject to
change).
English law requires this disapplication to
be renewed at least every five years by
special resolution, and it is the intention of
New ARRIS to seek such renewal at least
every five years. If the disapplication is not
renewed, shares issued for cash must be
offered to existing shareholders of New
ARRIS on a pro rata basis to their
138
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
existing shareholding before the shares may
be issued to any new shareholders.
Statutory preemption rights do not apply
(i) to the issue of new shares issued free of
charge to existing shareholders, normally in
proportion to the number of old shares
already held (also known as a bonus, scrip
or capitalization issue), (ii) where shares are
issued for non-cash consideration (such as
in a stock-for-stock acquisition), (iii) where
shares are issued pursuant to an employee
stock option or similar equity plan or (iv) to
the issue of non-equity shares (that is, shares
that have the right to participate only up to
a specified amount in any income or capital
distribution).
Reduction of
Share Capital
Liens on Shares,
Calls on Shares
and Forfeiture of
Shares
Under Delaware law, the authorized capital
stock of ARRIS may be increased or
decreased through an amendment to its
Charter. See “— Amendments of
Governing Documents.”
New ARRIS may reduce its share capital by
special resolution passed at a general
meeting. The shareholder resolution
approving the share capital reduction is
subject to court approval.
Under Delaware law, ARRIS, by resolution
of the Board, may reduce its capital by
reducing or eliminating the capital
associated with shares of capital stock that
have been retired, by applying some or all
of the capital represented by shares
purchased, redeemed, converted or
exchanged or any capital that has not been
allocated to any particular class of its
capital stock, or by transferring to surplus
capital the capital associated with certain
shares of its stock. No reduction of capital
may be made unless the assets of ARRIS
remaining after the reduction are sufficient
to pay any debts for which payment has
not otherwise been provided.
For further discussion of New ARRIS’
intentions in relation to reducing its share
capital and creating distributable reserves
see “Creation of Distributable Reserves of
New ARRIS” on page 78.
Not applicable.
The New ARRIS articles of association
provide that New ARRIS will have a first
and paramount lien on every share that is
not a fully paid up share for an amount
equal to the unpaid portion of such share.
Subject to the terms of their allotment,
directors may call for any unpaid amounts
in respect of any shares to be paid, and if
payment is not made, the shares may be sold
in such manner as the directors determine.
New ARRIS will not have a lien on any
fully paid New ARRIS shares.
139
​
TABLE OF CONTENTS
Provisions
Distributions,
Dividends,
Repurchases and
Redemptions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
Dividends
Dividends
Under Delaware law, the Board may
declare and pay dividends to the ARRIS
stockholders out of surplus or, if there is
no surplus, out of net profits for the year in
which the dividend is declared or the
immediately preceding fiscal year, or both,
provided that such payment would not
reduce capital below the amount of capital
represented by all classes of outstanding
stock having a preference as to the
distribution of assets upon liquidation.
Under Delaware law, dividends upon the
preferred stock, to the extent of the
preference to which such stocks are
entitled, shall be paid ahead of dividends
on the remaining class or classes or series
of stock. Under Delaware law, dividends
may be paid in cash, in shares of ARRIS
capital stock, or in other property.
New ARRIS may pay dividends on its
ordinary shares only out of its “distributable
profits,” defined as accumulated, realized
profits (so far as not previously utilized by
distribution or capitalization) less
accumulated, realized losses (so far as not
previously written off in a reduction or
reorganization of capital duly made).
Among other things, share capital and share
premiums are counted as “undistributable
reserves” (which are equal to the excess of
the consideration for the issuance of shares
over the aggregate par amount of such
shares).
In addition, under English law, New ARRIS
will not be permitted to make a distribution
if, at the time, (i) the amount of its net assets
is less than the aggregate of its issued and
called-up share capital and undistributable
reserves or (ii) to the extent that the
distribution will reduce the amount of its
net assets to less than such total.
A declaration of dividends to be paid to
shareholders may be made by an ordinary
resolution of the shareholders.
The New ARRIS articles of association
authorize the New ARRIS Board to declare
interim dividends if it appears to them that
they are justified by the profits of New
ARRIS available for distribution to make
such payment.
The New ARRIS articles of association
provide that dividends may be satisfied
wholly or partly by cash or the distribution
of specific assets and in particular of fully
paid shares or debentures of any another
company.
Repurchases/Redemptions
Repurchases/Redemptions
Under Delaware law, ARRIS may redeem
or repurchase its own shares, except that
generally it may not redeem or repurchase
those shares if the capital of the
corporation is impaired at the time or
would become impaired as a result of the
redemption or repurchase of such shares. If
ARRIS were to designate and issue shares
of a series of
The New ARRIS articles of association
provide that New ARRIS may purchase its
own shares and redeem outstanding
redeemable shares.
140
For further details of New ARRIS’ intentions
in relation to repurchases see “Description
of New ARRIS Shares” on page 127.
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
preferred stock that is redeemable in
accordance with its terms, such terms
would govern the redemption of such
shares. Shares that have been repurchased
but have not been retired may be resold by
ARRIS.
Uncertificated
Shares
Transfer and
Registration of
Shares
Pursuant to the Bylaws, subject to the
DGCL, the Board may provide by
resolution or resolutions that some or all of
any or all classes or series of the stock of
the corporation shall be uncertificated
shares. Within a reasonable time after the
issuance or transfer of any uncertificated
shares, the corporation shall send to the
registered owner thereof any written notice
prescribed by the DGCL.
The New ARRIS Board has the authority to
resolve that a class of shares is to become, or
is to cease to be, uncertificated.
Pursuant to the Bylaws, upon compliance
with provisions restricting the transfer or
registration of transfer of shares of stock, if
any, transfers or registration of transfers of
shares of stock of the corporation shall be
made only on the stock ledger of the
corporation by the registered holder
thereof, or by his attorney thereunto
authorized by power of attorney duly
executed and filed with the Secretary of
the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares
represented by certificates, on surrender of
the certificate or certificates for such shares
of stock properly endorsed and the
payment of all taxes due thereon.
The New ARRIS articles of association
allow shareholders to transfer all or any of
their certificated shares by instrument of
transfer in writing in any usual form or in
any other form approved by the Board. The
instrument of transfer must be executed by
or on behalf of the transferor and, where the
share is not fully paid, by or on behalf of the
transferee.
Uncertificated shares must be held in
uncertificated form and transferred by means
of DTC or similar electronic settlement
system in accordance with the
Uncertificated Securities Regulations 2001.
The New ARRIS Board may, in their
absolute discretion, refuse to register the
transfer of a share in certificated form which
is not fully paid. They may also refuse to
register a transfer of a share in certificated
form (whether fully paid or not) unless the
instrument of transfer:
(i)
is delivered to New ARRIS, duly
stamped, and (except in the case of a
transfer by a financial institution where
a certificate has not been issued in
respect of the share) is accompanied by
the certificate for the share to which it
relates and such other evidence as the
directors may reasonably require;
(ii) is in respect of only one class of share;
and
(iii) is in favour of not more than four
transferees.
The New ARRIS articles of association
allow shareholders to transfer all or any of
their uncertificated shares by means of
141
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
DTC or similar electronic settlement system
in accordance with the Uncertificated
Securities Regulations 2001. The transfer
may not be in favor of more than four
transferees.
The New ARRIS Board may refuse to
register a transfer of a share in uncertificated
form to a person who is to hold it thereafter
in certificated form in any case where New
ARRIS is entitled to refuse (or is excepted
from the requirement) under the
Uncertificated Securities Regulations 2001
to register the transfer.
If the New ARRIS Board refuses to register a
transfer of a share, it shall, within two
months after the date on which the transfer
was lodged with New ARRIS (in the case of
a transfer of a share in certificated form) or
the date on which the operator-instructor (as
defined in the New ARRIS articles of
association) was received by New ARRIS (in
the case of a transfer of a share in
uncertificated form to a person who is to
hold it thereafter in certificated form), send
to the transferee notice of the refusal
together with its reasons for refusal.
Election of
Directors
Under Delaware law, the board of directors
of a corporation shall consist of one or
more members, each of whom shall be a
natural person. The number of directors
shall be fixed by, or in the manner
provided in, the bylaws, unless the
certificate of incorporation fixes the
number of directors, in which case a
change in the number of directors shall be
made only by amendment of the
certificate.
The Bylaws provide that the number of
directors constituting the whole ARRIS
Board shall be at least one, and the exact
number may be fixed from time to time by
action of the stockholders or of the
directors. Currently the ARRIS Board has
ten directors.
Pursuant to the Bylaws, the number of the
directors may be increased or decreased by
action of the shareholders or of the
directors.
142
The New ARRIS articles of association
provide that, unless otherwise determined
by the New ARRIS shareholders, the number
of directors shall not be less than two.
Neither English law nor the New ARRIS
articles of association prescribe a maximum
number of directors for New ARRIS.
Under the New ARRIS articles of
association, directors shall be elected at
each annual general meeting by an ordinary
resolution. Each New ARRIS director shall
hold office until his successor is elected or
until he resigns or is removed.
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Pursuant to the Bylaws, when there is an
uncontested election, each director shall
be elected by the vote of the majority of
the votes cast with respect to the nominee
at any meeting for the election of directors.
For these purposes, a majority of votes cast
shall mean that the number of votes cast
“for” a director’s election exceeds the
number of votes cast “against” that
director’s election. An incumbent director
that fails to receive a majority of the votes
cast in an uncontested election shall
promptly tender his or her resignation to
the Board, subject to acceptance by the
Board. The Nominating and Corporate
Governance Committee shall consider the
resignation and make a recommendation
to the Board as to whether to accept or
reject the tendered resignation, or whether
other action should be taken. The Board
must act on the tendered resignation,
taking into account the Nominating and
Corporate Governance Committee’s
recommendation, and publicly disclose its
decision regarding the tendered
resignation and the rationale behind the
decision within 90 days from the date of
the certification of the shareholder vote.
The Nominating and Corporate
Governance Committee in making its
recommendation, and the Board in making
its decision, may each consider any factors
or other information that they consider
appropriate and relevant. The director who
tenders his or her resignation shall not
participate in the recommendation of the
Nominating and Corporate Governance
Committee or the decision of the Board
with respect to his or her resignation.
Pursuant to the Bylaws, a contested
election occurs when the secretary of the
corporation receives a notice that the
shareholder has nominated a person for
election to the Board in compliance with
the notice requirements for shareholder
nominees for director set forth in the
corporation’s Corporate Governance
Guidelines, and such nomination is not
withdrawn on or prior to the tenth day
143
Provisions to be Applicable to New ARRIS
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
preceding the date the corporation first
mails its notice of meeting to the
shareholders. In case of an uncontested
election, each director shall be elected by
the vote of a plurality of votes cast.
Removal of
Directors;
Vacancies
Removal of Directors
Removal of Directors
Pursuant to the Bylaws, any director or the
entire Board may be removed, with or
without cause, by the holders of a majority
of the shares then entitled to vote at an
election of directors.
Under English law, shareholders may
remove a director without cause by ordinary
resolution passed at a general meeting,
irrespective of any provisions in the
company’s articles of association, provided
that at least 28 clear days’ notice of the
resolution is given to the company.
Further, pursuant to the New ARRIS articles
of association, New ARRIS shareholders
may, by special resolution, remove a
director before the expiration of his period
of office and may, by ordinary resolution,
appoint another person who is willing to act
as a director, and is permitted by law to do
so, to be a director instead of him.
The New ARRIS articles of association
provide that a person ceases to be a director
if:
(i)
that person ceases to be a director by
virtue of any provision of the
Companies Act or is prohibited from
being a director by law;
(ii) a bankruptcy order is made against that
person;
(iii) a composition is made with that
person’s creditors generally in
satisfaction of that person’s debts; or
(iv) notification is received by New ARRIS
from that person that he is resigning or
retiring from his office as director, and
such resignation or retirement has
taken effect in accordance with its
terms.
Vacancies of the Board of the Directors
Vacancies of the Board of Directors
Pursuant to the Bylaws, any director may
resign at any time upon written notice to
the corporation.
The New ARRIS articles of association
provide that vacancies in the board of
directors may be filled by the New ARRIS
Board until the next annual meeting.
Pursuant to the Bylaws, in the interim
between annual meetings of stockholders
or of special meetings of
144
Shareholders also have a right to propose
directors for appointment at a general
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
stockholders called for the election or
removal of directors or for the filling of
any vacancy, newly created directorships
and any vacancies in the Board may be
filled by the majority of the remaining
directors then in office, although less than
a quorum, or by the sole remaining
director.
Provisions to be Applicable to New ARRIS
meeting convened by the New ARRIS
Board for such purpose or at an annual
general meeting, provided the
shareholder(s) comply with the relevant
procedural requirements. See “Comparison
of the Rights of ARRIS Stockholders and
New ARRIS Shareholders — Shareholder
Proposals”.
Pursuant to the Bylaws, directors who are
elected at an annual meeting of
stockholders, and directors who are elected
in the interim to fill vacancies and newly
created directorships, shall hold office
until the next annual meeting of
stockholders and until their successors are
elected and qualified or until their earlier
resignation or removal.
Duties of Directors
Under Delaware law, a company’s directors
are charged with fiduciary duties of care
and loyalty. The duty of care requires that
directors act in an informed and deliberate
manner and inform themselves, prior to
making a business decision, of all relevant
material information reasonably available
to them. The duty of care also requires that
directors exercise care in overseeing and
investigating the conduct of corporate
employees. The duty of loyalty may be
summarized as the duty to act in good
faith, not out of self-interest, and in a
manner which the director reasonably
believes to be in the best interests of the
corporation and its shareholders. A party
challenging the propriety of a decision of
a board of directors bears the burden of
rebutting the applicability of the
presumptions afforded to directors by the
“business judgment rule.” If the
presumption is not rebutted, the business
judgment rule attaches to protect the
directors and their decisions. However,
notwithstanding the foregoing, Delaware
courts may subject directors’ conduct to
enhanced scrutiny in respect of, among
other matters, defensive actions taken in
response to a threat to corporate control
and approval of a transaction resulting in a
sale of control of the corporation.
Under Delaware law, a shareholder of
145
Under English law, directors’ duties are
based on statute, common law and equitable
principles. In particular there are codified
duties as follows:
(i)
to act in accordance with the
company’s constitution and only
exercise powers for the purposes for
which they are conferred;
(ii) to act in a way he or she considers, in
good faith, would be most likely to
promote the success of the company
for the benefit of its shareholders as a
whole;
(iii) to exercise independent judgment;
(iv) to exercise reasonable care, skill and
diligence;
(v) to avoid conflicts of interest;
(vi) not to accept benefits from third
parties; and
(vii) to declare any interest in a proposed
transaction or arrangement with the
company.
Directors are fiduciaries under English law
which, generally, means that they must act
in good faith, in the interests of the
company not their own self-interest and
they must not disclose the company’s
secrets or confidential information. A
director who is in breach of any of the
statutory duties (except the duty of
​
TABLE OF CONTENTS
Provisions
Conflicts of
Interest of
Directors
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
the board of directors, or a shareholder of
any committee designated by the board of
directors, shall, in the performance of such
shareholder’s duties, be fully protected in
relying in good faith upon the records of
the corporation and upon such
information, opinions, reports or
statements presented to the corporation by
any of the corporation’s officers or
employees, or committees of the board of
directors, or by any other person as to
matters the shareholder reasonably
believes are within such other person’s
professional or expert competence and
who has been selected with reasonable
care by or on behalf of the corporation.
reasonable care and skill), which is not a
fiduciary duty is potentially liable to the
company for damages, and to restore the
company’s property, or to account for any
profits made. The transaction in question
may also be voidable at the company’s
request. The duty to exercise reasonable
skill and care is not a fiduciary duty and is
treated differently the only remedy is
damages.
Under Delaware law, a contract or
transaction in which a director has an
interest will not be voidable solely for this
reason if (i) the material facts with respect
to such interested director’s relationship or
interest are disclosed or are known to the
board of directors, and the board of
directors in good faith authorizes the
transaction by the affirmative vote of a
majority of the disinterested directors,
(ii) the material facts with respect to such
interested director’s relationship or interest
are disclosed or are known to the
shareholders entitled to vote on such
transaction, and the transaction is
specifically approved in good faith by
vote of the majority of shares entitled to
vote thereon, or (iii) the transaction is fair
to the corporation as of the time it is
authorized, approved or ratified. The mere
fact that an interested director is present
and voting on a transaction in which he or
she is interested will not itself make the
transaction void. Interested directors may
be counted in determining the presence of
a quorum at a meeting of the board of
directors or of a committee which
authorizes the contract or transaction.
Under the New ARRIS articles of
association, provided that a director who is
in any way (directly or indirectly) interested
in an existing or proposed contract,
transaction or arrangement with New ARRIS
has declared the nature and extent of his
interest, the director shall not be
accountable to New ARRIS for any benefit
which he derives from any such transaction
or arrangment.
146
The general rule under English law is that a
company has a right to bring a claim against
one of its directors for breach of duty.
However, under the Companies Act there is
a statutory procedure whereby a shareholder
may bring a derivative claim, that is
proceedings on behalf of a company,
against a director for negligence, default,
breach of duty or breach of trust.
The New ARRIS Board is empowered to
authorize a director in relation to any matter
proposed to the New ARRIS Board which
otherwise would infringe the director’s duty
to avoid conflicts of interests, provided that
the authorisation is effective only if (a) any
requirement as to the quorum at the meeting
at which the matter is considered is met
without counting the director in question or
any other interested director, and (b) the
matter was agreed to without their voting or
would have been agreed to if their votes had
not been counted.
A director cannot vote and count towards a
quorum in respect of any contracts,
transactions or proposals in which he has
any material interest which is not by virtue
of his interests in shares or resolution of the
directors granting him authorization.
​
TABLE OF CONTENTS
Provisions
Indemnification of
Officers and
Directors
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
Delaware law permits a corporation to
indemnify officers and directors for actions
taken in good faith and in a manner they
reasonably believed to be in, or not
opposed to, the best interests of the
corporation, and with respect to any
criminal action that they had no
reasonable cause to believe was unlawful.
Subject to exceptions, English law does not
permit a company to exempt a director or
certain officers from, or indemnify a director
against, liability in connection with any
negligence, default, breach of duty or
breach of trust by a director in relation to
the company.
Pursuant to the Bylaws, ARRIS shall
indemnify any person who was or is a
party or is threatened to be made a party to
any threatened, pending, or completed
action, suit or proceeding, whether civil,
criminal, administrative, or investigative
(other than an action by or in the right of
the corporation) by reason of the fact that
he or she is or was a director or officer of
the corporation, against expenses
(including attorneys’ fees), judgments,
fines and amounts paid in settlement
actually and reasonably incurred by him or
her in connection with such action, suit or
proceeding if he or she acted in good faith
and in a manner he or she reasonably
believed to be in or not opposed to the
best interests of the corporation, and, with
respect to any criminal action or
proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
The exceptions allow a company to:
Pursuant to the Bylaws, ARRIS shall
indemnify any person who was or is a
party or is threatened to be made a party to
any threatened, pending or completed
action or suit by or in the right of the
corporation to procure a judgment in its
favor by reason of the fact that he or she is
or was a director or officer of the
corporation against expenses (including
attorneys’ fees) actually and reasonably
incurred by him or her in connection with
the defense or settlement of such action or
suit if he or she acted in good faith and in
a manner he or she reasonably believed to
be in or not opposed to the best interests of
the corporation; except that no
indemnification shall be made in respect
of any claim, issue or matter as to which
such person shall have been adjudged to
be liable to the corporation unless and
only to the extent that the Court of
147
(i)
purchase and maintain D&O Insurance
against any liability attaching in
connection with any negligence,
default, breach of duty or breach of
trust owed to the company. D&O
Insurance generally covers costs
incurred in defending allegations and
compensatory damages that are
awarded. However, D&O Insurance will
generally not cover losses incurred in
relation to criminal acts, intentional
malfeasance or other forms of
dishonesty, certain regulatory offences
or excluded matters such as
environmental fines and clean-up
costs. In relation to these matters, D&O
Insurance generally only covers
defense costs, subject to the obligation
of the director or officer to repay the
costs if an allegation of criminality,
dishonesty or intentional malfeasance
is subsequently admitted or found to
be true;
(ii) provide a qualifying third party
indemnity provision, or “QTPIP.” This
permits a company to indemnify its
directors and certain officers (and
directors and certain officers of an
associated company) in respect of
proceedings brought by third parties
(covering both legal costs and the
amount of any adverse judgment,
except for: the legal costs of an
unsuccessful defense of criminal
proceedings or civil proceedings
including proceedings brought by the
company itself or an associated
company; fines imposed in criminal
proceedings; the legal costs of an
unsuccessful application for relief; and
penalties imposed by regulatory
bodies). New ARRIS can therefore
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Chancery or the court in which such action
or suit was brought shall determine upon
application that, despite the adjudication
of liability, but in view of all the
circumstances of the case, such person is
fairly and reasonably entitled to indemnify
for such expenses which the Court of
chancery or such other court shall deem
proper.
The determination of whether a director or
officer has met the standard of conduct set
out above shall be made (i) by the Board
by a majority vote of a quorum consisting
of directors who were not parties to such
action, suit, or proceeding or (ii) if such a
quorum is not obtainable, or, even if
obtainable a quorum of disinterested
directors so directs, by independent legal
counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that
a director or officer of the corporation has
been successful on the merits or otherwise
in defense of any action, suit or
proceeding described above, or in defense
of any claim, issue or matter therein, he or
she shall be indemnified against expenses
(including attorneys’ fees) actually and
reasonably incurred by him or her in
connection therewith, without the
necessity of authorization in the specific
case.
Provisions to be Applicable to New ARRIS
indemnify directors and certain officers
against such third party actions as such
class actions or actions following
mergers and acquisitions or share
issuances; and
(iii) provide a qualifying pension scheme
indemnity provision, or “QPSIP”. This
permits a company to indemnify its
directors and certain officers (and
certain officers of an associated
company) in respect of proceedings in
connection with the company’s
activities as a corporate trustee of an
occupational pension scheme
(covering both legal costs and the
amount of any adverse judgement,
except for: the legal costs of an
unsuccessful defense of criminal
proceedings, including proceedings
brought by the company itself or an
associated company; fines imposed in
criminal proceedings; and penalties
imposed by regulatory bodies). New
ARRIS can therefore indemnify
directors and certain officers in certain
circumstances if New ARRIS acts as a
corporate trustee of an occupational
pension scheme.
The New ARRIS articles of association
include a provision which entitle every
director to be indemnified by New ARRIS to
any extent permitted by law (including by
funding any expenditure incurred or to be
incurred by him or her) against any loss or
liability incurred in their capacity as a
director. Any funds provided to a director to
meet any expenditure incurred by him in
connection with defending himself or in an
investigation of any negligence, default,
breach of duty or breach of trust by him or
otherwise, must be repaid if (a) the director
is convicted in the criminal proceedings, (b)
judgment is given against the director in
civil proceedings, or (c) the court refuses to
grant the director the relief sought.
The New ARRIS articles of association also
provides the New ARRIS Board with
authority to purchase and maintain
insurance at the expense of New ARRIS for
the benefit of any person who is or
148
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
was at any time a director of the company or
any associated company.
In addition to the provisions of the New
ARRIS articles of association, it is common
to set out the terms of the QTPIP and any
QPSIP in the form of a deed of indemnity
between the company and the relevant
director or officer which essentially
indemnifies the director or officer against
claims brought by third parties to the fullest
extent permitted under English law.
New ARRIS will be required to disclose in
its annual directors’ report any QTPIP or
QPSIP in force at any point during the
relevant financial year or in force when the
directors’ report is approved. A copy of the
indemnity or, if it is not in writing, a
memorandum setting out its terms must be
open to inspection during the life of the
indemnity and for a period of one year from
the date of its termination or expiration.
Any shareholder may inspect a directors’
indemnity without charge and is entitled to
request, on payment of the prescribed fee, a
copy of the provisions.
Limitation on
Director Liability
Under Delaware law, a corporation may
include in its certificate of incorporation a
provision that limits or eliminates the
personal liability of directors to the
corporation and its shareholders for
monetary damages for a breach of
fiduciary duty as a director. ARRIS’s
Charter includes such a provision.
However, a corporation may not limit or
eliminate the personal liability of a
director for: any breach of the director’s
duty of loyalty to the corporation or its
shareholders; acts or omissions in bad faith
or which involve intentional misconduct
or a knowing violation of law; intentional
or negligent payments of unlawful
dividends or unlawful stock purchases or
redemptions; or any transaction in which
the director derives an improper personal
benefit.
Board
Remuneration
Pursuant to the Bylaws, the Board shall
have the authority to fix the compensation
of the members thereof.
ARRIS’ executive compensation is
149
English law does not permit a company to
exempt any director or certain officers from
any liability arising from negligence,
default, breach of duty or breach of trust
against the company. However, despite this
prohibition, an English company is
permitted to purchase and maintain
insurance for a director or executive officer
of the company against any such liability.
See “Indemnification of Officers and
Directors.”
The New ARRIS articles of association
provide the New ARRIS Board with
authority to purchase and maintain
insurance at the expense of New ARRIS for
the benefit of any person who is or was at
any time a director or other officer or
employee of the company or any associated
company.
New ARRIS will be required to prepare and
submit to shareholders a directors’
remuneration report every year at the annual
general meeting for a non-binding advisory
vote. At least every three years,
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
subject to an annual non-binding advisory
“say on pay” vote at each annual
shareholders’ meeting.
Provisions to be Applicable to New ARRIS
or if shareholders did not approve the
previous year’s remuneration report, New
ARRIS must submit a (forward-looking)
remuneration policy to its shareholders for
approval by a simple majority in a binding
vote.
New ARRIS will also remain subject to SEC
reporting requirements for director and
executive officer compensation and
shareholder non-binding advisory votes to
approve named executive officer
compensation.
English law requires, in the case of officers
who are also considered directors under
English law, that employment agreements
with a guaranteed term of more than two
years be subject to a prior approval of
shareholders at a general meeting.
Annual Meetings
of Shareholders
Under Delaware law, an annual meeting of
shareholders is required for the election of
directors and for such other proper
business as may be conducted thereat. The
Delaware Court of Chancery may order a
corporation to hold an annual meeting if
the corporation has failed to hold an
annual meeting for a period of 13 months
after its last annual meeting.
New ARRIS must hold its annual general
meeting within the period of six months
beginning with the day following its
accounting reference date. The notice of the
general meeting must state the time, date
and place of the meeting and the general
nature of the business to be conducted at the
meeting.
Under ARRIS’ Bylaws, an annual meeting
of the stockholders is held at a time
designated by the Board, provided that
each annual meeting shall be held on a
date within thirteen months after the date
of the preceding annual meeting.
Forum and Venue
Pursuant to the Bylaws, annual meetings
and special meetings shall be held at such
place, within or without the State of
Delaware, as the directors may, from time
to time, fix. Whenever the directors shall
fail to fix such place, the meeting shall be
held at the registered office of the
corporation in the State of Delaware.
The New ARRIS articles of association
provide that the New ARRIS Board may
convene general meetings of the
shareholders at any place they so designate.
Record Date
Under DGCL, in order that the corporation
may determine the stockholders entitled to
notice of any meeting of stockholders or
any adjournment thereof, the board of
directors may fix a record date, which
record date shall not precede the date upon
which the resolution fixing the
The New ARRIS articles of association
provide that for the purposes of determining
which persons are entitled to attend or vote
at a general meeting and how many votes
such persons may cast, New ARRIS may
specify in the notice convening the meeting
a time, being not more than 48 hours before
the time fixed
150
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
record date is adopted by the board of
directors, and which record date shall not
be more than sixty nor less than ten days
before the date of such meeting.
Provisions to be Applicable to New ARRIS
for the meeting (and for this purpose no
account shall be taken of any part of a day
that is not a working day), by which a
person must be entered on the register of
members of New ARRIS in order to have the
right to attend or vote at the meeting.
Per the Bylaws, in order that the
corporation may determine the
stockholders entitled to notice of or to
vote at any meeting of stockholders or any
adjournment thereof, the Board may fix a
record date, which record date shall not
precede the date upon which the
resolution fixing the record date is
adopted by the Board, and which record
date shall not be more than sixty nor less
than ten days before the date of such
meeting. If no record date is fixed by the
Board, the record date for determining
stockholders entitled to notice of or to
vote at a meeting of stockholders shall be
at the close of business on the day next
preceding the day on which notice is
given, or, if notice is waived, at the close
of business on the day next preceding the
day on which the meeting is held. A
determination of stockholders of record
entitled to notice of or to vote at a meeting
of stockholders shall apply to any
adjournment of the meeting; provided,
however, that the Board may fix a new
record date for the adjourned meeting.
Notice Provisions
Per the Bylaws, written notice of all
meetings shall be given, stating the place,
date, and hour of the meeting and stating
the place within the city or other
municipality or community at which the
list of stockholders of the corporation may
be examined. The notice of an annual
meeting shall state that the meeting is
called for the election of directors and for
the transaction of other business which
may properly come before the meeting,
and shall (if any other action which could
be taken at a special meeting is to be taken
at such annual meeting) state the purpose
or purposes. The notice of a special
meeting shall in all instances state the
purpose or purposes for which the meeting
is called.
151
The New ARRIS articles of association
require that notice of an annual general
meeting of shareholders must be delivered
to the shareholders at least 21 clear days
prior to the date of the annual general
meeting. Shareholders must be notified of
all general meetings (other than annual
general meetings) at least 14 clear days prior
to the date of the general meeting.
Notice periods for general meetings can be
shortened if shareholders holding 95% of
the voting rights agree to hold the meeting
at short notice. In the case of annual general
meetings, all shareholders entitled to attend
and vote must agree to the short notice.
“Clear days” means calendar days and
excludes (1) the date on which a notice is
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Per the Bylaws, a copy of the notice of any
meeting shall be given, personally or by
mail, not less than ten days nor more than
sixty days before the date of the meeting,
unless the lapse of the prescribed period of
time shall have been waived, and directed
to each stockholder at his record address or
at such other address which he may have
furnished by request in writing to the
Secretary of the corporation. Notice by
mail shall be deemed to be given when
deposited, with postage thereon prepaid,
in the United States Mail.
Provisions to be Applicable to New ARRIS
given or a request received; and (2) the date
of the meeting itself.
Per the Bylaws, if a meeting is adjourned
to another time, not more than thirty days
hence, and/or to another place, and if an
announcement of the adjourned meeting
time and/or place is made at the meeting, it
shall not be necessary to give notice of the
adjourned meeting unless the directors,
after adjournment, fix a new record date for
the adjourned meeting.
Per the Bylaws, notice need not be given
to any stockholder who submits a written
waiver of notice signed by him before or
after the time stated therein. Attendance of
a stockholder at a meeting of stockholders
shall constitute a waiver of notice of such
meeting, except when the stockholder
attends the meeting for the express
purpose of objecting, at the beginning of
the meeting, to the transaction of any
business because the meeting is not
lawfully called or convened. Neither the
business to be transacted at, nor the
purpose of, any regular or special meeting
of the stockholders need be specified in
any written waiver of notice.
Calling Special
Meetings of
Shareholders
Under Delaware law, special meetings of
shareholders may be called by the board of
directors and by such other person or
persons authorized to do so by the
corporation’s certificate of incorporation
or bylaws.
Per the Bylaws, annual meetings and
special meetings may be called by the
152
The New ARRIS articles of association
provide that general meetings of
shareholders may be called by the Board of
New ARRIS.
Pursuant to the Companies Act, one or more
shareholders representing at least 5% of the
paid up capital of New ARRIS carrying
voting rights have the right to
​
TABLE OF CONTENTS
Provisions
Adjournment of
Shareholder
Meetings
Provisions Currently Applicable to ARRIS
directors or by any officer instructed by
the directors to call the meeting.
requisition the holding of a general
meeting.
Under the DGCL, when a meeting is
adjourned to another time or place, unless
the bylaws otherwise require, notice need
not be given of the adjourned meeting if
the time, place, if any, thereof, and the
means of remote communications, if any,
by which stockholders and proxy holders
may be deemed to be present in person and
vote at such adjourned meeting are
announced at the meeting at which the
adjournment is taken. At the adjourned
meeting the corporation may transact any
business which might have been
transacted at the original meeting. If the
adjournment is for more than 30 days, a
notice of the adjourned meeting shall be
given to each stockholder of record
entitled to vote at the meeting. If after the
adjournment a new record date for
stockholders entitled to vote is fixed for
the adjourned meeting, the board of
directors shall fix a new record date for
notice of such adjourned meeting, and
shall give notice of the adjourned meeting
to each stockholder of record entitled to
vote at such adjourned meeting as of the
record date fixed for notice of such
adjourned meeting.
The New ARRIS articles of association
provide that the chairman may adjourn the
meeting with the consent of the meeting at
which quorum is present.
Per the Bylaws, if a meeting is adjourned
to another time, not more than thirty days
hence, and/or to another place, and if an
announcement of the adjourned meeting
time and/or place is made at the meeting, it
shall not be necessary to give notice of the
adjourned meeting unless the directors,
after adjournment, fix a new record date for
the adjourned meeting.
Shareholder
Proposals
Provisions to be Applicable to New ARRIS
Per the ARRIS Corporate Governance
Guidelines, ARRIS’ Nominating and
Corporate Governance Committee shall
evaluate each shareholder proposal
submitted for inclusion in ARRIS’ proxy
materials to determine whether the
proposal is eligible for inclusion under the
Bylaws, Delaware law and the Securities
Exchange Commission’s proxy rules and
shall recommend to the Board
153
The chairman also may, without the consent
of the meeting, adjourn a meeting before or
after it has commenced, if the chairman of
the meeting considers that:
(i)
there is not enough room for the
number of members and proxies who
wish to attend the meeting;
(ii) the behaviour of anyone present
prevents, or is likely to prevent, the
orderly conduct of the business of the
meeting;
(iii) an adjournment is necessary to protect
the safety of any person attending the
meeting;
(iv) an adjournment is otherwise necessary
in order for the business of the meeting
to be properly carried out; or
(v) the facilities at the place at which the
chairman of the meeting is presiding,
or any place at which persons are
participating via electronic means,
have become inadequate.
No business shall be transacted at an
adjourned meeting other than business
which might properly have been transacted
at the meeting had the adjournment not
taken place.
Pursuant to the Companies Act:
(i)
members of New ARRIS representing
at least 5% of the paid-up share capital
of a company can require the company
to call a general meeting; and
(ii) members of New ARRIS can require
resolutions to be put before an annual
general meeting. Such a
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
whether the company should support or
oppose the proposal. In evaluating
shareholder proposals, the Committee will
take into account the extent of the share
holdings and the length of time those
shares have been held, without precluding
proposals made by smaller, individual
shareholders. When appropriate, such
consideration could include a meeting of
the shareholder and representatives of the
Nominating and Corporate Governance
Committee. Additionally, any proposal
that is approved by a majority of
shareholders at any shareholder meeting
and not implemented by the Board will be
discussed in the next annual proxy
statement of the company, which will
contain an explanation of the Board’s
reason for not implementing the proposal.
Voting Rights
Provisions to be Applicable to New ARRIS
request must be made by either:
•
a member or members holding at
least 5% of the total voting rights
(excluding voting rights attached
to any treasury shares) of all the
members who have a right to vote
on the resolution at the AGM to
which the request relates; or
•
at least 100 members with the
right to vote on the resolution at
the annual general meeting and
each holding, on average, at least
£100 of paid-up share capital.
Voting, Generally
Voting, Generally
Per the Bylaws, each share of stock shall
entitle the holders thereof to one vote.
Directors shall be elected by a plurality of
the votes of the shares present in person or
represented by proxy at the meeting and
entitled to vote on the election of
directors. General corporate action shall be
authorized by a majority of the votes cast.
All resolutions at an annual general meeting
must be decided on a poll.
On a poll every member who is present in
person or by proxy is entitled to one vote
for every New ARRIS share held by such
shareholder.
On a separate general meeting of the holders
of any class of shares, all votes will be taken
on a poll.
Polls at a general meeting shall be taken
when, where and in such manner as the
chairman of the meeting directs.
Under the Companies Act and the New
ARRIS articles of association, certain
matters require “ordinary resolutions,”
which must be approved by at least a
majority of the votes cast by shareholders,
and certain other matters require “special
resolutions,” which require the affirmative
vote of at least 75% of the votes cast by
shareholders.
An ordinary resolution is needed to (among
other matters): remove a director; provide,
vary or renew a director’s authority to allot
shares; and appoint directors (where
appointment is by shareholders).
154
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
A special resolution is needed to (among
other matters): alter a company’s articles of
association, exclude statutory preemptive
rights on allotment of securities for cash (for
up to five years); reduce a company’s share
capital; re-register a public company as a
private company (or vice versa); and
approve a scheme of arrangement.
Shareholder
Action by Written
Consent
Cumulative voting
Cumulative Voting
Under Delaware law cumulative voting is
permitted.
Cumulative voting is not recognized under
English law.
Under the DGCL, stockholders may, unless
the certificate of incorporation otherwise
provides, act by written consent to elect
directors; provided, however, that, if such
consent is less than unanimous, such
action by written consent may be in lieu of
holding an annual meeting only if all of
the directorships to which directors could
be elected at an annual meeting held at the
effective time of such action are vacant
and are filled by such action.
Under English law, a public limited
company’s shareholders cannot pass a
resolution by written consent; they can only
pass resolutions taken at shareholder
meetings.
Per the Bylaws, any action required by the
DGCL to be taken at any annual or special
meeting of stockholders, or any action
which may be taken at any annual or
special meeting or stockholders, may be
taken without a meeting, without prior
notice and without a vote, if a consent in
writing, setting forth the action so taken,
shall be signed by the holders of
outstanding stock having not less than the
minimum number of votes that would be
necessary to authorize or take such action
at a meeting at which all shares entitled to
vote thereon were present and voted.
Prompt notice of the taking of the
corporate action without a meeting by less
than unanimous written consent shall be
given to those stockholders who have not
consented in writing.
155
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
Quorum
The Bylaws provide that the holders of a
majority of the outstanding shares of stock
shall constitute a quorum at a meeting of
stockholders for the transaction of any
business. The stockholders present may
adjourn the meeting despite the absence of
a quorum.
Two persons entitled to vote upon the
business to be transacted in respect of a
majority of the issued shares of New ARRIS,
each being a member or a proxy for a
member or a duly authorised representative
of a corporation which is a member
(including for this purpose two persons who
are proxies or corporate representatives of
the same member), shall be a quorum.
The necessary quorum at a separate meeting
of the holders of any class of New ARRIS
shares shall be (i) at any such meeting other
than an adjourned meeting, two persons
entitled to vote upon the business to be
transacted in respect of a majority in
nominal value of the issued shares of the
class in question (excluding any shares of
that class held as treasury shares), each
being a member or a proxy for a member or a
duly authorised representative of a
corporation which is a member (including
for this purpose two persons who are proxies
or corporate representatives of the same
member); or (ii) at an adjourned meeting,
one person holding shares of the class in
question (other than treasury shares) or their
proxy.
Shareholder
Approval of
Merger or
Consolidation
Under DGCL, subject to certain
exceptions, the board of directors of each
corporation which desires to merge or
consolidate shall adopt a resolution
approving an agreement of merger or
consolidation and declaring its
advisability and submit the agreement to
the stockholders of each constituent
corporation at an annual or special
meeting for the purpose of acting on the
agreement. The vote of a majority of the
outstanding stock of the corporation
entitled to vote on the matter shall be
required for the adoption of the agreement
of merger or consolidation.
As noted above, “ordinary resolutions” must
be approved by at least a majority of the
votes cast by shareholders.
“Special resolutions” require the affirmative
vote of at least 75% of the votes cast at the
meeting to be approved.
There is no concept of a statutory merger
under English law (except where an English
company merges with another company
based in the European Economic Area).
Under English law and subject to applicable
U.S. securities laws and NASDAQ rules and
regulations, where New ARRIS proposes to
acquire another company, approval of New
ARRIS shareholders is not required.
Under English law, where another company
proposes to acquire New ARRIS, the
requirement for the approval of the
shareholders of New ARRIS
156
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
depends on the method of acquisition. For
example, a merger between New ARRIS and
another English public company (as
opposed to an acquisition by one company
of the other) will require approval of the
shareholders of both New ARRIS and the
other public company.
Under English law, schemes of arrangement
are arrangements or compromises between a
company and any class of shareholders or
creditors, and are used in certain types of
reconstructions, amalgamations, capital
reorganizations or takeovers (similar to a
merger in the U.S.). Such arrangements
require the approval of (i) a majority in
number of shareholders or creditors (as the
case may be) representing 75% in value of
the creditors or class of creditors or
shareholders or class of shareholders present
and voting either in person or by proxy at a
special meeting convened by order of the
court; and (ii) the English court. Once
approved, sanctioned and becoming
effective, all shareholders and creditors of
the relevant class are bound by the terms of
the scheme, and a dissenting shareholder
would have no rights comparable to
appraisal rights provided under DGCL.
The Companies Act also provides that
where (i) a takeover offer is made for shares,
and (ii) following the offer, the offeror has
acquired or contracted to acquire not less
than 90% of the shares to which the offer
relates, and not less than 90% of the voting
rights attached to those shares, the offeror
may require the other shareholders who did
not accept the offer to transfer their shares
on the terms of the offer. In this
circumstance, a dissenting shareholder may
object to the transfer on the basis that the
offeror is not entitled to acquire shares or to
specify terms of acquisition different from
those in the offer by applying to the court
within six weeks of the date on which notice
of the transfer was given. In the absence of
fraud or oppression, the court is unlikely to
order that the acquisition shall not take
effect, but it may specify terms of the
transfer that it finds appropriate.
157
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
A minority shareholder is also entitled in
similar circumstances to require the offeror
to acquire his or her shares on the terms of
the offer.
An English public limited company is
potentially subject to the protections
afforded by the Takeover Code if, among
other factors, a majority of its directors are
resident within the UK, the Channel Islands
or the Isle of Man. Based upon New ARRIS’
current and intended plans for its directors,
it is anticipated that the Takeover Code will
not apply to New ARRIS.
Related Party
Transactions
The Charter and Bylaws are silent on the
matter.
Under English law, certain transactions
between a director and a related company of
which he or she is a director are prohibited
unless approved by the shareholders, such
as loans, credit transactions and substantial
property transactions.​
Shareholder Suits
Generally, ARRIS may be sued under
federal securities law, and shareholders
may bring derivative litigation against the
corporation if the corporation does not
enforce its own rights.
While English law only permits a
shareholder to initiate a lawsuit on behalf of
the company in limited circumstances, it
does permit New ARRIS shareholders (and
for these purposes a shareholder includes a
person to whom New ARRIS shares have
been (a) transferred, but who has not yet
been formally registered as a member and
(b) transmitted by operation of law) to apply
for a court order:
Under federal and state procedural rules, a
shareholder must make a demand upon the
board of directors before bringing a
derivative suit unless the demand is
excused. An individual also may
commence a class action suit on behalf of
himself or herself and other similarly
situated shareholders where the
requirements for maintaining a class action
have been met.
(i)
when New ARRIS affairs are being or
have been conducted in a manner
unfairly prejudicial to the interests of
all or some shareholders, including the
shareholder making the claim; or
(ii) when any act or omission of New
ARRIS is or would be so prejudicial.
New ARRIS shareholders (and for these
purposes a shareholder includes a person to
whom New ARRIS shares have been (a)
transferred, but who has not yet been
formally registered as a member and
(b) transmitted by operation of law) may
bring a derivative claim on behalf of New
ARRIS in their own name, in respect of a
cause of action arising from an act or
proposed act or omission involving any:
(i)
negligence;
(ii) default;
158
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
(iii) breach of duty; or
(iv) breach of trust,
by a director of New ARRIS.
Short Swing
Profits
Directors and officers of ARRIS are
governed by rules under the Exchange Act
that may require directors and officer to
forfeit to ARRIS any “short swing” profits
realized from purchases and sales, as
determined under the Exchange Act and
the rules thereunder, of ARRIS equity
securities.
As a company listed on NASDAQ and
subject to the Exchange Act, directors and
officers of New ARRIS will remain subject
to U.S. securities laws, including
prohibitions on “short swing” trading.
Proxy Statements
and Reports
Proxy Statement Generally
Proxy Statement Generally
Under the Exchange Act proxy rules,
ARRIS must comply with notice and
disclosure requirements relating to the
solicitation of proxies for shareholder
meetings.
The Exchange Act proxy rules will continue
to apply to New ARRIS.
Voting by Proxy
Voting by Proxy
Per the Bylaws, every stockholder may
authorize another person or persons to act
for him by proxy in all matters in which a
stockholder is entitled to participate,
whether by waiving notice of any meeting,
voting or participating at a meeting, or
expressing consentor dissent without a
meeting. Every proxy must be signed by
the stockholder or by his attorney-in-fact.
No proxy shall be voted or acted upon
after three years from its date unless such
proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it
states that it is irrevocable and, if, and only
as long as, it is coupled with an interest
sufficient in law to support an irrevocable
power. A proxy may be irrevocable
regardless of whether the interest with
which it is coupled is an interest in the
stock itself or an interest in the corporation
generally.
The New ARRIS articles of association
provide that each New ARRIS shareholder
shall at every meeting of shareholders be
entitled to vote in person or by proxy for
each share held by such shareholder.
Approval of Auditors
Approval of Auditors
The Charter and Bylaws do not grant
ARRIS’ stockholders the right to appoint
the company’s auditors;
Under English law, New ARRIS’
shareholders approve the company’s
auditors each year. In addition, the
159
English law does not have specific proxy
solicitation legislation, but approaches to
shareholders may need to comply with the
UK Financial Services and Markets Act
2000.
​
TABLE OF CONTENTS
Provisions
Reporting
Requirements
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
however, ARRIS typically includes in its
proxy statement a shareholder proposal to
ratify the appointment of its auditors.
company’s annual financial statements,
which must, to the satisfaction of the New
ARRIS Board, give a “true and fair view” of
the assets, liabilities, financial position and
profit or loss of New ARRIS and the
consolidated group, must be presented to
the shareholders at a general meeting but are
not required to be approved by the
shareholders.
As a U.S. public company ARRIS must file
with the SEC, among other reports and
notices;
Since New ARRIS would be considered a
successor issuer to ARRIS and would be
listed on NASDAQ, New ARRIS would
remain subject to U.S. securities laws, but
would not be subject to the reporting
obligations of companies listed on the
London Stock Exchange or on any other
securities exchange other than NASDAQ.
(1) an Annual Report on Form 10-K
within 60 days after the end of a
fiscal year;
(2) a Quarterly Report on Form 10-Q
within 40 days after the end of a
fiscal quarter ending; and
(3) Current Reports on Form 8-K upon
the occurrence of certain important
corporate events. Unless otherwise
specified, a report is to be filed or
furnished within four business days
after occurrence of the event.
Rights of
Inspection of
Books and
Records
Under Delaware law, a shareholder of a
Delaware corporation has the right to
inspect the corporation’s stock ledger,
shareholder lists and other books and
records for a purpose reasonably related to
the person’s interest as a shareholder.
Generally, the register of members and
index of names of New ARRIS shareholders
may be inspected at any time (1) for free, by
New ARRIS shareholders, and (2) for a fee
by any other person.
The inspecting shareholder has to show he
or she has a proper purpose in inspecting the
register. Documents may be copied for a fee.
The service contracts, if any, of New ARRIS
directors (or if a service contract is not in
writing, a written memorandum setting out
the terms of the contract) can be inspected
by shareholders without charge and during
business hours. In this and certain other
contexts under applicable English law, a
“director” includes certain executive
officers and a “service contract” includes
any contract under which such a director or
executive officer undertakes personally to
provide services to the company or a
subsidiary company, whether in that
person’s capacity as a director, an executive
officer or otherwise.
160
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
The shareholders of New ARRIS may also
inspect, without charge and during business
hours, the minutes of meetings of the
shareholders for the previous 10 years and
obtain copies of the minutes for a fee.
In addition, the published annual accounts
of New ARRIS are required to be available
for shareholders at a general meeting and a
shareholder is entitled to a copy of these
accounts. The accounts must also be made
available on New ARRIS website and
remain available until the accounts for the
next financial year are placed on the
website.
Under English law, the shareholders of a
company do not have the right to inspect
the corporate books of a subsidiary of that
company.
Disclosure of
Interests in Shares
Certain acquisitions of ARRIS shares may
require disclosure under the Exchange Act
under Schedule 13D. Some acquisitions,
however, may qualify for a short-form
disclosure on Schedule 13G. Generally, an
acquisition of more than a 5% interest in a
U.S. publicly-held issuer by
(1) certain types of persons, including a
broker-dealer, a bank, an insurance
company, an investment company
and an investment adviser, or
(2) a “passive investor” who is not
seeking to acquire or influence
control of the issuer so long as the
investor owns less than 20% of the
class of stock it is acquiring, may be
disclosed on a Schedule 13G.
A buyer who files a Schedule 13G must
amend it periodically
(1) to report any change in the
information previously reported; or
(2) if it acquires more than 10% of the
class of stock and, thereafter, if it
undergoes any change in ownership
of 5% or more of the class of stock.
161
The Schedule 13D and Schedule 13G
reporting regime will continue to apply to
shareholders of New ARRIS as New ARRIS
will have its shares registered under Section
12 of the Exchange Act.
In addition, English law provides that a
company may, by notice in writing under
section 793 of the Companies Act, require a
person whom the company knows or
reasonably believes to be or to have been
within the three preceding years, interested
in its issued voting share capital to:
(i)
confirm whether this is or is not the
case; and
(ii) if this is the case, to give further
information that it requires relating to
his or her interest and any other
interest in the company’s shares of
which he or she is aware.
The disclosure must be made within a
reasonable period as specified in the
relevant notice which may be as short as one
or two days.
The New ARRIS articles of association
contain provisions which allow New ARRIS
to disenfranchise and restrict the rights
attaching to shares where the recipient fails
to comply with a section 793 notice.
​
TABLE OF CONTENTS
Provisions
Rights of
Dissenting
Shareholders
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
The appraisal rights of ARRIS
stockholders are governed by Delaware
law. Delaware law provides that appraisal
rights are available to dissenting
shareholders in connection with certain
mergers or consolidations. However,
unless a corporation’s certificate of
incorporation otherwise provides (which
ARRIS’s Charter does not), Delaware law
does not provide for appraisal rights if: (1)
the shares of the corporation are (a) listed
on a national securities exchange or (b)
held of record by more than 2,000
shareholders; or (2) the corporation is the
surviving corporation and no vote of its
shareholders is required for the merger.
Notwithstanding the foregoing, Delaware
law provides that appraisal rights will be
available to the shareholders of a
corporation if the shareholders are required
by the terms of a merger agreement to
accept for such stock anything except:
(i) shares of stock of the corporation
surviving or resulting from such merger or
consolidation, or depository receipts in
respect thereof; (ii) shares of stock of any
other corporation, or depository receipts in
respect thereof; which shares of stock (or
depository receipts in respect thereon at
the effective date of the merger or
consolidation will be either listed on a
national securities exchange or held of
record by more than 2,000 holders;
(iii) cash in lieu of fractional shares or
fractional depository receipts; or (iv) any
combination of the shares of stock,
depository receipts and cash in lieu of
fractional shares or fractional depository
receipts as described above. Delaware law
does not provide appraisal rights to
shareholders with respect to the sale of all
or substantially all of a corporation’s
assets or an amendment to a corporation’s
certificate of incorporation, although a
corporation’s certificate of incorporation
may so provide (which ARRIS’ Charter
does not). Delaware law provides, among
other procedural requirements for the
exercise of the appraisal rights, that a
shareholder’s written demand for
English law does not provide for appraisal
rights similar to those rights under Delaware
law. However, English law will provide for
dissenter’s rights which permit a
shareholder, in the context of a compulsory
acquisition of minority shares, to apply to
the Court for an order either that the bidder
is not entitled to acquire their shares or to
specify terms of acquisition different from
those in the original offer.
162
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
appraisal of shares must be received before
the taking of the vote on the matter giving
rise to appraisal rights, when the matter is
voted on at a meeting of shareholders.
Anti-takeover
Measures
Under Delaware law, certain anti-takeover
provisions apply to ARRIS as a publiclytraded company that may have the effect
of making it more difficult for a third party
to acquire ARRIS. In particular, Section
203 of the DGCL generally prohibits a
Delaware corporation from engaging in
any of a broad range of business
combinations with an interested
shareholder for a period of three years
following the time that such shareholder
became an interested shareholder, unless,
among other exceptions, prior to such time
the board of directors of the corporation
approved either the relevant business
combination or the transaction that
resulted in such shareholder becoming an
interested shareholder.
In addition, under ARRIS’ Charter, certain
provisions may make it difficult for a third
party to acquire ARRIS, including the
authorization of “blank check” preferred
stock, the terms of which may be
established and shares of which may be
issued without ARRIS stockholders’
approval.
163
Takeover offers and certain other
transactions in respect of certain public
companies are regulated by the Takeover
Code, which is administered by the
Takeover Panel, a body consisting of
representatives of the City of London
financial and professional institutions
which oversees the conduct of takeovers. An
English public limited company is
potentially subject to the protections
afforded by the Takeover Code if, among
other factors, a majority of its directors are
resident within the UK, the Channel Islands
or the Isle of Man. Based upon New ARRIS’
current and intended plans for its directors,
it is anticipated that the Takeover Code will
not apply to New ARRIS.
The New ARRIS articles of association
provide the New ARRIS Board with the
power to establish a rights plan and to grant
rights to subscribe for New ARRIS shares
pursuant to a rights plan, where in the
opinion of the New ARRIS Board to do so
would improve the likelihood that:
•
any process which may result in an (a)
acquisition or (b) change of control,
over 20% or more of the issued voting
shares of New ARRIS (“Change of
Control”), is conducted in an orderly
manner;
•
all New ARRIS shareholders will be
treated equally and fairly and in a
similar manner;
•
an optimum price for New ARRIS
shares would be received by or on
behalf of all New ARRIS shareholders;
•
the success of New ARRIS would be
promoted for the benefit of its members
as a whole;
•
the long term interests of New ARRIS,
its employees, its members and its
business would be
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
safeguarded;
•
New ARRIS would not suffer serious
economic harm; or
•
the New ARRIS Board would have
additional time to gather relevant
information or pursue appropriate
strategies,
or all or any of the above.
The New ARRIS articles of association
further provide that the New ARRIS Board
may, in accordance with the terms of a rights
plan, subject to renewal by shareholder
approval at least every five years, determine
to (i) allot shares pursuant to the exercise of
rights or (ii) exchange rights for shares in
New ARRIS, where in the opinion of the
New ARRIS Board to do so would improve
the likelihood that:
•
the use of abusive tactics by any
person in connection with any
potential acquisition or Change of
Control would be prevented;
•
any potential acquisition or Change of
Control which would be unlikely to
treat all New ARRIS shareholders
equally and fairly and in a similar
manner would be prevented;
•
any potential acquisition or Change of
Control at a price which would
undervalue New ARRIS or its shares
would be prevented;
•
any potential acquisition or Change of
Control which would not be likely to
promote the success of New ARRIS for
the benefit of its members as a whole
would be prevented;
•
the long term interests of New ARRIS
or its members, employees and its
business would be safeguarded or
both; or
•
New ARRIS would not suffer serious
economic harm,
or all or any of the above.
The New ARRIS Board has a standing
authorization for five years to allot New
164
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
ARRIS shares up to an aggregate par
amount of £3,915,329 (based on the number
of ARRIS and Pace shares outstanding as of
August 31, 2015, which is subject to
change) pursuant to a rights plan. Such
authority may only be exercised by the New
ARRIS Board pursuant to a rights plan, as
detailed above, and may not be exercised by
the New ARRIS Board for other purposes.
Under the Takeover Code, the board of a
public UK company is constrained from
implementing such defensive measures.
However, as discussed above, the foregoing
measures are included in the New ARRIS
articles of association as the Takeover Code
will not apply to New ARRIS and these
measures are included commonly in the
constituent documents of U.S. companies.
Variation of
Rights Attaching
to a Class or
Series of Shares
Under ARRIS’ Charter, the Board may
unilaterally set the terms of new classes of
preferred shares that may have preference
over, and so subordinate the rights of,
already issued common stock.
Amendments of
Governing
Documents
Under Delaware law, a corporation’s
certificate of incorporation may be
amended only if the board of directors
adopts a resolution approving the
amendment and declaring its advisability
and the holders of a majority of the
outstanding stock entitled to vote approve
the amendment. If the proposed
amendment would adversely affect the
rights, powers, par value, or preferences of
the holders of either a class of stock or a
series of a class of stock, then the holders
of either the class of stock or series of
stock, as appropriate, shall be entitled to
vote as a class.
The Charter provides that from time to
time its provisions may be amended,
altered or repealed, and other provisions
authorized by the laws of the State of
Delaware at the time in force may be added
or inserted in the manner and at the time
prescribed by said laws.
The Bylaws provide that subject to the
provisions of the Charter and the
165
Amendments affecting the rights of the
holders of any class of shares may,
depending on the rights attached to the
class and the nature of the amendments, also
require the approval by special resolution of
the class affected at a separate class meeting.
The provisions in the articles of association
of an English public limited company are
generally equivalent to the collective
provisions in a certificate of incorporation
and bylaws of an Delaware corporation.
Under English law, a special resolution of
the shareholders is required to amend any
provision of the New ARRIS articles of
association. The Board does not have the
power to amend the New ARRIS articles of
association without shareholder approval.
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
DGCL, the power to amend, alter, or repeal
any of its provisions or to adopt new
provisions may be exercised by the Board
or the stockholders.
Enforcement of
Civil Liabilities
Against Foreign
Persons
A judgment for the payment of money
rendered by a court in the United States
based on civil liability generally would be
enforceable elsewhere in the United States.
As a company listed on NASDAQ, New
ARRIS and its directors and officers would
be subject to U.S. securities laws, and
investors could initiate civil lawsuits in the
U.S. against New ARRIS for breaches of the
U.S. securities laws. Because New ARRIS
will be a public limited company
incorporated under English law after the
effective time of the Merger, investors could
experience more difficulty enforcing
judgments obtained against New ARRIS in
U.S. courts than would currently be the case
for U.S. judgments obtained against ARRIS.
In addition, it may be more difficult (or
impossible) to bring some types of claims
against New ARRIS in courts sitting in
England than it would be to bring similar
claims against at U.S. company in a U.S.
court.
A judgment obtained against New ARRIS
from a U.S. court will not be recognized by
the English courts but an action may be
commenced in the English courts for an
amount due under a judgment given by the
U.S. courts if that judgment is (a) for a debt
or definite sum of money; (b) final and
conclusive; and (c) not of a penalty or
revenue nature. A judgment may be
impeached by showing that: (i) the court in
question did not, in the circumstances of the
case, and in accordance with the English
rules of private international law, have
jurisdiction to give that judgment; (ii) the
judgment was obtained through fraud;
(iii) the enforcement of the judgment would
be contrary to the public policy of the UK;
or (iv) the proceedings in which the
judgment was obtained were opposed to the
rules of natural justice.
New ARRIS and its directors and officers
may be subject to criminal penalties in the
U.S. arising from breaches of the U.S. federal
securities laws, but may not be subject to
criminal penalties in the UK unless the
criminal laws of the UK were violated.
A criminal judgment in a U.S. court under
U.S. federal securities laws may not be
166
​
TABLE OF CONTENTS
Provisions
Provisions Currently Applicable to ARRIS
Provisions to be Applicable to New ARRIS
enforceable in the English courts on public
policy grounds and a prosecution brought
before the English courts under U.S. federal
securities laws might not be permitted on
public policy grounds.
167
​
TABLE OF CONTENTS
LEGAL MATTERS
ARRIS and New ARRIS are being represented by Troutman Sanders LLP with respect to certain legal
matters as to United States law, including U.S. tax matters, and by Herbert Smith Freehills LLP with respect to
certain legal matters as to the laws of England, including certain UK tax matters.
Herbert Smith Freehills LLP will provide an opinion regarding the validity of the New ARRIS ordinary
shares to be issued in the Combination.
EXPERTS
The consolidated financial statements of Pace plc, which comprise the consolidated balance sheets as of
December 31, 2014 and December 31, 2013 and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended
December 31, 2014, have been included herein in reliance upon the report of KPMG LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of ARRIS Group, Inc. appearing in ARRIS Group, Inc.’s Annual
Report (Form 10-K) for the year ended December 31, 2014 (including schedule appearing therein), and the
effectiveness of ARRIS Group, Inc.’s internal control over financial reporting as of December 31, 2014 have
been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports
thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
CERTAIN OF THE DIRECTORS AND EXECUTIVE OFFICERS OF NEW ARRIS MAY BE NONRESIDENTS OF THE UNITED STATES. ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF SUCH
NON-RESIDENT PERSONS AND OF NEW ARRIS ARE LOCATED OUTSIDE THE UNITED STATES. AS A
RESULT, IT MAY NOT BE POSSIBLE TO EFFECT SERVICE OF PROCESS WITHIN THE UNITED STATES
UPON SUCH PERSONS OR NEW ARRIS, OR TO ENFORCE AGAINST SUCH PERSONS OR NEW ARRIS IN
UNITED STATES COURTS JUDGMENTS OBTAINED IN SUCH COURTS PREDICATED UPON THE CIVIL
LIABILITY PROVISIONS OF THE FEDERAL SECURITIES LAWS OF THE UNITED STATES. NEW ARRIS
HAS BEEN ADVISED BY COUNSEL THAT THERE IS DOUBT AS TO THE ENFORCEABILITY IN THE
UNITED KINGDOM AGAINST NEW ARRIS AND/OR ITS EXECUTIVE OFFICERS AND DIRECTORS WHO
ARE NON-RESIDENTS OF THE UNITED STATES, IN ORIGINAL ACTIONS OR IN ACTIONS FOR
ENFORCEMENT OF JUDGMENTS OF UNITED STATES COURTS, OF LIABILITIES PREDICATED SOLELY
UPON THE SECURITIES LAWS OF THE UNITED STATES.
168
TABLE OF CONTENTS
DIRECTORS’ RESPONSIBILITY STATEMENT REQUIRED BY THE UK TAKEOVER CODE
The ARRIS directors each accept responsibility for the information contained in this document relating to
ARRIS and the ARRIS directors and their immediate families and related trusts. To the best of the knowledge
and belief of the ARRIS directors (who have taken all reasonable care to ensure that such is the case), the
information contained in this document for which they are responsible is in accordance with the facts and does
not omit anything likely to affect the import of such information.
The New ARRIS directors each accept responsibility for the information contained in this document
relating to New ARRIS and the New ARRIS directors and their immediate families and related trusts. To the best
of the knowledge and belief of the New ARRIS directors (who have taken all reasonable care to ensure that such
is the case), the information contained in this document for which they are responsible is in accordance with the
facts and does not omit anything likely to affect the import of such information.
FUTURE STOCKHOLDER PROPOSALS
New ARRIS
Assuming completion of the Combination, New ARRIS shareholders will be entitled to present proposals
for consideration at forthcoming New ARRIS shareholders’ meetings, provided that they comply with the proxy
rules promulgated by the SEC and the New ARRIS articles of association. The deadline for submission of all
New ARRIS shareholders’ proposals to be considered for inclusion in New ARRIS’ proxy statement for its first
annual general meeting will be disclosed in a subsequent filing with the SEC.
ARRIS
ARRIS expects that it will hold an annual meeting in the year 2016 only if the Combination and Merger are
not completed. The deadline for stockholders to submit proposals to be considered for inclusion in the proxy
statement for the 2015 Annual Meeting of Stockholders is expected to be December 11, 2015. However, if the
date of the 2016 Annual Meeting is changed by more than 30 calendar days from the date on which this year’s
meeting is held, a proposal must be received by the Company a reasonable time before the proxy solicitation in
connection with the meeting is made. Additionally, the proxy solicited by the ARRIS Board for the 2016
Annual Meeting of Stockholders will confer discretionary authority to vote on any stockholder proposal
presented at that meeting that is not included in the ARRIS’ Proxy Statement and proxy relating to the 2016
Annual Meeting of Stockholders unless ARRIS is provided written notice of such proposal no later than
February 24, 2016.
NO DELAWARE APPRAISAL RIGHTS
Appraisal rights are statutory rights under the DGCL that enable stockholders who object to certain
extraordinary transactions to demand that the corporation pay such stockholders the fair value of their shares
instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.
Appraisal rights are not available to ARRIS stockholders in connection with the Merger.
169
TABLE OF CONTENTS
ACCOUNTING TREATMENT OF THE COMBINATION
ARRIS will account for the Combination using the acquisition method of accounting in accordance with
U.S. GAAP, with ARRIS being considered the acquirer of Pace for accounting purposes. ARRIS will allocate the
total purchase price to the net tangible and identifiable intangible assets acquired and liabilities assumed based
on their respective estimated fair values as of the closing of the Combination. Any excess of the purchase price
over those fair values will be recorded as goodwill.
Definite lived intangible assets will be amortized over their estimated useful lives. Intangible assets with
indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All
intangible assets and goodwill are also tested for impairment when certain indicators are present. If in the future,
ARRIS determines that intangible assets or goodwill are impaired, an impairment charge would be recorded at
that time.
The purchase price allocation reflected in the unaudited pro forma condensed combined financial
information included in this proxy statement/prospectus is based on preliminary estimates using assumptions
that management believes are reasonable utilizing information currently available. The amount of the estimated
purchase price allocated to goodwill and intangibles is approximately $2.3 billion. The final purchase price
allocation will be based in part on detailed valuation studies which have not yet been completed. Differences
between preliminary estimates in the pro forma statements and the final acquisition accounting will occur and
could have a material impact on the pro forma statements and the combined company’s future results of
operations and financial position. We expect to complete the final purchase price allocation no later than twelve
months following the closing of the transaction.
WHERE YOU CAN FIND MORE INFORMATION
ARRIS files annual reports with, and furnishes other reports and information to, the SEC. You may read and
copy any document ARRIS files with or furnishes to the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. You may also obtain copies of these reports, as well as proxy and
information statements and other information that ARRIS files with or furnishes to the SEC, at the Internet
website maintained by the SEC, at www.sec.gov. The address of the SEC’s website is provided solely for the
information of prospective investors and is not intended to be an active link. Please visit this website or call the
SEC at 1-800-SEC-0330 for further information about its Public Reference Room. In addition, you may obtain
free copies of the documents ARRIS files with the SEC, including the registration statement of which this proxy
statement/prospectus is a part by going to ARRIS’ website at http://ir.arris.com. The Internet website address of
ARRIS is provided as an inactive textual reference only. The information provided on the Internet website of
ARRIS, other than copies of the documents listed below that have been filed with the SEC, is not part of this
proxy statement/prospectus and, therefore, is not incorporated herein by reference.
New ARRIS has filed a registration statement, including the exhibits and annexes thereto, with the SEC
under the Securities Act, to register the New ARRIS ordinary shares that ARRIS stockholders will receive in
connection with the Merger. This proxy statement/prospectus is a part of that registration statement as well as a
proxy statement with respect to the special meeting of ARRIS stockholders to approve the Merger. New ARRIS
may also file amendments to the registration statement. This proxy statement/prospectus does not contain all of
the information set forth in the registration statement, and some parts have been omitted in accordance with the
rules and regulations of the SEC. You should read the registration statement and the exhibits and schedules filed
with the registration statement as they contain important information about ARRIS and New ARRIS and the New
ARRIS ordinary shares.
Each of ARRIS and New ARRIS undertake to provide without charge to ARRIS stockholders, upon request,
by first class mail or other equally prompt means, within one (1) business day of receipt of the request, a copy of
any or all of the documents incorporated by reference into this proxy statement/​p rospectus, other than the
exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information
that this proxy statement/prospectus incorporates.
170
TABLE OF CONTENTS
Requests for copies of the filings of ARRIS and New ARRIS should be directed to:
ARRIS Investor Relations
3871 Lakefield Drive
Suwanee, Georgia 30024
Pace makes its annual and interim reports and other information available on its website www.pace.com.
Information contained in or otherwise accessible through this website is not a part of this document.
171
TABLE OF CONTENTS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows ARRIS to “incorporate by reference” certain information filed with or furnished to the SEC,
which means that ARRIS can disclose important information to you by referring you to those documents. The
information incorporated by reference is an important part of this proxy statement/​p rospectus. With respect to
this proxy statement/prospectus, information that ARRIS later files with or furnishes to the SEC and that is
incorporated by reference will automatically update and supersede information in this proxy
statement/prospectus and information previously incorporated by reference into this proxy
statement/prospectus.
Each document incorporated by reference into this proxy statement/prospectus is current only as of the date
of such document, and the incorporation by reference of such document is not intended to create any
implication that there has been no change in the affairs of ARRIS since the date of the relevant document or that
the information contained in such document is current as of any time subsequent to its date. Any statement
contained in such incorporated documents is deemed to be modified or superseded for the purpose of this proxy
statement/prospectus to the extent that a subsequent statement contained in another document that is
incorporated by reference into this proxy statement/prospectus at a later date modifies or supersedes that
statement. Any such statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the following documents and information filed
by ARRIS with the SEC (other than, in each case, documents or information deemed to have been “furnished”
and not “filed” in accordance with SEC rules):
ARRIS Filings and Reports (SEC File Number: 000-31254)
•
ARRIS Annual Report on Form 10-K, for the fiscal year ended December 31, 2014, filed with the SEC
on February 27, 2015;
•
ARRIS Quarterly Reports on Form 10-Q filed with the SEC on May 8, 2015 and August 7, 2015; and
•
ARRIS Current Reports on Form 8-K, filed with the SEC on April 22, 2015, May 15, 2015, June 19,
2015 and September 8, 2015.
All documents filed by ARRIS under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this proxy statement/prospectus and prior to the date of the special meeting will be incorporated by reference
into this proxy statement/prospectus, other than the portions of such documents not deemed to be filed.
You may obtain copies of these documents in the manner described under “Where You Can Find More
Information.”
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY
ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
THIS PROXY STATEMENT/PROSPECTUS IS DATED [•], 2015. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THAT DATE.
172
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PACE
You should read the following discussion and analysis in conjunction with the consolidated financial
statements of Pace and the accompanying notes included elsewhere in this proxy statement/prospectus. The
audited consolidated balance sheets of Pace as of 31 December 2014 and 2013 and the audited consolidated
income statements, statements of comprehensive income, statements of changes in shareholders’ equity and
statements of cash flows for each of the years in the three-year period ended 31 December 2014 included
elsewhere in this proxy statement/prospectus have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). The
audited consolidated financial statements of Pace as of and for the years ended 31 December 2014, 2013 and
2012 presented in its annual reports for those years were prepared in accordance with IFRS as endorsed by the
EU. For the purposes of this proxy statement/prospectus, Pace adopted those accounting standards issued by
the IASB but not endorsed by the EU for the relevant years. The application of these additional accounting
standards has not resulted in any material change to the consolidated financial statements of Pace for those or
earlier years.
Unless the context implies otherwise, the term “Pace” refers to Pace plc and its consolidated subsidiaries.
References to “2014,” “2013” and “2012” are to the years ended 31 December 2014, 2013 and 2012,
respectively.
Overview
Pace creates world-leading technologies, products and services for the PayTV and broadband industries.
Leveraging its complete portfolio of Media Servers, Set-Top Boxes (“STBs”), Gateways, sophisticated software,
Optical Transport and Access Network solutions and highly specialised services support, Pace’s solutions
empower customers to simply and cost-effectively deliver and evolve digital services at the speed they want and
in the way they want, enabling them to build their success. Pace’s 30 years of leadership, experience and
expertise is recognised by a customer base, including over 200 of the world’s leading PayTV and broadband
operators, that spans the globe.
In accordance with IFRS 8 ‘Operating Segments’, Pace’s chief operating decision-maker (the “CODM”) has
been identified as its Board of Directors, which reviews internal monthly management reports, budgets and
forecast information to evaluate the performance of the business and make decisions. Pace determines operating
segments on the basis of strategic business units (“SBUs”), being the basis on which Pace manages its worldwide
interests. Pace has the following operating segments which are reportable segments for the purpose of IFRS 8:
Pace Americas, Pace International and Pace Networks (which contains the Aurora Networks Inc. (“Aurora
Networks”) business acquired on 6 January 2014). Pace also measures revenue results across the following
geographical regions: North America, Latin America, Europe and Rest of World.
Non-IFRS Financial Measures
Pace supplements the reporting of its financial information with certain non-IFRS financial measures,
including Adjusted EBITDA and Adjusted EBITA. Pace believes that these non-IFRS financial measures provide
meaningful information to assist investors and shareholders in understanding its financial results and assessing
its prospects for future performance. These are important indicators of performance because they exclude items
that may not be indicative of, or are unrelated to, Pace’s core results of operations, and as a result they provide a
baseline for analyzing trends in the underlying business. To measure earnings performance on a consistent and
comparable basis, Pace excludes certain items that affect the comparability of operating results and earnings
trends. These adjustments are irregular in timing and may not be indicative of Pace’s past and future
performance, and they are therefore excluded to allow investors to better understand Pace’s underlying results.
Adjustments may include any combination of, but are not limited to, exceptional costs, amortisation of
intangible assets, depreciation and net finance expense. Because non-IFRS financial measures are not
standardised, it may not be possible to compare them with those of other companies, even if they have the same
or similar names. Pace’s non-IFRS financial measures provide an additional way to view aspects of Pace’s
performance that, when viewed together with Pace’s IFRS results, provides a more complete understanding of
Pace’s business.
173
TABLE OF CONTENTS
Pace also reports net debt, which is a non-IFRS financial measure calculated as the sum of borrowings in
non-current liabilities and current liabilities less cash and cash equivalents as shown on its consolidated balance
sheet.
The following table reconciles the non-IFRS financial measures of Adjusted EBITDA and Adjusted EBITA
to profit before tax.
Year Ended 31 December
2014
2013
2012
(dollars in millions)
Profit before tax
Exceptional costs(1)
175.7
130.8
80.1
Amortisation of other intangibles
Net finance expense
Adjusted EBITA
Depreciation
7.3
52.9
5.2
241.1
29.0
12.2
42.6
8.0
193.6
25.0
12.5
51.8
13.7
158.1
21.0
Adjusted EBITDA
270.1
218.6
179.1
​
(1) Exceptional costs are items that are significant by virtue of their size or nature and that are considered nontrading. Such items, which include for example the costs of opening or closing premises, costs of
significant restructuring and profits and losses on the disposal of properties, are included within the
appropriate consolidated income statement category, albeit analysed as a separate line within that category,
and are highlighted separately in the notes to Pace’s historical financial statements. Exceptional operating
items are excluded from the profit measures used by Pace’s Board to monitor underlying performance.
Segmental performance is measured based upon Adjusted EBITA, as included in the management
information which is reviewed by the CODM. Adjusted EBITA is used to measure segmental performance as
management believes that such information is the most relevant in evaluating the results of certain segments,
relative to other entities that operate within the same industries.
Pace adopted its current operating segment presentation in 2014. The table below presents segmental
information for the periods indicated, with 2013 and 2012 revised to conform to the current operating segment
presentation.
Year Ended 31 December
2014
2013
2012
(dollars in millions)
Pace Americas
Pace International
Pace Networks
150.2
88.3
47.4
(1)
152.7
82.8
—
​
144.0
71.9
—
Other
(44.8 )
(41.9 )
(57.8 )
Adjusted EBITA
241.1
193.6
158.1
(1) Other amounts include unallocated central costs.
Industry Conditions
Underlying the results of operations of Pace are a number of key industry conditions, which are described
below.
Operator Consolidation
The rate of PayTV and telecoms operator consolidation over the past 12 months, both rumoured and
realised, is unprecedented. These significant investments into the PayTV space reflect the strength of and
confidence in the PayTV model, and are likely to continue to reshape the industry landscape for many years
174
TABLE OF CONTENTS
to come. Each of the transactions has a specific strategic rationale, but a number of general strategic aims also
have been publicly stated. These include: greater scale, benefiting programming costs and service and
technology innovation; provision of a broader offer of services; and enabling the larger combined entities to
compete more effectively in an increasingly crowded and competitive marketplace. These enlarged service
providers can be expected to aim to offer better, more innovative and engaging services to their customers
supported by the very best technology, with higher expectations and demands on their technology vendors that
only the largest, most innovative and diversified companies, such as Pace, can provide.
Subscriber Growth Beyond Mature Markets
In emerging markets, digital PayTV subscriber growth is still strong with a compound annual growth rate
(“CAGR”) of over 7.2% predicted from 2014 to 2018 (according to IHS Television Intelligence Service 2015).
This growth is driven by a number of factors, such as demographic transition, introduction of PayTV into
greenfield markets, analogue to digital transition, changing market regulation and increasing consumer demand
for high-quality video entertainment. With a deep in-market coverage and capability, a global scale and broad
portfolio of products and services including integrated solutions (Pace hardware, software and conditional
access) designed for emerging market service providers, Pace is well placed to support service providers in these
markets during this growth period.
Whole Home and Media Servers Becoming the Norm
The technology refresh cycle to Media Servers continues across the industry with over 5 million devices
shipped globally in 2013 and the total size of the market predicted to grow 9.2% from 2014 to 2018 (“CAGR”)
to over $4.8 billion (according to IHS Television Intelligence Service 2015). A Media Server combines the
functionality of the STB and the Gateway, augmenting traditional broadcast with IP-enabled services and
enabling video content to be distributed around the home; a key component of the move to “TV Everywhere.”
The Media Server product segment is evolving to become the main hub of the home, enabling any data
connectivity (video, voice, broadband, home automation, etc.) around the home with both operator-provided
and consumer-purchased devices. Pace has been acknowledged by IHS Television Intelligence Service as a clear
market leader in the Media Server segment, having shipped over 7 million Media Servers and over 7 million thin
client devices over the last three years, with wins and deployments for more than 15 service providers around the
world.
Rapidly Evolving Advanced User Experiences
As communications and entertainment services converge and we move to an always-connected world,
increasingly technology-aware consumers are demanding ever more advanced and rapidly evolving user
experiences from their Service Providers. TV Everywhere, Ultra High Definition (UHD) and great in-home
wireless connectivity are three examples of advanced user experiences that are resulting in technology change
and faster refresh cycles. With TV Everywhere, service providers are marrying the best of the Over the Top (OTT)
experiences with the great content and support model of the traditional broadcast offering, enabling consumers
to watch what they want to watch, whenever and wherever they want to watch it. The expected emergence of
UHD video, with over 60 million UHD televisions predicted (according to IHS Television Intelligence Service
2015) to be shipped in 2018 (25% of total shipments), brings not only a far greater picture resolution, but a
wider range of colors and faster refresh of picture resulting in a far more immersive experience than High
Definition. Consumers now expect to be able to access all their services at any time on their in-home wireless
network. To enable this, service providers are rolling out advanced residential gateways with next generation
wireless network technologies (such as Wi-Fi 802.11ac) that give greater coverage and increased bandwidth to
the consumer. With a strong track record as a technology innovator for the PayTV industry, Pace believes it is at
the forefront of supporting service providers to develop and deliver these rapidly evolving user experiences to
their consumers.
Bandwidth
With increasing numbers of connectable devices, growing usage of “video everywhere” and other data
intensive applications such as Wi-Fi offload, consumer demand for high-speed data is increasing at a significant
rate; global Internet traffic is predicted to reach 14 gigabytes (GB) per capita by 2018, up from
175
TABLE OF CONTENTS
5 GB per capita in 2013 (according to Cisco® Visual Networking Index (VNI) 2014). To respond to this demand
and compete in highly competitive markets, service providers need to upgrade their network capacity in a quick,
effective and cost efficient manner. Aurora Networks, one of the largest suppliers of Optical Transport and
Access Network solutions, which Pace acquired in January 2014, enables service providers to cost-efficiently
increase network capacity whilst minimising disruption to customers, saving on power, space and operating
expenses and leveraging existing network investments.
Supporting the Increasingly Complex Connected Home
As service providers deliver more services to consumers and the number of connected devices in the home
proliferates, the connected home continues to become increasingly more complex. With the emergence of the
“Internet of Things,” it is estimated that in 2020, the average broadband-connected home will have over 50
connected devices (according to a 2013 report published by the Organisation of Economic Cooperation and
Development). As this complexity increases, the need for the service providers to be able to effectively and costefficiently support the consumer becomes greater. Through its ECO Service Management Platform and next
generation customer care centres, Pace manages over 34 million devices and handles 4 million calls per annum
on behalf of over 20 service providers across the world.
Other Factors Affecting Pace’s Results
Customers and Markets
Pace is potentially exposed to volatile revenue trends due to its revenue concentration from a small number
of large customers and because customer orders are typically short- to mid-term commitments with no long-term
guarantee. This risk is mitigated by procedures in place to monitor the financial and operating strength of
customers.
Suppliers
Pace works on long lead times for component supply and manufacture, with concentration on a small
number of manufacturing partners leading to a risk of lack of flexibility and loss of product availability. This
risk is mitigated by procedures in place to monitor the financial and operating strength of suppliers and the use
of dual or multi-source suppliers where possible.
Royalty Claims
Pace’s products incorporate third-party technology and inadvertent actions may expose Pace to the risk of
infringing third-party intellectual property rights, leading to a risk of reputational damage and cash outflow.
This risk is mitigated by the Audit & Risk Committee and Board of Pace receiving a semi-annual report from
Pace’s General Counsel regarding royalty claims under negotiation and through monitoring of all material
claims by outside legal counsel.
Currency Risks
Pace operates globally and is exposed to foreign exchange risks on both revenue and costs, giving rise to a
potential adverse impact on its income statement. This risk is mitigated by Pace’s treasury policy, which is to
progressively hedge cash flows when they are sufficiently certain and to seek price variations through
contractual mechanisms.
Innovation
Pace’s product development process can take over twelve months, and there is a risk that research and
development efforts may not be appropriately targeted on the correct areas resulting in a loss of technology
and/or market advantage. This risk is mitigated by splitting engineering teams into specialist areas and the close
alignment of SBU teams to customer requirements and product roadmaps.
Product Liability Claims
Pace is exposed to the risk of product liability claims made by customers or affected third parties which
could lead to cash outflow and/or reputational damage. This risk is mitigated by quality control and other
operational procedures implemented by Pace.
176
TABLE OF CONTENTS
Natural Disasters
Pace is exposed to the risk that its business continuity plans may not prove to be appropriate following
natural disasters, leading to a loss of ability to service customer demand. This risk is mitigated by business
continuity plans both internally within Pace and at manufacturing partners.
IT Environment
Pace is exposed to the risk that major system failure, an information security breach and/or inadequate
information systems could lead to a loss of ability to service customer demand and/or a cash outflow. This risk is
mitigated by IT general and application controls, annual internal audit testing and external penetration testing.
Results of Operations
Overview
The following table sets forth a summary of Pace’s consolidated results of operations for the periods
indicated.
Year Ended 31 December
2014
2013
2012
(dollars in millions)
Revenue
Cost of sales
Gross profit
Administrative expenses:
Research and development expenditure
Amortisation of development expenditure
Other administrative expenses:
Before exceptional costs
Exceptional costs
Amortisation of other intangibles
Total administrative expenses
2,620.0
(2,087.5 )
532.5
2,469.2
(2,021.0 )
448.2
2,403.4
(1,970.4 )
433.0
(83.7 )
(45.4 )
(87.0 )
(45.6 )
(101.1 )
(54.3 )
(162.3 )
(7.3 )
(52.9 )
(122.0 )
(12.2 )
(42.6 )
(119.5 )
(12.5 )
(51.8 )
(351.6 )
(309.4 )
(339.2 )
Operating profit
Finance income – interest receivable
Finance expenses – interest payable
180.9
2.5
(7.7 )
138.8
1.8
(9.8 )
93.8
0.5
(14.2 )
Profit before tax
Tax charge
175.7
(27.7 )
130.8
(34.1 )
80.1
(21.7 )
Profit for the year
148.0
96.7
58.4
​
Year Ended 31 December 2014 Compared to Year Ended 31 December 2013
Revenue
Revenue increased by $150.8 million, or 6.1%, to $2,620.0 million for 2014 from $2,469.2 million for
2013. This increase was driven by the first year of contribution from Networks products and strong demand for
STBs and Media Servers, partly offset by lower revenue from Gateways and broadly flat revenue from Software
and Services.
Revenue from Networks products was $264.6 million for 2014 compared to nil for the year ended
31 December 2013. This new revenue was driven by the acquisition of Aurora Networks on 6 January 2014.
Revenue from STBs and Media Servers increased by $23.9 million, or 1.2%, to $2,003.5 million for 2014
from $1,979.6 million for 2013. This increase was driven largely by high demand in the second half of 2014
following a number of major launches across all regions.
177
TABLE OF CONTENTS
Revenue from Gateways decreased by $136.1 million, or 36.2%, to $239.7 million for 2014 from
$375.8 million for 2013. This decrease was driven by reduced demand for legacy products in the first half of
2014.
Revenue from Software and Services decreased by $1.6 million, or 1.4%, to $112.2 million for 2014 from
$113.8 million for 2013. This decrease was driven by reduced revenues in legacy software contracts offsetting an
increase in revenue from Elements and ECO Software products and the Customer Care business.
Regional revenue increases in North America, Latin America and Rest of World offset a decrease in Europe.
Trends by region are discussed below.
•
Revenue in North America increased by $95.1 million, or 6.2%, to $1,635.6 million for 2014 from
$1,540.5 million for 2013. This increase was driven largely by new launches with major customers in
the second half of 2014 and strong demand for Networks products.
•
Revenue in Latin America increased by $14.8 million, or 4.1%, to $373.2 million for 2014 from
$358.4 million for 2013. This increase was driven largely by the first time inclusion of the Networks
business.
•
Revenue in Rest of World increased by $73.6 million, or 29.9%, to $320.0 million for 2014 from
$246.4 million for 2013. This increase was driven by strong demand for recently launched products in
the second half of 2013 and in 2014.
•
Revenue in Europe decreased by $32.7 million, or 10.1%, to $291.2 million for 2014 from
$323.9 million for 2013. This decrease was primarily due to a reduced win rate of new products in
prior years, which adversely affected revenue through the first half of 2014.
Cost of sales
Cost of sales increased by $66.5 million, or 3.3%, to $2,087.5 million for 2014 from $2,021.0 million for
2013. This increase was driven by the increase in revenue, partially offset by improved gross margins resulting
from the higher margin contribution from Networks products.
Gross profit
Gross profit increased by $84.3 million, or 18.8%, to $532.5 million for 2014 from $448.2 million for 2013.
This increase was driven by increased revenues and the higher margin contribution from Networks products.
Administrative expenses
Total administrative expenses increased by $42.2 million, or 13.6%, to $351.6 million for 2014 from
$309.4 million for 2013. This increase was driven by the changes in research and development expenditure,
amortisation of development expenditure, other administrative expenses before exceptional costs, exceptional
costs and amortisation of other intangibles described below.
•
Research and development expenditure decreased by $3.3 million, or 3.8%, to $83.7 million for 2014
from $87.0 million for 2013. This decrease was driven by continued progress in improving operating
efficiency.
•
Amortisation of development expenditure decreased by $0.2 million, or 0.4%, to $45.4 million for
2014 from $45.6 million for 2013. This decrease was driven by the mix of products shipped during the
year.
•
Other administrative expenses before exceptional costs increased by $40.3 million, or 33.0%, to
$162.3 million for 2014 from $122.0 million for 2013. This increase was driven by the inclusion of the
Networks business unit cost base.
178
TABLE OF CONTENTS
•
Exceptional costs decreased by $4.9 million, or 40.2%, to $7.3 million for 2014 from $12.2 million for
2013. This decrease was driven by a reduction in acquisition and integration costs of Aurora Networks
($1.1 million), lower restructuring and reorganisation costs ($2.7 million) and no recurrence in 2014 of
aborted acquisition costs in 2013 ($1.1 million).
•
Amortisation of other intangibles increased by $10.3 million, or 24.2%, to $52.9 million for 2014 from
$42.6 million for 2013. This increase was due to the acquisition of Aurora Networks.
Operating profit
Operating profit increased by $42.1 million, or 30.3%, to $180.9 million for 2014 from $138.8 million for
2013. This increase was driven by the increase of $84.3 million in gross profit offset by the $42.2 million
increase in administrative expenses.
Finance income — interest receivable
Interest receivable increased by $0.7 million, or 38.9%, to $2.5 million for the year ended
31 December 2014 from $1.8 million for the year ended 31 December 2013. This increase was driven by higher
interest income on gross cash balances during 2014.
Finance income — interest payable
Interest payable decreased by $2.1 million, or 21.4%, to $7.7 million for 2014 from $9.8 million for 2013.
This decrease was driven by improved terms of Pace’s new borrowing facilities despite an increase in average
gross debt during 2014.
Profit before tax
Profit before tax increased by $44.9 million, or 34.3%, to $175.7 million for 2014 from $130.8 million for
2013. This increase was driven by the $42.1 million increase in operating profit and $0.7 million increase in
interest receivable combined with the $2.1 million decrease in interest payable.
Tax charge
Tax charge decreased by $6.4 million, or 18.8%, to $27.7 million for 2014 from $34.1 million for 2013.
This decrease reflects a mix of expected recurring items, including lower corporate tax rates in the UK and the
impact of the Aurora Networks acquisition, and non-recurring items.
Profit for the year
Profit for the year increased by $51.3 million, or 53.1%, to $148.0 million for 2014 from $96.7 million for
2013. This increase was driven by the $44.9 million increase in profit before tax combined with the $6.4 million
reduction in tax charge for 2014.
Year Ended 31 December 2013 Compared to Year Ended 31 December 2012
Revenue
Revenue increased by $65.8 million, or 2.7%, to $2,469.2 million for 2013 from $2,403.4 million for 2012.
This increase was driven by growth in STB and Media Servers revenues and Software and Services revenues,
which were partially offset by a reduction in Gateway revenues.
Revenue from STBs and Media Servers increased by $153.6 million, or 8.4%, to $1,979.6 million for 2013
from $1,826.0 million for 2012. This increase was largely driven by high demand for media servers in H1 2013
in North America and a number of new deployments in the second half of 2013.
Revenue from Gateways decreased by $93.6 million, or 19.9%, to $375.8 million for 2013 from
$469.4 million for 2012. This decrease was driven by expected dual sourcing at a major customer, which was
only partially offset by new wins at customers such as Global Village Telecom and Manitoba Telecom Services.
179
TABLE OF CONTENTS
Revenue from Software and Services increased by $5.8 million, or 5.4%, to $113.8 million for 2013 from
$108.0 million for 2012. This increase was driven by a number of deployments across all areas of Pace’s
Software and Services business offsetting decreased call volume in the Customer Care business.
Regional revenue increase in North America offset a decrease in Latin America, Rest of the World and
Europe. Trends by region are discussed below.
•
Revenue in North America increased by $222.9 million, or 16.9%, to $1,540.5 million for 2013 from
$1,317.6 million for 2012. This increase was driven largely by strong demand from DirecTV and
Comcast for Media Server products during the first half of 2013, and new wins in 2013, partially offset
by lower Gateway revenues reflecting a strong comparative period in 2012 and the dual sourcing of
supply by a major customer.
•
Revenue in Latin America decreased by $16.0 million, or 4.3%, to $358.4 million for 2013 from
$374.4 million for 2012. This decrease was driven largely by a reduction in demand from a key
customer.
•
Revenue in Rest of World decreased by $62.6 million, or 20.3%, to $246.4 million for 2013 from
$309.0 million for 2012. This decrease was due to reduced demand from a number of large customers
as they prepared for product launches in the second half of 2013 and in 2014.
•
Revenue in Europe decreased by $78.5 million, or 19.5%, to $323.9 million for 2013 from
$402.4 million for 2012. This decrease was primarily due to a reduced win rate of new products in
2011, which adversely affected revenue through 2013.
Cost of sales
Cost of sales increased by $50.6 million, or 2.6%, to $2,021.0 million for 2013 from $1,970.4 million for
2012. This increase was driven by increased revenue as discussed above, partially offset by an improvement in
gross margin as discussed below.
Gross profit
Gross profit increased by $15.2 million, or 3.5%, to $448.2 million for 2013 from $433.0 million for 2012.
This increase was driven by the increase in revenue and an improvement in gross margin reflecting the benefits
of supply chain transformation and an improved revenue mix as Pace broadened its customer base.
Administrative expenses
Total administrative expenses decreased by $29.8 million, or 8.8%, to $309.4 million for 2013 from $339.2
million for 2012. This decrease was driven by the changes in research and development expenditure,
amortisation of development expenditure, other administrative expenses before exceptional costs, exceptional
costs and amortisation of other intangibles described below.
•
Research and development expenditure decreased by $14.1 million, or 13.9%, to $87.0 million for
2013 from $101.1 million for 2012. This decrease was driven by progress made in improving
operating efficiency in the research and development function following a reorganisation of the
Americas and International business units during 2012 and 2013.
•
Amortisation of development expenditure decreased by $8.7 million, or 16.0%, to $45.6 million for
2013 from $54.3 million for 2012. This decrease was driven by the mix of products shipped during
2013.
•
Other administrative expenses before exceptional costs increased by $2.5 million, or 2.1%, to $122.0
million for 2013 from $119.5 million for 2012. This increase was driven by costs incurred in
connection with the rationalisation of the manufacturing partner base undertaken during 2013.
•
Exceptional costs decreased by $0.3 million, or 2.4%, to $12.2 million for 2013 from $12.5 million for
2012. This decrease relates to a reduction in restructuring and reorganisation costs (reduction
180
TABLE OF CONTENTS
of $3.4 million), aborted acquisitions costs (reduction of $2.4 million) and costs associated with
directors’ loss of office (reduction of $1.4 million), largely offset by an increase in acquisition costs
($6.9 million relating to the acquisition of Aurora Networks).
•
Amortisation of other intangibles decreased by $9.2 million, or 17.8%, to $42.6 million for 2013 from
$51.8 million for 2012. This decrease was driven by certain other intangibles becoming fully
amortised.
Operating profit
Operating profit increased by $45.0 million, or 48.0%, to $138.8 million for 2013 from $93.8 million for
2012. This increase was driven by increased revenue, improved gross margin percentage and reduction in
research and development overheads and amortisation of other intangibles, partially offset by increased
administrative costs.
Finance income — interest receivable
Interest receivable increased by $1.3 million to $1.8 million for 2013 from $0.5 million for 2012. This
increase was driven by higher average gross cash balances during 2013.
Finance income — interest payable
Interest payable decreased by $4.4 million, or 31.0%, to $9.8 million for 2013 from $14.2 million for 2012.
This decrease was driven by lower average gross debt balances during 2013, reflecting the amortisation of Pace’s
debt facility, which was fully repaid by 31 December 2013.
Profit before tax
Profit before tax increased by $50.7 million, or 63.3%, to $130.8 million for 2013 from $80.1 million for
2012. This increase was driven by higher operating profit, increased interest income and reduced interest
expense.
Tax charge
Tax charge increased by $12.4 million, or 57.1%, to $34.1 million for 2013 from $21.7 million for 2012.
This increase reflects the higher level of profit before tax partially offset by lower corporate tax rates in the UK.
Profit for the year
Profit for the year increased by $38.3 million, or 65.6%, to $96.7 million for 2013 from $58.4 million for
2012. This increase was driven by higher profit before tax, partially offset by an increase in the tax charge.
Financial Liquidity and Capital Resources
Pace’s principal sources of liquidity are its cash balances, short-term and long-term bank borrowings, and its
access to the equity markets. As of 31 December 2014, 31 December 2013 and 31 December 2012, Pace had
gross cash balances of $182.1 million, $33.0 million and $74.7 million, respectively, which were held as shortterm deposits or in current accounts with a number of banks and in a number of currencies, including the U.S.
Dollar, Euro, Sterling and Brazilian Real. As of 31 December 2014, 31 December 2013 and 31 December 2012,
Pace had net debt of $93.1 million, net cash of $33.0 million and net debt of $163.3 million, respectively.
As of 31 December 2014, Pace had in place a five-year term loan facility (the “Term Loan Facility”) and a
$150 million revolving credit facility (the “Revolving Facility” and, together with the Term Loan Facility, the
“Facilities”) with a group of nine banks under a credit agreement (the “Credit Agreement”) entered into on 12
December 2013. The Term Loan Facility amortises over five years from drawing (6 January 2014) and, as of 31
December 2014, had a balance of $279.0 million outstanding. As of 31 December 2014, Pace had no borrowings
outstanding under the Revolving Facility. The Credit
181
TABLE OF CONTENTS
Agreement contains customary provisions relating to voluntary and mandatory prepayment of the Facilities
(including on a change of control of Pace). The Credit Agreement contains certain representations, warranties,
undertakings and events of default which are usual for an agreement of this nature, including customary
negative covenants and specific financial covenants. Pace remains comfortably within the financial covenants
set out in the Credit Agreement.
In addition to the Facilities, Pace has entered into a Bi-lateral Bonding Facility (the “Bonding Facility”)
which covers bank guarantees, principally in respect of Duty and Deferment requirements, for example in
connection with the recovery of VAT in certain countries. The Bonding Facility covered $7.7 million of bank
guarantees at 31 December 2014.
As at 31 December 2014, all of Pace’s debt was denominated in U.S. dollars and subject to floating interest
rates.
Pace believes that its existing cash, committed facilities and the cash expected to be generated through its
operating activities will be sufficient to fund its operations for the next year. This assumption could prove to be
wrong if other factors, such as unexpectedly difficult trading conditions, adversely impact its ability to generate
cash.
Cash Flows
Year Ended 31 December
2014
2013
2012
(dollars in millions)
Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows from/used in financing activities
Net increase/(decrease) in cash and cash equivalents
274.0
(385.0 )
260.1
281.7
(72.7 )
(250.7 )
262.2
(95.2 )
(141.0 )
149.1
(41.7 )
26.0
​
Net Cash Flows from Operating Activities
Cash flows from operating activities in 2014, 2013 and 2012 mainly comprised Pace’s operating profits,
adjusted for non-cash items, including depreciation and amortisation, less tax and interest paid and movements
in working capital and provisions.
Net cash flows from operating activities was $274.0 million for 2014, representing a decrease of
$7.7 million, or 2.7%, from $281.7 million for 2013, reflecting a $23.2 million outflow from working capital and
provisions compared to a $56.9 million inflow from working capital and provisions in the prior year, which was
only partially offset by an increase in profit before tax of $44.9 million, a $16.4 million increase in non-cash
items and a $12.3 million reduction in tax paid. Within working capital, trade receivables increased by $420.5
million, or 99.4%, from $422.7 million in 2013 to $843.2 million in 2014, largely reflecting the phasing of
trading reflected in record fourth quarter revenue, which was partially offset by an increase of $352 million, or
74.4%, in trade payables from $473.4 million to $825.4 million also largely reflecting the phasing of trading.
Net cash flows from operating activities of $281.7 million for 2013 represented an increase of
$19.5 million, or 7.4%, from $262.2 million for 2012, reflecting an increase in profit before tax of $50.7 million,
which was partially offset by a $17.5 million reduction in non-cash items and an $11.9 million reduction in the
inflow from working capital and provisions.
Net Cash Used in Investing Activities
Cash flows from investing activities in 2014, 2013 and 2012 mainly comprised the acquisition of
subsidiaries, the acquisition of property, plant and equipment, development expenditure and interest received.
Net cash flows used in investing activities was $385.0 million for 2014, representing an increase of $312.3
million from $72.7 million for 2013, primarily reflecting a $295.3 million increase in cash flow used for the
acquisition of subsidiaries, net of cash acquired, following the acquisition of Aurora Networks.
182
TABLE OF CONTENTS
Net cash flows used in investing activities of $72.7 million for 2013 represented a decrease of
$22.5 million, or 23.6%, from $95.2 million for 2012, reflecting a reduction of $15.7 million in cash flow used
for the acquisition of subsidiaries, net of cash acquired, due to a deferred consideration payment made for the
acquisition of Latens Systems Limited in 2012, a reduction of $1.0 million in capital expenditure, a reduction
of $4.5 million in development expenditure and a $1.3 million increase in interest received.
Net Cash Generated from/(Used in) Financing Activities
Cash flows from financing activities in 2014, 2013 and 2012 mainly comprised the payment or drawdown
of borrowing facilities, proceeds from the issue of share capital and dividend payments to Pace equity
shareholders.
Net cash flows generated from financing activities were $260.1 million for 2014, an increase of
$510.8 million, or 203.8%, compared to net cash flows used in financing activities of $250.7 million for 2013.
The increase primarily reflected a $519.1 million increase in cash flows from the payment or drawdown of
borrowing facilities due to proceeds received during 2014 to fund the acquisition of Aurora Networks, compared
to repayment of previous bank facilities in 2013.
Net cash flows used in financing activities of $250.7 million for 2013 represented an increase of
$109.7 million, or 77.8%, compared to net cash flows used in financing activities of $141.0 million for 2012.
The increase primarily reflected a $105.1 million increase in cash flows used in the payment of borrowing
facilities following the repayment of bank facilities at the end of 2013.
Commitments and Contingencies
Following is a summary of Pace’s contractual obligations as of 31 December 2014:
Total
Payments due by period
Less than
1 year
1 – 3 years 3 – 5 years
More than
5 years ​
(dollars in millions)
Long-term debt obligations(1)
Operating lease obligations(2)
Purchase obligations(3)
(4)
Provisions
Total
279.0
38.8
100.7
139.5
—
32.4
8.7
11.2
7.2
5.3
936.4
936.4
—
—
—
132.1
1,379.9
31.5
1,015.4
100.0
211.9
0.6
147.3
—
5.3
(1) Long-term debt obligations represent the obligations associated with the Facilities.
(2) Pace’s operating lease obligations relate to leases of properties Pace uses in its business.
(3) Purchase obligations represent contractual obligations arising from purchase orders for which Pace has
made firm commitments, and other contractual obligations to purchase goods or services that is enforceable
and legally binding on the company that specifies all significant terms including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction.
(4) Provisions relate to royalties under negotiation, warranties and other items including retirement and
exceptional restructuring provisions.
Off-Balance Sheet Arrangements
Pace has no off-balance sheet arrangements.
Dividend
Pace has proposed or paid dividends for 2014 of 7.00 cents per share, representing an increase of 27.5%
over 2013. Pace paid dividends for 2013 of 5.49 cents per share, representing an increase of 22% over 2012.
183
TABLE OF CONTENTS
Critical Accounting Policies and Significant Estimates
Pace’s most significant accounting policies, judgments and estimates are set out in its audited consolidated
financial statements included elsewhere in this proxy statement/prospectus. The preparation of financial
statements in conformity with IFRS requires management to make judgments, estimates and assumptions that
affect the application of policies and reported amounts of assets and liabilities, income and expenses. Where
estimates and associated assumptions are made they are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making the
judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from the estimates calculated using these judgments and assumptions. The estimates and
underlying assumptions are reviewed on an ongoing basis. Key areas of estimation uncertainty and critical
accounting judgments are set out below.
Warranty Provisions
Pace provides product warranties for its products. Although it is difficult to make accurate predictions of
potential failure rates or the possibility of an epidemic failure, as a warranty estimate must be calculated at the
outset of a product before field deployment data is available, these estimates improve during the lifetime of the
product in the field.
A provision for warranties is recognised when the underlying products are sold. The provision is based on
historical warranty data and a weighting of all possible outcomes against their associated probabilities. The
level of warranty provision required is reviewed on a product by product basis and provisions are adjusted
accordingly in the light of actual performance.
Royalty Provisions
Pace’s products incorporate third party technology, usually under licence. Inadvertent actions may expose
Pace to the risk of infringing third-party intellectual property rights. Potential claims can still be submitted many
years after a product has been deployed. Any such claims are always vigorously defended.
Provisions for royalty claims are recognised when it is considered more likely than not that an outflow of
economic resources will be required to settle a claim that has resulted from the sale of a product allegedly using
technology of a patent owner, and the amount of the outflow can be reliably measured. The directors have made
provision for the potential royalty payable based on the latest information available, which represents the best
estimate of the expenditure required to settle the present obligation. Having taken legal advice, the board of
directors considers that there are defences available that should mitigate the amounts being sought. Pace will
vigorously negotiate or defend all claims but, in the absence of agreement, the amounts provided may prove to
be different from the amounts at which the potential liabilities are finally settled.
Impairment Reviews
As is required by International Accounting Standards, Pace carries out impairment reviews of its nonfinancial assets on an annual basis, or when indicators of impairment exist. Such reviews involve assessing the
value in use of an asset or cash-generating unit by reference to its estimated future cash flows, discounted to their
present value. The judgements in relation to impairment reviews relate to the assumptions applied in calculating
the value in use, and the future performance expectations.
Intangible Assets — Capitalised Development Costs
Pace’s business includes a significant element of research and development activity. Under accounting
standards, principally IAS 38 “Intangible Assets,” there is a requirement to capitalise and amortise development
spend to match costs to expected benefits from projects deemed to be commercially viable. The application of
this policy involves the ongoing consideration by management of the forecasted economic benefit from such
projects compared to the level of capitalised costs, together with the selection of amortisation periods
appropriate to the life of the associated revenues from the product.
184
TABLE OF CONTENTS
Acquisition Accounting
As part of the accounting for business combinations it is necessary to perform a purchase price allocation
exercise to identify appropriate categories of intangible assets that have been purchased. Such an exercise
involves judgement with regard to the types of assets identified, the value of those assets and the useful
economic lives applied with regard to amortisation rates. The amounts recognised are calculated by reference to
management forecasts and assumed discount rates, obsolescence curves and attrition rates.
For significant acquisitions, whilst the board of directors use appropriate qualified independent valuation
advisors to assist in the purchase price allocation work, the exercise inherently requires significant judgement
and estimation to be taken.
Recent IFRS Accounting Pronouncements
New and Amended Standards Adopted by Pace
Pace adopted the following new standards and amendments for the first time in its 2014 consolidated
financial statements. Unless otherwise stated, they have not had a material impact on the financial statements.
•
Amendments to IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’;
•
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27);
•
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36); and
•
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39).
New Standards, Amendments and Interpretations Issued but not Effective and Not Early Adopted
The following standards have been issued but have not been applied by Pace in its 2014 consolidated
financial statements. Their adoption is not expected to have a material effect on the financial statements unless
otherwise indicated:
•
Annual improvement cycles 2010-2012 and 2011-2013 (mandatory for year ending
31 December 2015);
•
IFRS 14 Regulatory Deferral Accounts (mandatory for year ending 31 December 2016);
•
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (mandatory for
year ending 31 December 2016);
•
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation (mandatory
for year ending 31 December 2016);
•
Amendments to IAS 16 and IAS 41: Bearer plants (mandatory for year ending 31 December 2016);
•
Amendments to IAS 27: Equity method in separate financial statements (mandatory for year ending 31
December 2016);
•
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets (mandatory for year ending 31
December 2016);
•
Amendments to IFRS 10, IFRS 12 and IAS 28: Applying the Consolidation Exemption (mandatory for
year ending 31 December 2016);
•
Annual improvement cycles 2012-2014 (mandatory for year ending 31 December 2016);
•
IFRS 15 Revenue from contracts with customers (mandatory for year ending 31 December 2017, with
current exposure draft proposing further deferral to 31 December 2018). This standard may affect the
accounting for certain contracts and will impose greater disclosure requirements on all companies.
Pace is currently considering the impact of this standard; and
185
TABLE OF CONTENTS
•
IFRS 9 Financial Instruments (mandatory for year ending 31 December 2018). This standard will
determine a new framework for the measurement of financial instruments. Pace is currently considering
the impact of this standard.
Quantitative and Qualitative Disclosures About Market Risk
Pace’s multinational operations expose it to different financial risks, including foreign exchange rate risks,
credit and liquidity risks, and interest rate risks. These market risks may adversely affect Pace’s results of
operations and financial condition. Pace has a risk management program in place which seeks to limit the impact
of these risks on its financial performance as explained below.
Pace has determined policies for managing these risks in a non-speculative manner. Additional information
in relation to these risks, including relative sensitivity analyses, is provided in Note 17 of Pace’s audited
consolidated financial statements, presented elsewhere in this proxy statement/prospectus.
Foreign Exchange Risk
Pace’s principal currency exposures are to fluctuations between the U.S. Dollar and Sterling and between
the U.S. Dollar and the Euro. Pace’s treasury policy is to progressively hedge cash flows when they are
sufficiently certain and to seek price variations through contractual mechanisms.
During 2014, the average exchange rate for the U.S. Dollar against Sterling weakened by 5.8% in
comparison to the average exchange rate for the U.S. Dollar against Sterling in 2013. A 5.8% strengthening in
the average exchange rate for the U.S. Dollar against Sterling for 2014 would have resulted in increased profit
reported for the year by nil million. This analysis assumes that all other variables remain constant. A 5.8%
weakening in the average exchange rate for the U.S Dollar against Sterling would have an equal but opposite
effect.
During 2014, the average exchange rate for the U.S. Dollar against the Euro remained constant at 1.33 in
comparison to the average exchange rate for the U.S. Dollar against the Euro in 2013. A 1.0% strengthening in
the average exchange rate for the U.S. Dollar against the Euro for 2014 would have resulted in increased profit
reported for the year by nil million. This analysis assumes that all other variables remain constant. A 1.0%
weakening in the average exchange rate for the U.S Dollar against the Euro would have an equal but opposite
effect.
Pace uses derivative contracts to hedge forward progressively against movements in the value of foreign
currencies, in respect of cash receipts and payments expected from transactions over the next twelve months.
Pace’s derivative contracts qualify for hedge accounting and had a fair value of $4.4 million at
31 December 2014.
Credit and Liquidity Risk
Pace’s credit risk is primarily attributable to its trade debtors. Credit risk is managed by monitoring the
aggregate amount and duration of exposure to any one customer depending upon their credit rating. Pace does
not require collateral in respect of financial assets. There were no significant impairments in the years ended 31
December 2014, 31 December 2013 or 31 December 2012.
Pace’s credit risk on liquid funds is limited because counterparties are banks with high credit ratings.
The carrying value of financial assets represents the maximum credit exposure. The maximum exposure at
the balance sheet date as of 31 December 2014 was $1,030.6 million, representing the total trade receivables,
cash and cash equivalents and assets relating to forward exchange contracts used for hedging in the balance
sheet.
Details of Pace’s credit risk are set out in Note 17 of Pace’s financial statements presented elsewhere in this
proxy statement/prospectus.
Liquidity risk is the risk that Pace will not be able to meet its financial obligations as they fall due. Details
of the maturity of Pace’s financial liabilities are set out in Note 17 of Pace’s financial statements presented
elsewhere in this proxy statement/prospectus.
186
TABLE OF CONTENTS
Interest Rate Risk
Pace is subject to fluctuations on its loans and surplus cash deposits. More details of the interest rate profile
of Pace’s interest bearing financial instruments and a related sensitivity analysis are set out in Note 17 of Pace’s
financial statements presented elsewhere in this proxy statement/prospectus.
187
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS OF PACE
Audited Financial Statements for the Years ended December 31, 2014, 2013 and 2012
Independent auditor’s report
Consolidated income statement
F-2
F-3
Consolidated statement of comprehensive income
F-4
Consolidated balance sheet
F-5
Statements of changes in shareholders’ equity
F-6
Consolidated statement of cash flows
F-7
Notes to the financial statements
F-8
F-1
TABLE OF CONTENTS
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Pace plc:
We have audited the accompanying consolidated balance sheet of Pace plc and its subsidiaries as of
31 December 2014 and 31 December 2013 and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for the years ended 31 December 2014, 31 December
2013 and 31 December 2012.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Pace plc and its subsidiaries as of 31 December 2014 and 31 December 2013
and the results of their operations and cash flows for the years ended 31 December 2014, 31 December 2013 and
31 December 2012 in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
(signed) KPMG LLP
Leeds, United Kingdom
2 July 2015
F-2
TABLE OF CONTENTS
Consolidated Income Statement
(in millions of dollars, except per share data)
Years Ended December 31
Revenue
Cost of sales
Gross profit
Administrative expenses:
Research and development expenditure
Amortisation of development expenditure
Other administrative expenses:
Before exceptional costs
Exceptional costs
Amortisation of other intangibles
2014
2013
2012
3
2,620.0
(2,087.5 )
2,469.2
(2,021.0 )
2,403.4
(1,970.4 )
532.5
448.2
10
(83.7 )
(45.4 )
(87.0 )
(45.6 )
(101.1 )
(54.3 )
4
10
(162.3 )
(7.3 )
(52.9 )
(122.0 )
(12.2 )
(42.6 )
(119.5 )
(12.5 )
(51.8 )
(351.6 )
(309.4 )
(339.2 )
180.9
2.5
(7.7 )
138.8
1.8
(9.8 )
93.8
0.5
(14.2 )
175.7
130.8
(27.7 )
(34.1 )
(21.7 )
148.0
96.7
58.4
148.0
96.7
58.4
Total administrative expenses
Operating profit
Finance income – interest receivable
Finance expenses – interest payable
5
5
Profit before tax
Tax charge
​
Notes
7
Profit for the year
433.0
80.1
Profit attributable to:
Equity holders of the Company
Earnings per ordinary share
Basic earnings per ordinary share (cents)
8
47.4
31.2
19.4
Diluted earnings per ordinary share (cents)
8
45.6
29.8
18.5
F-3
​
TABLE OF CONTENTS
Consolidated Statement of Comprehensive Income
(in millions of dollars, except per share data)
Years Ended December 31
Profit for the year
Other comprehensive income:
Items that are or may be subsequently reclassified to profit and loss:
Exchange differences on translation of foreign operations
Net change in fair value of cash flow hedges transferred to profit or loss,
gross of tax
2014
2013
2012
148.0
96.7
58.4
(19.7 )
(4.8 )
(2.7 )
2.3
(2.7 )
(11.2 )
Deferred tax adjustment on above
Effective portion of changes in fair value of cash flow hedges, gross of
tax
(0.4 )
0.7
3.0
2.7
4.7
4.9
Deferred tax adjustment on above
(0.4 )
(1.2 )
(1.3 )
Other comprehensive income for the year, net of tax
(15.5 )
(3.3 )
(7.3 )
Total comprehensive income for the year
132.5
93.4
51.1
Attributable to:
Equity holders of the Company
132.5
93.4
51.1
F-4
​
TABLE OF CONTENTS
Consolidated Balance Sheet
(in millions of dollars, except per share data)
Notes
Assets
Non-current assets
Property, plant and equipment
Intangible assets – goodwill
Intangible assets – other intangibles
Intangible assets – development expenditure
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax assets
Total current assets
Total assets
Equity
Issued capital
Share premium
Merger reserve
Hedging reserve
Translation reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Deferred tax liabilities
Provisions
Borrowings
As Of 31 December
2014
2013
​
​
​11
​10
​10
​10
​12
​
29.1
85.1
109.9
4.0
(79.3 )
518.3
667.1
​12
​18
​16
89.7
100.6
237.8
60.0
342.6
123.1
64.4
21.2
611.3
​
156.8
468.7
33.0
1.3
659.8
1,271.1
​
29.0
83.7
109.9
(0.2 )
(59.6 )
384.2
547.0
​
​
56.3
60.3
—
​
428.1
116.6
​15
934.6
23.5
31.5
37.4
​
567.1
8.5
31.9
—
607.5
​
​13
​14
​
​
​
​
​19
​20
​21
​
​21
​22
Total non-current liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Borrowings
​
​18
​16
63.2
471.1
208.2
85.0
31.2
858.7
168.0
909.1
182.1
4.3
1,263.5
2,122.2
Total current liabilities
​
1,027.0
Total liabilities
​
1,455.1
724.1
Total equity and liabilities
​
2,122.2
1,271.1
F-5
​
​
TABLE OF CONTENTS
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended 31 December 2014, 2013 and 2012
(in millions of dollars, except per share data)
Balance at January 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners:
Dividends to equity shareholders
Employee share incentive charges
Issue of shares
Balance at December 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners:
Dividends to equity shareholders
Employee share incentive charges
Issue of shares
Balance at December 2013
Share
capital
Share
premium
Merger
reserve
Hedging
reserve
Translation Retained
Total
reserve
​ earnings ​ ​ equity ​
28.3
—
—
73.1
—
—
109.9
—
—
2.9
—
(4.6 )
(52.1 )
—
(2.7 )
245.0
58.4
—
407.1
58.4
(7.3 )
—
—
—
(4.6 )
(2.7 )
58.4
51.1
—
—
0.4
—
—
5.9
—
—
—
—
—
—
—
—
—
(12.3 )
7.9
—
(12.3 )
7.9
6.3
28.7
—
—
79.0
—
—
109.9
—
—
—
—
—
—
0.3
(1.7 )
—
1.5
(54.8 )
—
(4.8 )
299.0
96.7
—
460.1
96.7
(3.3 )
—
1.5
(4.8 )
96.7
93.4
—
—
4.7
—
—
—
—
—
—
—
—
—
(15.6 )
4.1
—
(15.6 )
4.1
5.0
384.2
547.0
148.0
148.0
29.0
83.7
109.9
Profit for the year
—
—
—
(0.2 )
—
(59.6 )
Other comprehensive income
—
—
—
4.2
(19.7 )
—
Total comprehensive income for the year
—
—
—
4.2
(19.7 )
148.0
132.5
—
—
—
—
—
(18.7 )
(18.7 )
—
(15.5 )
Transactions with owners:
Dividends to equity shareholders
Employee share incentive charges
Issue of shares
Purchase of own shares by employee
benefit trust
Balance at December 2014
—
—
—
—
—
6.5
6.5
0.1
1.4
—
—
—
—
1.5
—
—
—
—
—
(1.7 )
(1.7 )
29.1
85.1
109.9
4.0
F-6
(79.3 )
518.3
667.1
TABLE OF CONTENTS
Consolidated Statement of Cash Flows
(in millions of dollars)
Years Ended 31 December
Cash flows from operating activities
Profit before tax
Adjustments for:
Share-based payments charge
Depreciation of property, plant and equipment
Amortisation of development expenditure
Amortisation of other intangible assets
Loss on sale of property, plant and equipment
Net finance expense
Movement in trade and other receivables
Movement in trade and other payables
Movement in inventories
Movement in provisions
2014
2013
175.7
130.8
2012
80.1
6.5
29.0
45.4
52.9
0.1
5.2
(383.4 )
329.2
31.7
(0.7 )
4.1
25.0
45.6
42.6
0.2
8.0
85.5
(67.2 )
24.2
14.4
7.9
21.0
54.3
51.8
—
13.7
(162.3 )
258.5
(33.0 )
5.6
Cash generated from operations
Interest paid
Tax paid
291.6
(6.1 )
(11.5 )
313.2
(7.7 )
(23.8 )
297.6
(11.6 )
(23.8 )
Net cash generated from operating activities
274.0
281.7
262.2
(295.3 )
(26.0 )
—
(21.6 )
(15.7 )
(22.6 )
(66.2 )
(52.9 )
(57.4 )
2.5
1.8
0.5
(72.7 )
(95.2 )
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Development expenditure
Interest received
Net cash used in investing activities
(385.0 )
Cash flows from financing activities
Proceeds from external borrowings
310.0
Repayment of external borrowings
(31.0 )
Proceeds from issue of share capital
1.5
5.0
6.3
(18.7 )
(15.6 )
(12.3 )
Dividend paid
Purchase of own shares by employee benefit trust
(1.7
Net cash generated from/(used in) financing activities
260.1
Net change in cash and cash equivalents
—
)
(240.1 )
—
—
(135.0 )
—
(250.7 )
(141.0 )
149.1
(41.7 )
26.0
Cash and cash equivalents at the start of the year
33.0
74.7
48.7
Cash and cash equivalents at the end of the year
182.1
33.0
74.7
F-7
​
TABLE OF CONTENTS
NOTES
1.
Basis of Preparation and Business Environment
The following accounting policies have been applied consistently in dealing with items that are considered
material in relation to the Financial Statements:
Basis of Preparation
The Financial Statements have been prepared in accordance with applicable accounting standards and
under the historical cost convention as modified by the revaluation of derivative instruments. The financial
information for the years ended 31 December 2014, 31 December 2013 and 31 December 2012 was approved on
2 July 2015.
International Financial Reporting Standards
The financial statements are rounded to the nearest thousand pounds and have been prepared and approved
by the Directors in accordance with International Financial Reporting Standards issued by the International
Accounting Standards Board (‘IASB’).
The information for the years ended 31 December 2014, 31 December 2013 and 31 December 2012 do not
constitute the company’s statutory accounts for the years ended 31 December 2014, 31 December 2013 or
31 December 2012, but are derived from those accounts. Statutory accounts for those years have been delivered
to the registrar of companies. The auditor has reported on those accounts; their reports were (i) unqualified,
(ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act
2006.
Going Concern
The Group has borrowing facilities in place until January 2019. At 31 December 2014 these are in the form
of a $310 million term loan, which is subject to repayment through instalments every six months plus a final
payment, and a $150 million revolving credit facility. These facilities are subject to financial performance
covenants which the Group currently complies with.
The Group has prepared a financial and working capital forecast based upon trading assumptions and other
short-term and medium-term plans. The Group has sensitised these plans for a number of potential scenarios,
including working capital management and revenue reduction, and has concluded that the Group will continue
to meet its financial performance covenants and will have adequate working capital available to continue in
operational existence for the foreseeable future.
Basis of Consolidation
The Group Financial Statements consolidate those of the Company and of its subsidiary undertakings.
Subsidiaries are entities that the Company has power over, exposure or rights to variable returns and an ability to
use its power to affect those returns. Intra-group transactions, including sales, profits, receivables and payables,
have been eliminated on the Group consolidation. Investments in subsidiaries are carried at cost less any
impairment loss in the Financial Statements of the Company.
Functional and Presentational Currency
Items included in the Financial Statements of each of the Group’s entities are measured using the currency
of the primary economic environment in which the entity operates (the functional currency). The consolidated
Financial Statements are presented in US Dollars which is the Group’s functional and presentational currency.
The US Dollar/Pound Sterling exchange rate at 31 December 2014 was 1.56, at 31 December 2013 was 1.64
and at 31 December 2012 was 1.62.
F-8
TABLE OF CONTENTS
Significant Judgements, Key Assumptions and Estimation Uncertainty
The Group’s main accounting policies affecting its results of operations and financial condition are set out
on pages F-10 to F-16. Judgements and assumptions have been required by management in applying the Group’s
accounting policies in many areas. Actual results may differ from the estimates calculated using these
judgements and assumptions. Key areas of estimation uncertainty and critical accounting judgements are as
follows:
Warranty Provisions
Pace provides product warranties for its products. Although it is difficult to make accurate predictions of
potential failure rates or the possibility of an epidemic failure, as a warranty estimate must be calculated at the
outset of a product before field deployment data is available, these estimates improve during the lifetime of the
product in the field.
A provision for warranties is recognised when the underlying products are sold. The provision is based on
historical warranty data and a weighting of all possible outcomes against their associated probabilities. The
level of warranty provision required is reviewed on a product by product basis and provisions are adjusted
accordingly in the light of actual performance.
Royalty Provisions
Pace’s products incorporate third party technology, usually under licence. Inadvertent actions may expose
Pace to the risk of infringing third party intellectual property rights. Potential claims can still be submitted many
years after a product has been deployed. Any such claims are always vigorously defended.
Provisions for royalty claims are recognised when it is considered more likely than not that an outflow of
economic resources will be required to settle a claim that has resulted from the sale of a product allegedly using
technology of a patent owner, and the amount of the outflow can be reliably measured. The directors have made
provision for the potential royalty payable based on the latest information available, which represents the best
estimate of the expenditure required to settle the present obligation. Having taken legal advice, the Board
considers that there are defences available that should mitigate the amounts being sought. The Group will
vigorously negotiate or defend all claims but, in the absence of agreement, the amounts provided may prove to
be different from the amounts at which the potential liabilities are finally settled.
Impairment Reviews
As is required by International Accounting Standards, the Group carries out impairment reviews of its nonfinancial assets on an annual basis, or when indicators of impairment exist. Such reviews involve assessing the
value in use of an asset or cash-generating unit (CGU) by reference to its estimated future cash flows, discounted
to their present value. The judgements in relation to impairment reviews relate to the assumptions applied in
calculating the value in use, and the future performance expectations.
Intangible Assets — Capitalised Development Costs
The Group business includes a significant element of research and development activity. Under accounting
standards, principally IAS 38 ‘Intangible Assets’, there is a requirement to capitalise and amortise development
spend to match costs to expected benefits from projects deemed to be commercially viable. The application of
this policy involves the ongoing consideration by management of the forecasted economic benefit from such
projects compared to the level of capitalised costs, together with the selection of amortisation periods
appropriate to the life of the associated revenues from the product.
Acquisition Accounting
As part of the accounting for business combinations it is necessary to perform a purchase price allocation
exercise to identify appropriate categories of intangible assets that have been purchased. Such an exercise
involves judgement with regard to the types of assets identified, the value of those assets and the useful
economic lives applied with regard to amortisation rates. The amounts recognised are calculated by reference to
management forecasts and assumed discount rates, obsolescence curves and attrition rates.
F-9
TABLE OF CONTENTS
For significant acquisitions, whilst the Directors use appropriate qualified independent valuation advisors
to assist in the purchase price allocation work, the exercise inherently requires significant judgement and
estimation to be taken.
2.
Accounting Policies
Business Combinations
Subsidiaries are entities that the Company has power over, exposure or rights to variable returns and an
ability to use its power to affect those returns. The acquisition date is the date on which control is transferred to
the acquirer. Judgement is applied in determining the acquisition date and determining whether control is
transferred from one party to another.
Goodwill
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets.
Initial Measurement
The Group measures goodwill as the fair value of the consideration transferred including the recognised
amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of
the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Consideration
transferred includes the fair values of the assets transferred, liabilities incurred by the Group to the previous
owners of the acquiree and equity interests issued by the Group. Consideration transferred also includes the fair
value of any contingent consideration and share-based payment awards of the acquiree that are replaced
mandatorily in the business combination. If a business combination results in the termination of pre-existing
relationships between the Group and the acquiree, then the lower of the termination amount, as contained in the
agreement, and the value of the off-market element is deducted from the consideration transferred and
recognised in other expenses.
A contingent liability of the acquiree is assumed in a business combination only if such a liability
represents a present obligation and arises from a past event and its fair value can be measured reliably.
The Group measures any non-controlling interest at its proportionate interest in the identifiable net assets of
the acquiree. Transaction costs that the Group incurs in connection with a business combination, such as finder’s
fees, legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investees,
the carrying amount of goodwill is included in the carrying amount of the investment and an impairment loss on
such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of
the equity accounted investee.
As permitted by IFRS 1 ‘First-time Adoption of IFRS’, goodwill arising on acquisitions before 29 May 2004
(date of transition to IASB) has been frozen at the UK GAAP amounts subject to being tested for impairment
annually. The Group performs its annual impairment review at the cash-generating unit level.
Other Intangibles
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost
less accumulated amortisation and accumulated impairment losses.
F-10
TABLE OF CONTENTS
Amortisation of other intangibles is done on a straight-line basis over the estimated useful economic lives
of the particular asset categories as follows:
Customer contracts and relationships
Technology and patents
Other
three to ten years
one to ten years
three years
Research and Development Expenditure
All ongoing research expenditure is expensed in the period in which it is incurred. Where a product is
technically feasible, production and sales are intended, a market exists and sufficient resources are available to
complete the project, development costs are capitalised and subsequently amortised on a straight-line basis over
the estimated useful life of the product concerned from commercial launch. The expenditure capitalised includes
the cost of materials, direct labour and an appropriate proportion of overheads. Where these conditions are not
met, development expenditure is recognised as an expense in the period in which it is incurred. Capitalised
development expenditure is stated at cost less accumulated amortisation and impairment losses. The estimated
useful lives for development expenditure are estimated to be in a range of between six and thirty months.
Capitalised development expenditure is not treated as a realised loss for the purpose of determining the
Company’s distributable profits as the costs meet the conditions required to be treated as an asset in accordance
with IAS 38.
The amortisation of capitalised development expenditure is charged to the income statement in research
and development expenditure within the Administrative expenses category.
Impairment Charges
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have
indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the
same time. An impairment loss is recognised if the carrying amount of an asset or its related CGU exceeds its
estimated recoverable amount.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset or CGU. For the purpose of impairment testing, CGUs to which goodwill has been allocated are aggregated
so that the level at which impairment testing is performed reflects the lowest level at which goodwill is
monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of
CGUs that are expected to benefit from the synergies of the combination.
The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU.
Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of
the testing of the CGU to which the corporate asset is allocated. Impairment losses are recognised in profit or
loss. Any impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of
any goodwill allocated to the CGU and then to reduce the carrying amounts of the assets in the CGU on a prorata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
F-11
TABLE OF CONTENTS
Exceptional Items
Items that are significant by virtue of their size or nature and that are considered non-trading are classified
as exceptional operating items. Such items which include for instance the costs of opening or closing premises,
costs of significant restructuring and profits and losses made on the disposal of properties, are included within
the appropriate consolidated income statement category, albeit analysed as a separate line within that category,
and are highlighted separately in the Notes to the Financial Statements. Exceptional operating items are
excluded from the profit measures used by the Board to monitor underlying performance.
Revenue Recognition
Revenue comprises the value of sales of goods and services to third party customers occurring in the period,
stated exclusive of value added tax and net of trade discounts and rebates.
Revenue on the sale of goods is recognised when substantially all of the risks and rewards in the product
have passed to the customer and substantially all of the Group’s work is completed, which is usually upon
delivery to the customer or his/her agent. The Group does not recognise revenue before delivery has occurred,
the risks and rewards of ownership have been transferred to the customer, the amount of revenue can be measured
reliably and collection of the related receivable is reasonably assured. The determination of whether the amount
of revenue can be measured reliably or whether receivables are collectible is inherently judgemental.
Revenue in respect of services rendered, including engineering consultancy and support and software
services, is recognised over the period over which they are performed, in relation to the level of work undertaken
and any future obligations remaining.
Finance Income and Finance Costs
Finance income comprises interest income on funds invested and dividend income. Interest income is
recognised as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest
expense on borrowings and impairment losses recognised on financial assets. Borrowing costs that are not
directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit
or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis.
Government Grants
Grants in respect of specific research and development projects are credited to research and development
costs within the income statement or against the capitalised development expenditure as appropriate to match to
the project’s related expenditure.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and call deposits. The Company considers all highly
liquid investments with original maturity dates of three months or less to be cash equivalents. Bank overdrafts
that are repayable on demand and form an integral part of the Group’s cash management system are included as a
component of cash and cash equivalents for the purpose of the statement of cash flows.
Allowance for Doubtful Debts
Trade receivables are assessed individually for impairment, or collectively where the receivables are not
individually significant. Where necessary, provisions for doubtful debts are recorded in the income statement.
Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is determined on a first-in-first-out
basis and includes appropriate transport and handling costs but excludes royalties due only on ultimate sale.
Where necessary, provision is made for obsolete, slow-moving and defective inventory.
F-12
TABLE OF CONTENTS
Property, Plant and Equipment
The cost of items of property, plant and equipment is its purchase cost, together with any incidental costs of
acquisition.
Depreciation is calculated so as to write off, on a straight-line basis over the expected useful economic lives
of the asset concerned, the cost of property, plant and equipment, less any estimated residual values, which are
adjusted, if appropriate, at each balance sheet date. The principal economic lives used for this purpose are:
Long leasehold properties
Short leasehold properties
Plant and machinery
Period of lease
Period of lease
One to ten years
Motor vehicles
Four years
Provision is made against the carrying value of items of property, plant and equipment where an impairment
in value is deemed to have occurred.
Leased Assets
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are
classified as finance leases. Assets held under finance leases and hire purchase contracts are capitalised in the
balance sheet and depreciated over their expected useful lives. The interest element of leasing payments
represents a constant proportion of the capital balance outstanding and is charged to the income statement over
the period of the lease.
All other leases are regarded as operating leases and the payments made under them are charged to the
income statement on a straight-line basis over the lease term.
Foreign Currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange
rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income
statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at
foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation, are translated to the Group’s presentational currency at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year
where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange
differences arising from this translation of foreign operations are taken directly to the translation reserve. When a
foreign operation is disposed of such that control is lost, the cumulative amount in the translation reserve is
reclassified to the income statement as part of the gain or loss on disposal.
Derivative Financial Instruments
The Group uses derivative financial instruments, usually forward foreign exchange contracts, to hedge its
exposure to foreign exchange risks arising from operational, financing and investment activities. In accordance
with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.
The directors have determined that the instruments qualify for cash flow hedge accounting.
Derivative financial instruments are classified as cash flow hedges when they hedge the Group’s exposure
to variability in cash flows that are either attributable to a particular risk associated with a recognised asset or
liability, or a highly probable forecast transaction.
F-13
TABLE OF CONTENTS
Derivatives are reviewed quarterly for effectiveness. Where a derivative financial instrument is designated
as a hedge of the variability in cash flows of a recognised asset or liability, or highly probable forecast
transaction, the effective part of any gain or loss on the movement in fair value of the derivative financial
instrument is recognised directly in equity.
The gain or loss on any ineffective part of the hedge is immediately recognised in the income statement
within finance income/costs. If a hedge of a forecast transaction subsequently results in the recognition of a
financial asset or liability, the associated cumulative gains or losses that were recognised directly in equity are
reclassified into the income statement when the transaction occurs.
Trade Receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less provision for impairment. A provision for impairment of trade receivables is
established when there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of the receivable.
Trade Payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.
Taxes
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or
recovered) using the tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided using the balance sheet liability method, providing where relevant for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is measured using the tax rates that have been enacted or
substantively enacted by the balance sheet date and are expected to apply when the asset is realised or the
liability settled.
A net deferred tax asset is recognised only when it is probable that sufficient taxable profits will be
available in the foreseeable future from which the reversal of the temporary differences can be deducted.
Share-Based Payments
The grant date fair value of share-based payment awards granted to employees is recognised as an employee
expense, with a corresponding increase in equity, over the period that the employees unconditionally become
entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that meet the related service and nonmarket performance conditions at the vesting date. For share-based payment awards with non-vesting
conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there
is no true-up for differences between expected and actual outcomes.
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled
in cash, is recognised as an expense with a corresponding increase in liabilities over the period that the
employees unconditionally become entitled to payment. The liability is re-measured at each reporting date and
at settlement date. Any changes in the fair value of the liability are recognised as personnel expenses in profit or
loss.
Employee Share Ownership Plans
The material assets, liabilities, income and costs of the Pace plc Employee Benefits Trust are treated as
being those of the Company. Until such time as the Company’s own shares vest unconditionally with
employees, the consideration paid for the shares is deducted in arriving at equity.
F-14
TABLE OF CONTENTS
Employee Benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the
income statement as incurred. The Group has no defined benefit arrangements in place.
Interest-bearing Borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective
interest method, less any impairment losses.
Equity Instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Dividends Payable
Distributions to equity holders are disclosed as a component of the movement in shareholders’ equity. A
liability is recorded for a final dividend when the dividend is approved by the Company’s shareholders and, for
an interim dividend, when the dividend is paid.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive
obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to
settle the obligation.
Royalty Provisions
Provisions for royalty claims, which include legal costs allowable under IFRS, are recognised when it is
considered more likely than not that an outflow of economic resources will be required to settle a claim that has
resulted from the sale of a product allegedly using technology of a patent owner, and the amount of the outflow
can be reliably measured. The directors have made provision for the potential royalty payable based on the latest
information available, which represents the best estimate of the expenditure required to settle the present
obligation.
Warranty Provisions
A provision for warranties is recognised when the underlying products or services are sold. The provision is
based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.
The level of warranty provision required is reviewed on a product by product basis and provisions are adjusted
accordingly in the light of actual performance.
Restructuring
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring
plan and the restructuring has either commenced or has been announced publicly. Provisions are not recognised
for future operating losses.
Contingent Liabilities
A contingent liability is a possible obligation that arises from past events whose existence will be
confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the
Group or a present obligation that is not recognised because it is not probable that an outflow of resources will
be required to settle the obligation. A contingent liability also arises in where there is a liability that cannot be
recognised because it cannot be measured reliably. The Group does not recognise a contingent liability but
discloses its existence in the financial statements.
F-15
TABLE OF CONTENTS
Changes in Accounting Policy and Disclosures
New and Amended Standards Adopted by the Group
The Group has adopted the following new standards and amendments for the first time. Unless otherwise
stated, they have not had a material impact on the financial statements.
•
Amendments to IAS 32 ‘Offsetting Financial Assets and Financial Liabilities’
•
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
•
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS36)
•
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS39)
New Standards, amendments and interpretations issued but not effective for the financial year beginning
1 January 2014 and not early adopted
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial
statements. Their adoption is not expected to have a material effect on the financial statements unless otherwise
indicated:
3.
•
Annual improvement cycles 2010 – 2012 and 2011 – 2013 (mandatory for year ending
31 December 2015).
•
IFRS 14 Regulatory Deferral Accounts (mandatory for year ending 31 December 2016).
•
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (mandatory for
year ending 31 December 2016).
•
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation (mandatory
for year ending 31 December 2016).
•
Amendments to IAS 16 and IAS 41: Bearer plants (mandatory for year ending 31 December 2016).
•
Amendments to IAS 27: Equity method in separate financial statements (mandatory for year ending
31 December 2016).
•
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets (mandatory for year ending 31
December 2016).
•
Amendments to IFRS10, IFRS12 and IAS28: Applying the Consolidation Exemption (mandatory for
year ending 31 December 2016).
•
Annual improvement cycles 2012 – 2014 (mandatory for year ending 31 December 2016).
•
IFRS 15 Revenue from contracts with customers (mandatory for year ending 31 December 2017 with
current exposure draft proposing further deferral to 31 December 2018). This standard may affect the
accounting for certain contracts and will impose greater disclosure requirements on all companies. The
Group is currently considering the impact of this standard.
•
IFRS 9 Financial Instruments (mandatory for year ending 31 December 2018). This standard will
determine a new framework for the measurement of financial instruments. The Group is currently
considering the impact of this standard.
Segmental Analysis
In accordance with IFRS 8 ‘Operating Segments’, the chief operating decision-maker (CODM) has been
identified as the Board of Directors which reviews internal monthly management reports, budget and forecast
information to evaluate the performance of the business and make decisions.
The Group determines operating segments on the basis of SBU areas, being the basis on which the Group
manages its worldwide interests.
F-16
TABLE OF CONTENTS
During the year ended 31 December 2014 the Group created a new SBU named Pace Networks, which
contains the Aurora Networks Inc business acquired in 2014. In addition, certain other activities were
restructured and split out across the Pace International and Pace Americas SBUs.
The Group has the following operating segments which are also reportable segments for the purpose of IFRS
8:
•
Pace Americas;
•
Pace International; and
•
Pace Networks.
Other amounts include unallocated central costs that are not classified as reportable segments under IFRS 8.
Pace adopted its current operating segmental presentation in the year ended 31 December 2014. The opening
segment presentation for the years ended 31 December 2013 and 2012 have been restated to conform to this
presentation.
Performance is measured based on segmental adjusted EBITA, as included in the internal management
information which is reviewed by the CODM. Adjusted EBITA is used to measure performance as management
believes that such information is the most relevant in evaluating the results of certain segments, relative to other
entities that operate within these industries.
Revenues disclosed below materially represent revenues to external customers and pricing is determined on
an arm’s length basis. There are no material inter-segment transactions.
The tables below present the segmental information on the revised basis, with prior periods amended to
conform to the current period presentation.
Year ended 31 December 2014
(in millions of dollars)
Segmental income statement
Revenue
Adjusted EBITA
Pace
Pace
Pace
​ ​ Americas ​ ​ International ​ ​ Networks ​ ​ Other
1,561.6
150.2
793.8
88.3
264.6
47.4
—
(44.8 )
Total ​
2,620.0
241.1
Exceptional costs
Amortisation of other intangibles
Net interest payable
Tax charge
(7.3 )
(52.9 )
(5.2 )
(27.7 )
Profit for the year
148.0
Year ended 31 December 2013
(restated)
(in millions of dollars)
Segmental income statement
Revenue
Adjusted EBITA
Pace
Pace
Pace
​ ​ Americas ​ ​ International ​ ​ Networks ​ ​ Other
1,680.2
152.7
Exceptional costs
Amortisation of other intangibles
Net interest payable
Tax charge
789.0
82.8
—
—
—
(41.9 )
Total ​
2,469.2
193.6
(12.2 )
(42.6 )
(8.0 )
(34.1 )
Profit for the year
96.7
F-17
TABLE OF CONTENTS
Year ended 31 December 2012
(restated)
(in millions of dollars)
Segmental income statement
Revenue
Adjusted EBITA
Pace
Pace
Pace
​ ​ Americas ​ ​ International ​ ​ Networks ​ ​ Other
1,442.1
144.0
961.3
71.9
—
—
—
(57.8 )
Exceptional costs
Amortisation of other intangibles
Net interest payable
Tax charge
Total ​
2,403.4
158.1
(12.5 )
(51.8 )
(13.7 )
(21.7 )
Profit for the year
58.4
Major Customers
In 2014 the Group had three customers which individually account for more than 10% of the Group’s total
revenue, being 24%, 13% and 10%. In 2013 the Group also had three customers which accounted for 24%, 17%
and 16% of the Group’s total revenue. In 2012 the Group also had three customers which accounted for 21%,
17% and 11% of the Group’s total revenue. All of the revenue from these customers is within the Pace Americas
and Pace Networks reporting segments in 2014, and within the Pace Americas reporting segment in 2013 and
2012.
Geographical Analysis
In presenting information on the basis of geographical segments, segment revenue is based on the
geographical location of customers.
Revenue by destination
(in millions of dollars)
Europe
North America
– of which USA
Latin America
– of which Brazil
Rest of World
2014
2013
2012
291.2
1,635.6
1,536.6
373.2
287.8
320.0
2,620.0
323.9
1,540.5
1,524.4
358.4
277.8
246.4
2,469.2
402.4
1317.6
1,308.5
374.4
301.6
309.0
2403.4
​
Segment assets are based on the geographical location of the assets. The split of non-current assets by
location is as follows:
Non-current assets
(in millions of dollars)
UK
Europe – all France
Latin America
North America – all USA
Rest of World
2014
2013
124.9
117.1
5.3
558.3
21.9
827.5
136.5
127.5
2.7
321.8
1.6
590.1
​
Non-current assets relate to property, plant and equipment and intangible assets and, as required under IFRS
8, exclude deferred tax assets, financial instruments and post-employment benefit assets.
The Group has four main revenue streams, being Set-top boxes (“STB”) and Media Servers, Gateways,
Software & Services, and Networks. These revenue streams arise in each operating segment and are not defined
by geographical locations.
F-18
TABLE OF CONTENTS
The following table provides an analysis of the Group’s revenue streams according to those classifications:
(in millions of dollars)
Set-top boxes & Media Servers
Gateways
Software & Services
Networks
4.
2014
2013
2012
2,003.5
239.7
112.2
264.6
2,620.0
1,979.6
375.8
113.8
—
2,469.2
1,826.0
469.4
108.0
—
2,403.4
2014
2013
2012
5.8
1.5
—
—
7.3
6.9
4.2
1.1
—
12.2
—
7.6
3.5
1.4
12.5
​
Exceptional Costs
(in millions of dollars)
Acquisition and integration costs
Restructuring and reorganisation costs
Aborted acquisition costs
Directors’ loss of office
​
Acquisition costs in 2014 and 2013 relate to integration costs and professional service fees in respect of the
acquisition of Aurora Networks, Inc on 6 January 2014. Restructuring and reorganisation costs in 2014, 2013
and 2012 relate to different restructuring programmes within the Group and represent the costs of redundancy
and restructuring. Aborted acquisition costs in 2013 and 2012 relate to professional service fees in respect of
aborted acquisitions.
5.
Finance Income/(Costs)
(in millions of dollars)
Finance income – interest on bank deposits
Finance costs
Bank borrowings
Other finance costs
6.
2014
2013
2012
2.5
1.8
0.5
(7.3 )
(0.4 )
(7.7 )
(8.9 )
(0.9 )
(9.8 )
(10.7 )
(3.5 )
(14.2 )
Staff Costs
​
Group
(in millions of dollars)
Wages and salaries
Social security costs
Other pension costs
Share-based payments (Note 24)
F-19
2014
2013
2012
143.8
17.5
5.8
6.5
173.6
116.0
17.6
4.6
4.1
142.3
122.5
18.1
5.9
7.9
154.4
​
TABLE OF CONTENTS
7.
Taxation
(in millions of dollars)
Current tax charge
Charge for the year
Adjustment in respect of prior years
Total current tax charge
Deferred tax charge/(credit)
Origination and reversal of temporary differences in the current
year (Note 12)
Impact of change in tax rate
Adjustment in respect of prior years
Total deferred tax charge/(credit)
Total tax charge
2014
2013
2012
31.9
(4.1 )
27.8
29.7
2.7
32.4
21.0
(3.7 )
17.3
(1.9 )
—
1.8
(0.1 )
27.7
2.7
(1.0 )
—
1.7
34.1
—
(0.3 )
4.7
4.4
21.7
​
Reconciliation of effective tax rate to UK statutory rate of 2014: 21.5%; 2013: 23.25%; 2012: 24.5%.
8.
(in millions of dollars)
2014
2013
2012
Profit before tax
Tax using UK statutory tax rate at 2014: 21.5%; 2013: 23.25%;
2012: 24.5%
Effects of:
Permanent adjustments
Expenses not deductible for tax purposes
Controlled foreign companies UK tax charge
Adjustment to temporary differences
Research and development tax credit
Overseas current year tax not at 2014: 21.5%; 2013: 23.25%;
2012: 24.5%
Losses not recognised for current or deferred tax
Impact of change in tax rate
Adjustments to tax charge in respect of previous years
Total tax charge
175.7
130.8
80.1
37.8
30.4
19.6
(0.1 )
—
0.8
(15.0 )
(3.9 )
—
5.3
—
—
(1.9 )
—
11.7
—
—
(6.3 )
6.8
3.6
—
(2.3 )
27.7
(7.0 )
5.6
(1.0 )
2.7
34.1
(3.4 )
(0.6 )
(0.3 )
1.0
21.7
​
Earnings Per Ordinary Share
Basic earnings per ordinary share
Diluted earnings per ordinary share
Adjusted basic earnings per ordinary share
Adjusted diluted earnings per ordinary share
2014
2013
2012
47.4c
45.6c
63.6c
61.2c
31.2c
29.8c
44.3c
42.2c
19.4c
18.5c
35.1c
33.4c
​
The calculation of basic earnings per share is based on a profit after tax of 2014: $148.0 million;
2013: $96.7 million; 2012: $58.4 million divided by the weighted average number of ordinary shares in issue of
2014: 312,334,970; 2013: 309,740,316; 2012: 300,344,669, excluding shares held by the Employee Benefit
Trust.
Number of shares (million)
Weighted average number of ordinary shares in issue during the
year
Dilutive effect of options outstanding
Diluted weighted average number of ordinary shares in issue
during the year
F-20
2014
2013
2012
312.3
12.2
309.7
15.3
300.3
15.1
324.5
325.0
315.4
​
TABLE OF CONTENTS
Diluted earnings per ordinary share varies from basic earnings per ordinary share due to the effect of the
notional exercise of outstanding share options. The diluted weighted average number of ordinary shares in issue
during the year is calculated using the treasury stock method which accounts for the fact that not all options are
wholly dilutive. Further details of the outstanding share options held at the end of the year can be found in Note
24.
To better reflect underlying performance, adjusted earnings per share is also calculated (adjusting profit
after tax to remove amortisation of other intangibles and exceptional items, post-tax). The earnings amount is
calculated as follows:
(in millions of dollars)
2014
2013
2012
Profit after tax
Amortisation of other intangibles
Tax effect of above
Exceptional costs
Tax effect of above
Adjusted profit after tax
148.0
52.9
(8.4 )
7.3
(1.2 )
198.6
96.7
42.6
(11.1 )
12.2
(3.2 )
137.2
58.4
51.8
(14.0 )
12.5
(3.4 )
105.3
​
The Group’s effective tax rate for 2014: 15.8%; 2013: 26.1%; 2012: 27.1%) has been used to calculate the
tax effect of adjusted items.
9.
Dividend Per Ordinary Share
2014
Final dividend for the prior
period
Interim dividend for the
current period
2013
Per share
$m
Per share
3.66c
11.7
3.06c
2.25c
7.0
5.91c
18.7
2012
$m
Per share
​
$m
9.5
2.50c
1.83c
6.1
1.44c
4.8
4.89c
15.6
3.94c
12.3
​
7.5
In addition, a final dividend for 2014 of 4.75 cents per ordinary share, which amounts to $14.9 million
(2013: $11.4 million) based on the ordinary shares as at the year-end was approved by Pace shareholders on 23
April 2015. This will be payable on 3 July 2015 to shareholders on the register at 5 June 2015, and has not been
included as a liability in these Financial Statements.
F-21
TABLE OF CONTENTS
10. Intangible assets
(in millions of dollars)
Customer
contracts
Development
and
Technology
Other
Goodwill
expenditure
relationships
​ ​
​ ​
​ ​
​ ​ and patents ​ ​ Other ​ ​ intangibles​
Cost
At 31 December 2012
Exchange adjustments
Additions
At 31 December 2013
Exchange adjustments
Acquisitions
Additions
Disposals
At 31 December 2014
Amortisation
At 31 December 2012
Exchange adjustments
Provided in the year
At 31 December 2013
Exchange adjustments
Provided in the year
Disposals
At 31 December 2014
Net book value at 31 December 2013
Net book value at 31 December 2014
337.9
4.7
—
342.6
(13.2 )
141.7
—
—
471.1
266.9
0.5
52.9
320.3
0.2
—
66.2
(218.9 )
167.8
164.3
—
—
164.3
—
30.0
—
—
194.3
131.8
—
—
131.8
—
108.0
—
—
239.8
10.9
—
—
10.9
—
—
—
—
10.9
307.0
—
—
307.0
—
138.0
—
—
445.0
—
—
—
—
—
—
—
—
342.6
471.1
210.6
(0.3 )
45.6
255.9
0.4
45.4
(218.9 )
82.8
64.4
85.0
60.9
0.2
19.8
80.9
—
14.9
—
95.8
83.4
98.5
73.3
0.3
21.7
95.3
—
37.9
—
133.2
36.5
106.6
6.6
—
1.1
7.7
—
0.1
—
7.8
3.2
3.1
140.8
0.5
42.6
183.9
—
52.9
—
236.8
123.1
208.2
Goodwill
All goodwill has arisen from business combinations and relates to the following acquisitions:
•
XCom Multimedia Communications SA (now Pace Europe SAS) in February 2001;
•
the STB and connectivity solutions business of Royal Philips Electronics (Pace France) in April 2008;
•
Bewan Systems SA (Bewan) in April 2010;
•
2Wire, Inc. (2Wire) in October 2010;
•
Latens Systems Limited (Latens) in November 2010; and
•
Aurora Networks, Inc. in January 2014.
The carrying amount of goodwill is allocated across Strategic Business Units, which are groups of cashgenerating units (CGUs) as follows at 31 December 2014:
•
$138.7 million within Pace International;
•
$190.7 million within Pace Americas; and
•
$141.7 million within Pace Networks.
The carrying amount of goodwill is allocated across Strategic Business Units, which are groups of cash
generating units (CGUs) as follows at 31 December 2013:
•
$153.1 million within Pace International; and
F-22
TABLE OF CONTENTS
•
$189.5 million within Pace Americas.
These CGUs are independent sources of income streams and represent the lowest level within the Group at
which the associated goodwill is monitored for management purposes. The Group tests goodwill annually for
impairment or more frequently if there are indications that goodwill might be impaired.
The recoverable amount of CGUs is determined from value in use calculations. These calculations use cash
flow projections based on the following year’s budget and the Group’s three year plan. These forecasts have
been approved by the Board, and have an appropriate long-term growth rate of 1% at 31 December 2014 and 1%
at 31 December 2013 applied to them.
To prepare value in use calculations, the cash flow forecasts are discounted back to present value using an
appropriate market-based discount rate. The pre-tax discount rate used to calculate the value in use was 10.4% at
31 December 2014 and 13.4% at 31 December 2013.
The key assumptions in the value in use calculations are those regarding discount rates, sales growth rates
and expected changes to selling prices and direct costs. Sales growth, selling prices and direct costs are built up
within the budget and three year plan on a product by product basis utilising the knowledge and expertise of
operational staff. The anticipated launch dates for new products, the achievable prices and direct costs to be
incurred are therefore highly judgemental. The directors estimate discount rates using pre-tax rates that reflect
current market assessments of the time value of money for the Group.
The directors have reviewed the recoverable amounts of the CGUs and have also considered the following
reasonable changes in the assumptions:
•
movements in the pre-tax discount rate of up to an additional 10%; and
•
reductions in cash flows of up to $10 million per annum.
The directors consider that there is sufficient headroom within the value in use calculations at
31 December 2014 and at 31 December 2013.
Other Intangibles
Other intangibles relate to trademarks and licence agreements, customer contracts and relationships
recognised as part of the acquisition of Pace France, 2Wire, Bewan, Latens and Aurora Networks, Inc.
F-23
TABLE OF CONTENTS
11. Property, Plant and Equipment
(in millions of dollars)
Cost
At 31 December 2012
Exchange adjustments
Additions
Disposals
At 31 December 2013
Exchange adjustments
Acquisitions
Additions
Disposals
At 31 December 2014
Depreciation
At 31 December 2012
Exchange adjustments
Provided in the year
Disposals
At 31 December 2013
Exchange adjustments
Acquisitions
Provided in the year
Disposals
At 31 December 2014
Net book value at 31 December 2013
Net book value at 31 December 2014
Short
leasehold
land and
buildings
Plant,
machinery
and motor
vehicles
Total
38.4
0.2
1.4
(0.4 )
39.6
(0.2 )
2.4
1.1
(0.2 )
42.7
140.0
(0.1 )
20.2
(1.9 )
158.2
(2.6 )
22.5
24.9
(0.1 )
202.9
178.4
0.1
21.6
(2.3 )
197.8
(2.8 )
24.9
26.0
(0.3 )
245.6
20.3
(0.2 )
5.4
(0.4 )
25.1
—
1.7
5.4
(0.1 )
32.1
14.5
10.6
95.3
(0.5 )
19.6
(1.7 )
112.7
(2.2 )
16.3
23.6
(0.1 )
150.3
45.5
52.6
115.6
(0.7 )
25.0
(2.1 )
137.8
(2.2 )
18.0
29.0
(0.2 )
182.4
60.0
63.2
12. Deferred Tax Assets/(Liabilities)
The movements in deferred tax assets and liabilities during the year are shown below:
(in millions of dollars)
Recognised assets/(liabilities)
At 31 December 2012
Credited/(charged) to income statement
Credited/(charged) to statement of
comprehensive income
At 31 December 2013
Shown as deferred tax assets
Shown as deferred tax liabilities
Property,
Short-term
plant and
Trading
timing
​ ​ equipment ​ ​ losses ​ ​ Intangibles ​ ​ differences ​ ​
1.2
(1.9 )
—
4.8
2.0
(32.9 )
(1.7 )
(0.5 )
(0.5 )
14.2
14.2
—
(54.9 )
—
(54.9 )
6.3
6.3
—
(35.1 )
21.2
(56.3 )
Credited/(charged) to income statement
Acquisition
Credited/(charged) to statement of
comprehensive income
(2.3 )
—
(4.7 )
—
18.0
(48.3 )
(10.9 )
25.6
0.1
(22.7 )
—
—
(0.8 )
(0.8 )
At 31 December 2014
(3.0 )
9.5
—
9.5
(3.0 )
—
F-24
—
(68.8 )
13.9
(0.7 )
0.7
(1.4 )
Shown as deferred tax assets
Shown as deferred tax liabilities
—
29.9
(15.7 )
Total
—
(85.2 )
—
(85.2 )
20.2
21.7
(1.5 )
(58.5 )
31.2
(89.7 )
​
TABLE OF CONTENTS
No deferred tax asset has been recognised on unused tax losses, outside the UK, of $8.7 million at
31 December 2014 and $8.6 million at 31 December 2013 as it is not considered probable that sufficient taxable
profit will be available against which the tax losses can be utilised.
The UK Finance Bill 2013, which includes the reduction in the UK corporation tax rate to 21% with effect
from 1 April 2014 and to 20% from 1 April 2015, was substantively enacted on 2 July 2013. As a result, UK
deferred tax has been calculated on the rates substantively enacted at the balance sheet date.
13. Inventories
(in millions of dollars)
2014
2013
Raw materials and consumable stores
Finished goods
38.3
129.7
17.9
138.9
168.0
156.8
​
The total amount of inventory written down which was recognised as an expense in the period was 2014:
$5.3 million and 2013: $2.3 million.
14. Trade and other receivables
(in millions of dollars)
2014
2013
Trade receivables
Other receivables
Prepayments and accrued income
843.2
57.0
8.9
422.7
36.9
9.1
909.1
468.7
​
15. Trade and other payables
(in millions of dollars)
2014
2013
Trade payables
Social security and other taxes
Other payables
Accruals and deferred revenue
825.4
3.2
19.1
86.9
473.4
2.9
15.0
75.8
934.6
567.1
​
16. Interest-bearing loans and borrowings
The Group’s interest-bearing loans and borrowings are measured at amortised cost. For more information
about the Group’s exposure to interest rate, foreign currency and liquidity risk, see Note 17.
The Company has a facility provided by HSBC Bank PLC, The Royal Bank of Scotland PLC, JPMorgan
Chase Bank N.A., Lloyds Bank PLC, Abbey National Treasury Services PLC, Wells Fargo Bank N.A., Silicon
Valley Bank, Credit Industrial et Commercial and Fifth Third Bank in a syndicated deal.
The main facilities at 31 December 2014, which are all denominated in US Dollars, consist of a $310
million term loan facility together with a $150 million revolving credit facility.
The facilities have a termination date of 6 January 2019. Amortisation of the original $310 million term
loan commenced on 6 January 2014 and two $15.5 million repayments were made during the year. Further
repayments are to be made every six months until 6 January 2019, when a final bullet repayment of $77.5
million is due to be made.
Interest is payable on the facilities at LIBOR plus a specified margin. The margin is subject to a ratchet
linked to overall leverage conditions of the Group.
Facility arrangement and associated fees of $5.4 million were capitalised and are being amortised over the
life of the facilities and included within the overall interest costs.
F-25
TABLE OF CONTENTS
There are certain financial covenants with regard to the facilities. These are principally linked to interest
cover and net leverage.
In addition to the main facilities, a Bi-lateral Bonding Facility with The Royal Bank of Scotland PLC was
also entered into and covers bank guarantees, principally in respect of Duty and Deferment requirements for
2014: $7.7 million and 2013: $9.0 million.
The carrying value of the year-end borrowings position is as follows:
Group
(in millions of dollars)
2014
2013
Non-current liabilities
Bank term loans
237.8
—
37.4
—
—
—
37.4
—
Current liabilities
Bank term loans
Bank revolving credit facility
​
The face value of the borrowings was 2014: $237.8 million and 2013: $Nil in respect of the bank term loans
within non-current liabilities, 2014: $37.4 million and 2013: $Nil in respect of the bank term loans within
current liabilities and $Nil (2013: $Nil) in respect of the bank revolving credit facility.
The difference between the face value amounts and the amounts in the previous table is 2014: $2.4 million
and 2013: $Nil in non-current liabilities and 2014: $1.4 million and 2013: $Nil in current liabilities which
represented facility arrangement fees and accrued interest costs.
17. Derivatives and other financial instruments
Short-term debtors and creditors that meet the definition of a financial asset or liability respectively have
been excluded from all the following analysis, other than the currency risk exposures.
This note provides information about the contractual terms of the Group and Company’s interest-bearing
loans and borrowings.
Interest Rate Risk Profile of Cash/Bank Overdrafts
Currency
(in millions of dollars)
Floating
rate
Interest
free
Total
At 31 December 2014:
Sterling
US Dollar
Euro
Other
7.9
(152.7 )
2.4
11.3
(1.0 )
18.1
1.0
19.9
6.9
(134.6 )
3.4
31.2
Total
(131.1 )
38.0
(93.1 )
7.5
(26.0 )
1.7
11.1
(0.2 )
31.0
2.8
5.1
7.3
5.0
4.5
16.2
(5.7 )
38.7
33.0
At 31 December 2013:
Sterling
US Dollar
Euro
Other
Total
The interest rates on Sterling, US Dollar, Euro and other floating rate financial assets are linked to the
relevant bank base rates.
F-26
​
TABLE OF CONTENTS
Currency Exposures
The table below shows the Group’s currency exposures that give rise to the net currency gains and losses
recognised in the income statement. Such exposures comprise the monetary assets and monetary liabilities of the
Group which are not denominated in the operating or functional currency of the operating unit involved.
Net foreign currency monetary assets/(liabilities)
Total
​ ​ Sterling ​ ​ US Dollar ​ ​ Euro ​ ​ Other ​ ​
At 31 December 2014:
Sterling
US Dollar
Euro
Other
Total
At 31 December 2013:
Sterling
US Dollar
Euro
Other
Total
—
8.0
—
0.1
8.1
1.9
—
1.4
1.7
5.0
1.7
28.3
—
—
30.0
—
20.0
(0.1 )
—
19.9
3.6
56.3
1.3
1.8
63.0
—
3.5
—
0.4
2.5
—
(3.4 )
(2.1 )
1.1
15.8
—
—
—
15.1
—
—
3.6
34.4
(3.4 )
(1.7 )
3.9
(3.0 )
16.9
15.1
32.9
Gains and Losses on Currency Derivatives
The majority of the Group’s production costs are denominated in US Dollars. The Group endeavours to
obtain as much of its income as possible in US Dollars. The Group’s policy is to hedge forward progressively
against movements in the value of foreign currencies, in respect of cash receipts and payments expected from
transactions over the next twelve months.
Outstanding Currency Derivatives
Principal Average
​ ​ Sell currency ​ ​ Buy currency ​ ​ amount ​ ​ rate ​
At 31 December 2014
At 31 December 2013
US Dollar​
Euro​
US Dollar​
US Dollar​
Euro​
US Dollar​
SA Rand​
GBP​
US Dollar​
SA Rand​
GBP​
US Dollar​
Euro​
US Dollar​
$32.1m
$60.1m
$ 6.6m
$ 28.6m
$ 98.3m
$ 13.8m
$ 3.8m
0.62​
1.32​
0.09​
0.64​
1.35​
0.72​
0.10​
Maturity
​
Jan-15 – Dec-15​
Jan-15 – Jun-15​
Jan-15​
Jan 14 – Mar 14​
Jan 14 – Oct 14​
Jan 14​
Jan 14 – Feb 14​
The Group’s derivatives contracts qualify for hedge accounting and have a fair value at the balance sheet
date of 31 December 2014 of $4.4 million and 31 December 2013 of $0.5 million.
Credit Risk
The Group’s credit risk is primarily attributable to its trade debtors. Credit risk is managed by monitoring
the aggregate amount and duration of exposure to any one customer depending upon their credit rating. The
Group does not require collateral in respect of financial assets. There were no significant impairments in the
periods under review.
F-27
TABLE OF CONTENTS
Exposure to Credit Risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date was:
Carrying amount
(in millions of dollars)
Trade receivables
Cash and cash equivalents
Forward exchange contracts used for hedging
Assets
2014
2013
843.2
182.1
422.7
33.0
5.3
1,030.6
2.2
457.9
​
The maximum exposure to credit risk for receivables at the reporting date by geographic region was:
Carrying amount
(in millions of dollars)
Domestic
Euro-zone countries
United States
Other regions
2014
2013
195.3
15.8
530.2
101.9
843.2
121.9
9.7
227.7
63.4
422.7
​
The credit risk on liquid funds is limited because counterparties are banks with high credit ratings. At each
balance sheet date there was no significant concentration of credit risk, other than those customers with revenues
in excess of 10% of the Group’s total revenues, as explained in Note 3.
Of the trade receivables at 31 December 2014, 91% were within terms and at 31 December 2013, 92% were
within terms. Of the balance at 31 December 2014, 5% were less than 30 days past due, with the remaining
amounts over 30 days due and at 31 December 2013, 5% were less than 30 days past due. There were no material
bad debts provisions deemed necessary against such balances, in the current or preceding years.
Liquidity Risk
The Group manages liquidity risk by maintaining adequate cash balances and banking facilities,
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets
and liabilities.
F-28
TABLE OF CONTENTS
The following are the contractual maturities of financial liabilities, including estimated interest payments
and excluding the impact of netting arrangements:
(in millions of dollars)
At 31 December 2014:
Non-derivative financial liabilities
Trade and other payables within one year
External borrowings
Derivative financial liabilities
Forward exchange contracts used for hedging
Outflow
Inflow
Total
At 31 December 2013:
Non-derivative financial liabilities
Trade and other payables within one year
External borrowings
Derivative financial liabilities
Forward exchange contracts used for hedging
Outflow
Inflow
Total
Carrying Contractual 6 months 6 – 12
1 – 2
2 – 3
3 – 4
4 – 5
amount ​ ​ cash flows ​ ​ or less ​ ​ months ​ ​ years ​ ​ years ​ ​ years ​ ​ years ​
934.6
275.2
(934.6)
(279.0)
(934.6)
(19.4)
—
(19.4)
—
—
—
—
(46.5) (54.2) (62.0) (77.5)
—
4.4
1,214.2
(98.4)
102.8
(1,209.2)
(90.5)
95.0
(949.5)
(7.9)
7.8
(19.5)
—
—
—
—
—
—
—
—
(46.5) (54.2) (62.0) (77.5)
567.1
—
(567.1)
—
(567.1)
—
—
0.5
(145.1)
145.4
(95.2)
96.0
567.6
(566.8)
(566.3)
—
—
—
—
—
—
—
—
—
—
(49.9)
49.4
—
—
—
—
—
—
—
—
(0.5)
—
—
—
—
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or
at significantly different amounts.
The directors have considered the periods in which the cash flows associated with derivatives that are cash
flow hedges are expected to occur, together with the timing of impact on profit or loss, and have determined that
the timings are as disclosed in the above table.
Sensitivity Analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short-term fluctuations
on the Group’s earnings. The directors consider that a change of 100 basis points in interest rates during a twelve
month period would have a $2.6 million impact on cash flows in 2014, $Nil in 2013 and $0.8 million in 2012.
The Group’s key foreign exchange exposures are in respect of the Euro and Sterling. A 1% strengthening in
the US Dollar against these would have an adverse impact of $Nil in 2014, $1.0 million in 2013 and $0.2
million in 2012 on the profit reported in the year and an adverse impact of $0.6m in 2014 and $5.8 million in
2013 on equity.
Capital Management
Capital Risk Management
The Group and Company manage their capital, being the net assets base, to ensure their ability to continue
as a going concern and to maintain an optimal capital structure to reduce the cost of capital. The capital
structure of the Group and Company comprises equity attributable to equity holders of Pace plc, consisting of
issued ordinary share capital, reserves and retained earnings as disclosed in Notes 19, 20, 21 and 22 and cash and
cash equivalents and borrowings as disclosed in Note 16.
The Group and Company maintain or adjust their capital structure through the payment of dividends to
shareholders (through the progressive dividend policy introduced in 2009), issue of new shares and buy-back of
existing shares and issuing new borrowings or repaying existing borrowings.
Note 19 provides details regarding the Company’s share capital and movements in the period. There were
no breaches of any requirements with regard to any relevant conditions imposed by either the UKLA or the
Company’s Articles of Association during the periods under review.
F-29
TABLE OF CONTENTS
Details of the Company’s facilities are given in Note 16. The facilities have been subject to certain financial
performance covenants. There have been no breaches of these covenants in the period under review.
Fair Value
Fair Value Versus Carrying Amounts
The following table shows the carrying amounts and fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy:
Carrying amount
Fair value –
Other
hedging
Loans and financial
instrument receivables liabilities
$m
$m
$m
At 31 December 2014:
Financial assets measured at fair value
Forward exchange contracts used for
hedging
Financial assets not measured at fair value
Trade receivables
Cash and cash equivalents
Financial liabilities measured at fair value
Forward exchange contracts used for
hedging
Financial liabilities not measured at fair
value
Borrowings
Trade payables
At 31 December 2013:
Financial assets measured at fair value
Forward exchange contracts used for
hedging
Financial assets not measured at fair value
Trade receivables
Cash and cash equivalents
Financial liabilities not measured at fair
value
Borrowings
Trade payables
Fair value
Total
$m
​
Level 1 ​ ​ Level 2 ​ ​ Level 3 ​
$m ​ ​ $m ​ ​ $m ​
5.3
—
—
5.3
—
5.3
—
—
—
843.2
182.1
—
—
843.2
182.1
—
—
—
—
—
—
—
—
(0.9 )
—
(0.9 )
—
— (275.2 )
(825.4 ) (825.4 )
(825.4 ) (70.9 )
—
—
—
—
—
4.4
—
—
—
(0.9 )
—
—
4.4
(275.2 )
—
750.1
0.5
—
—
0.5
—
0.5
—
—
—
422.7
33.0
—
—
422.7
33.0
—
—
—
—
—
—
—
—
0.5
—
—
455.7
—
—
—
—
—
0.5
—
—
—
—
—
(473.4 ) (473.4 )
(473.4 ) (17.2 )
Fair Value Hierarchy
The Group’s financial instruments, namely forward exchange contracts, have been determined to represent
Level 2 instruments (characterised by the existence of quoted prices (unadjusted) in active markets for identical
assets or liabilities). Fair values are calculated by reference to valuations provided by financial institutions.
Exchange Rates
The following significant exchange rates applied during the year:
Euro
Sterling
2014
Average rate
2013
2012
2014
1.33
1.65
1.33
1.56
1.28
1.58
1.23
1.56
F-30
Spot rate
2013
1.37
1.64
2012
1.32
1.62
​
​
TABLE OF CONTENTS
18. Provisions
Royalties
under
negotiation
Warranties
Other
Total
At 31 December 2012
Charge for the year
Utilised
Transfer
Exchange adjustments
At 31 December 2013
Due within one year
Due after one year
27.5
9.8
(1.4 )
—
1.0
36.9
—
36.9
40.0
24.7
(24.9 )
0.1
0.2
40.1
20.0
20.1
9.7
14.4
(10.5 )
—
1.6
15.2
11.9
3.3
77.2
48.9
(36.8 )
0.1
2.8
92.2
31.9
60.3
Acquisitions
Charge for the year
Utilised
Transfer
Unused amounts reversed
Exchange adjustments
At 31 December 2014
Due within one year
Due after one year
—
15.7
(7.1 )
4.7
—
(0.3 )
49.9
—
49.9
4.7
34.5
(15.2 )
(3.5 )
—
(1.1 )
59.5
21.7
37.8
35.9
6.4
(33.8 )
—
(0.7 )
(0.3 )
22.7
9.8
12.9
40.6
56.6
(56.1 )
1.2
(0.7 )
(1.7 )
132.1
31.5
100.6
(in millions of dollars)
​
Royalties Under Negotiation
Provisions for royalty claims are recognised when it is considered more likely than not that an outflow of
economic resources will be required to settle a claim that has resulted from the sale of a product allegedly using
technology of a patent owner, and the amount of the outflow can be reliably measured. The directors have made
provision for the potential royalty payable based on the latest information available, which represents the best
estimate of the expenditure required to settle the present obligation. Having taken legal advice, the Board
considers that there are defences available that should mitigate the amounts being sought. The Group will
vigorously negotiate or defend all claims but, in the absence of agreement, the amounts provided may prove to
be different from the amounts at which the potential liabilities are finally settled.
Other Provisions
Other provisions mainly relate to retirement and exceptional restructuring provisions within the Group,
along with professional fees to be incurred in relation to the Aurora Networks acquisition and certain other
provisions.
Warranty Provisions
Pace provides warranties for its products from the point of sale and a provision for warranties is recognised
when the underlying products are sold. The provision is based on historical warranty data, principally historical
failure rates and related cost of repair information and a weighting of all possible outcomes against their
associated probabilities. The level of warranty provision required is reviewed on a product by product basis and
provisions are adjusted accordingly in the light of actual performance.
Although it is difficult to make accurate predictions of potential failure rates or the possibility of an
epidemic failure, as a warranty estimate must be calculated at the outset of product shipment before field
deployment data is available, these estimates improve during the lifetime of the product in the field.
It is expected that the expenditure with regard to warranties will be incurred within five years of the balance
sheet date.
F-31
TABLE OF CONTENTS
19. Share Capital
2014
​ ​
​ ​
Allocated, called up and fully paid
Ordinary shares of 5 pence each
Number
315,067,925
​ ​
2013
​ ​
$m
Number
​ ​
29.1
313,942,223
​ ​
​
$m
​
29.0
The ordinary share capital of Pace plc is designated in Sterling.
During the year ended 31 December 2014, the Company also allotted ordinary shares as follows:
​ ​
Employee share option plan (62.0 pence)
Employee share option plan (128.0 pence)
Employee share option plan (192.0 pence)
Employee share option plan (197.0 pence)
Employee share option plan (85.5 pence)
Employee share option plan (51.0 pence)
Employee share option plan (58.75 pence)
Employee share option plan (75.0 pence)
Employee share option plan (97.75 pence)
Employee performance option plan (5.0 pence)
Number
12,902
204,827
468
203,934
127,261
80,000
75,000
62,500
20,000
338,810
1,125,702
Nominal
value
Consideration
$000
​ ​ $000
​ ​
​
1
17
—
17
10
7
6
5
2
28
93
13
432
1
662
179
67
73
77
32
—
1,536
During the year ended 31 December 2013, the Company also allotted ordinary shares as follows:
​ ​
Employee share option plan (58.0 pence)
Employee share option plan (62.0 pence)
Employee share option plan (128.0 pence)
Employee share option plan (154.0 pence)
Employee share option plan (199.25 pence)
Employee share option plan (69.50 pence)
Employee share option plan (85.5 pence)
Employee share option plan (51.0 pence)
Employee share option plan (58.75 pence)
Employee share option plan (75.0 pence)
Employee share option plan (97.75 pence)
Employee share option plan (47.0 pence)
Employee performance option plan (5.0 pence)
Number
Nominal
value
Consideration
$000
$000
​ ​
​ ​
​
539,128
41,601
27,475
125,016
501,882
50,000
1,087,178
114,988
188,829
1,111,266
100,000
200,000
12,552
39
3
2
10
36
4
82
9
15
84
8
16
1
402
34
47
263
1,374
46
1,232
75
143
1,096
131
118
—
4,099,915
309
4,961
There are no special rights or obligations attaching to the ordinary shares and there are no shares in the
Company with special rights with regard to control of the Company. The Articles of Association of the Company
may be amended by special resolution of the Company’s shareholders.
The Company’s Articles of Association provide that the Company may refuse to transfer shares in the
following customary circumstances: where the share is not a fully paid share; where the Company has a lien;
where the share transfer has not been duly stamped with correct amount of stamp duty; where the transfer is in
favour of more than four joint transferees; where the share is a certified share and is not accompanied
F-32
TABLE OF CONTENTS
by the relevant share certificate(s) and such other evidence as the Board of Directors may reasonably require to
prove the title of the transferor; or where the instrument of transfer is in respect of more than one class of share.
These restrictions are in addition to any which are applicable to all UK listed companies imposed by law or
regulation.
The Notice of the Annual General Meeting specifies deadlines for exercising voting rights and appointing a
proxy or proxies to vote in relation to resolutions to be passed at the Annual General Meeting. All proxy votes
are counted and numbers for, against or withheld in relation to each resolution are announced at the Annual
General Meeting and published on the Company’s website after the meeting.
The Company is not aware of any agreements between shareholders which may result in restrictions on the
transfer of securities and/or on voting rights.
There are no significant agreements to which the Company is a party that may take effect, alter or terminate
upon a change of controls following a takeover bid other than in relation to: (i) employee share plans; and
(ii) the Company’s borrowings, which would become repayable on a takeover being completed.
The Company’s Articles of Association provide that: (i) all directors must stand for election at the first
Annual General Meeting after having been appointed to the Board; and (ii) at each Annual General Meeting,
one-third of the directors who are subject to retirement by rotation must retire from office and may seek reelection. The Articles set out the procedure for determining the identity of the directors to retire at a particular
Annual General Meeting.
Shares in the Company are held in the Pace plc Employee Benefit Trust (the Trust) for the purpose of
satisfying awards made under the Company’s employees’ share plans. The Trustees of the Trust may exercise the
voting rights attaching to shares held in the Trust in respect of which the beneficial interest has not vested in any
beneficiary provided that they are satisfied that to do so is in the beneficiaries’ interests. The Trustees have
waived their right to vote in respect of any such shares held above 5%.
Own Shares Held
At 31 December 2014, the Pace plc Employee Benefit Trust held 2,229,868 shares in the Company which
cost $8.9 million. At 31 December 2013, the Pace plc Employee Benefit Trust held 2,692,189 shares in the
Company which cost $10.3 million. These shares are held to satisfy options granted to employees.
The amounts arising on settlement of share options from the employee share trust represent cash receipts
from the exercise of relevant share options.
20. Share Premium Account
(in millions of dollars)
At 31 December 2012
Premium on allotments
At 31 December 2013
Premium on allotments
At 31 December 2014
79.0
4.7
83.7
1.4
85.1
The shares allotted during the year are listed in Note 19.
21. Merger and Translation Reserve
Merger Reserve
(in millions of dollars)
At 31 December 2013 and 31 December 2014
109.9
The merger reserve was created upon the acquisition of the STB and connectivity solutions business of
Royal Philips Electronics.
F-33
TABLE OF CONTENTS
Translation Reserve
(in millions of dollars)
At 31 December 2012
Exchange difference on translating foreign operations
At 31 December 2013
Exchange differences on translating foreign operations
At 31 December 2014
(54.8 )
(4.8 )
59.6
19.7
79.3
The translation reserve represents the accumulated exchange differences arising from the impact of
translation of subsidiaries with a functional currency other than US Dollars.
22. Retained Earnings
(in millions of dollars)
At 31 December 2012
Profit for the year
Dividends to equity shareholders
Employee share incentive schemes
At 31 December 2013
Profit for the year
Dividends to equity shareholders
Employee share incentive charges
Movement in employee share trusts
At 31 December 2014
299.0
96.7
(15.6 )
4.1
384.2
148.0
(18.7 )
6.5
(1.7 )
518.3
23. Capital Commitments
Contracted but not provided for (in millions of dollars)
2014
2013
1.8
0.7
​
24. Employee benefits
Pension plans
The Group contributes to several defined contribution Group Personal Pension Plans, which all UK
executive directors and employees are entitled to join. The total expense relating to these plans in the year
ended 31 December 2014 was $5.8 million, in the year ended 31 December 2013 was $4.6 million and in the
year ended 31 December 2012 was $5.9 million. At 31 December 2014 contributions of $Nil and at
31 December 2013 of $Nil were outstanding.
Share based payments
The Group operates various equity-settled share option schemes for certain employees, which can be
separated into two distinct categories:
(i)
Share option plans
(ii) Long-term incentive plans (“LTIPs”) and share awards
Share option plans relate to sharesave schemes which have various exercise prices and are open to all
employees.
LTIPs and share awards have been issued as part of the annual bonus scheme for senior managers and key
employees and have different terms and conditions, most notably a $nil exercise price.
F-34
TABLE OF CONTENTS
The equity-settled share option schemes outstanding can be summarised as follows:
Number of ordinary shares
Options agreed to be satisfied by the
subject to option
Pace Employee Benefit Trust
​ ​
​
2014
2013
2014
2013
​ ​
​ ​
​ ​
​
​ ​
Share option plans
LTIPs and share awards
Total dilutive share awards
Contingent share awards
Total share awards
4,682,008
9,622,154
6,754,903
10,971,458
1,750,829
9,622,154
3,567,404
10,971,458
14,304,162
17,726,361
11,372,983
14,538,862
600,000
938,810
—
—
14,904,162
18,665,171
11,372,983
14,538,862
Total dilutive share awards differs from the dilutive weighted average number of shares in issue because
although all of the performance share awards are dilutive, only a proportion of the share options are dilutive
based on their respective exercise price and the average share price for the period.
The following tables reconcile the number of share awards outstanding and the weighted average exercise
price (WAEP) for all share plans.
2014
​ ​
​ ​
Outstanding at 1 January 2014
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2014
6,754,903
761,548
(786,892 )
(2,047,551 )
4,682,008
629,276
Exercisable at 31 December 2014
2013
​ ​
​ ​
Outstanding at 1 January 2013
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at 31 December 2013
Exercisable at 31 December 2013
Share option plans
Number ​ ​
WAEP
156.4c
570.3c
195.4c
199.4c
200.1c
119.9c
Share option plans
Number
WAEP
​ ​
12,725,189
481,326
(4,205,363 )
(2,246,249 )
6,754,903
1,018,297
LTIPs and share awards
Number
WAEP
10,971,458
3,766,760
(814,916 )
(4,301,148 )
9,622,154
27,070
​ ​
​ ​
171.1c
310.8c
147.2c
300.2c
156.4c
122.6c
—
—
—
—
—
—
—
—
—
—
—
—
Total
Number
Outstanding share options at 31 December 2014 were as follows:
58.75 pence – 75 pence
85.5 pence – 91.75 pence
135.5 pence – 197 pence
338 pence – 356 pence
F-35
​
​
​
25,665,048
4,015,046
(5,810,470 )
(6,143,263 )
17,726,361
1,412,734
Of the share options exercised during the year none were issued by the Pace plc Employee Benefit Trust
(2013: 118,000).
Range of exercise prices (pence)
​
17,726,361
4,528,308
(1,601,808 )
(6,348,699 )
14,304,162
656,346
LTIPs and share awards
Number
WAEP
​
12,939,859
3,533,720
(1,605,107 )
(3,897,014 )
10,971,458
394,437
Total
Number
Number at
31 December
2014
Weighted
average
remaining
contractual
life months
Weighted
average
exercise price ​
3,179,803
391,775
366,574
743,856
4,682,008
78.64
62.29
96.97
113.0
84.17
111c
145c
281c
570c
200c
TABLE OF CONTENTS
Outstanding share options at 31 December 2013 were as follows:
Range of exercise prices (pence)
47 pence – 75 pence
85.5 pence – 97.75 pence
128 pence – 208 pence
Number at
31 December
2013
Weighted
average
remaining
contractual
life months
Weighted
average
exercise price ​
3,696,010
1,271,581
1,781,312
6,754,903
63.24
84.89
85.20
73.12
109c
146c
261c
157c
The weighted average exercise price of options granted in the year ended 31 December 2014 was 570.3
cents and in the year ended 31 December 2013 was 310.8 cents.
The weighted average fair value at the measurement date of options granted in the year ended
31 December 2014 was 77.6 cents and in the year ended 31 December 2013 was 42.0 cents.
The weighted average exercise price at the date of exercise for options exercised in the year ended
31 December 2014 was 195.4 cents and in the year ended 31 December 2013 was 147.2 cents.
The weighted average share price during the year ended 31 December 2014 was 592.8 cents and during the
year ended 31 December 2013 was 431.3 cents.
The fair value of services received in return for share options granted are measured by reference to the fair
value of share options granted. The estimate of the fair value of the services received is measured based on a
Black-Scholes model. The table below shows the assumptions used within the Black-Scholes model for share
options that have been granted in the current and prior periods. Expectations of early exercise are incorporated
into the model, where appropriate.
2014
Average share price (cents)
Weighted average exercise price (cents)
Expected volatility (%)
Option life (years)
Dividend yield (%)
Risk free interest rate (%)
561.0c
570.3c
50 %
10
1.4 %
5.0 %
2013
​
432.0c
310.8c
50 %
10
1.4 %
5.0 %
The expected volatility is based on the historic volatility (calculated based on the weighted average
remaining life of the share options), adjusted for any expected changes to future volatility due to publicly
available information.
The charge for share-based payments in the year ended 31 December 2014 was $6.5 million and in the year
ended 31 December 2013 was $4.1 million which is comprised entirely of equity settled transactions.
25. Leasing commitments
Total amounts payable under non-cancellable operating lease rentals are as follows:
(in millions of dollars)
Land and buildings
Within one year
Between two and five years
In five years or more
2014
2013
8.7
18.4
5.3
32.4
9.2
19.9
3.4
32.5
26. Related parties
Identity of related parties
The Group has a related party relationship with its subsidiaries and with its directors.
F-36
​
TABLE OF CONTENTS
Transactions with subsidiaries
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Transactions with key management personnel
Key management of the Group is through the directors of the Company. The remuneration of the directors
of Pace plc was:
(in millions of dollars)
Short term benefits
Post-employment benefits
Share-based payments
Termination payments
2014
2013
2012
2.0
0.2
1.2
—
3.4
2.8
0.1
1.2
—
4.1
2.8
0.1
1.5
1.1
5.5
​
27. Business Combinations
On 6 January 2014 the Group acquired 100% of the share capital of Aurora Networks Inc, a group of
companies leading the development and manufacture of advanced, next-generation Optical Transport and
Access Network solutions for broadband networks that support the convergence of video, data and voice
applications, for a cash consideration of $323.5 million. Prior to the acquisition the Group had no interest in the
acquiree, and an explanation of the rationale for the acquisition is set out in the 2013 Annual Report and
Accounts.
In the period from the acquisition date to 31 December 2014, Aurora Networks Inc contributed revenue of $264.6 million and adjusted EBITA of $47.4 million. If the acquisition had occurred on 1 January 2014, the
consolidated results would not be materially different.
Details of the net assets acquired and goodwill are as follows:
(in millions of dollars)
Purchase consideration:
Headline consideration
Cash paid for tax benefits
Working capital adjustment and other consideration
Total Cash Consideration
Fair value of assets acquired (see below)
Goodwill
Other intangible assets:
Current and Next Generation Technology
Customer Relationships
310.0
13.0
0.5
323.5
(181.8 )
141.7
108.0
30.0
138.0
There was no contingent consideration as part of the acquisition.
Goodwill relates to the assembled workforce and expected synergies with the wider Pace Group.
F-37
TABLE OF CONTENTS
The assets and liabilities arising from the acquisition are as follows:
(in millions of dollars)
Book
Value
Property, plant and equipment
Other intangible assets
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax liabilities
Trade and other payables
Provisions
Net assets acquired
6.9
—
19.7
62.9
55.7
32.6
(1.6 )
(31.0 )
(40.6 )
104.6
Fair Value
Adjustment
—
138.0
7.5
(20.0 )
—
—
(48.3 )
—
—
77.2
Fair Value ​
6.9
138.0
27.2
42.9
55.7
32.6
(49.9 )
(31.0 )
(40.6 )
181.8
Inventories of $62.9 million at 6 January 2014 have been reduced by $20.0 million as a fair value
adjustment was made within the measurement period, to write down inventories to their recoverable amount.
28. Contingencies
At present the Group is not a party in any legal proceedings in which the directors believe that is it probable
that the resolution of such proceedings will result in a material liability for the Group. Currently there are legal
proceedings against the Group in which it is asserted that certain of the Group’s products infringe third-party
patents, but in each of those proceedings the Group does not believe that it is probable that the resolution of
such proceedings will result in a material liability for the Group.
29. Post balance sheet events
On 22 April 2015, Pace announced a recommended combination with ARRIS Group, Inc. (“ARRIS”)
comprised of cash and shares offer, pursuant to which Pace and ARRIS will combine if appropriate approvals are
obtained. A copy of this announcement has been made available on Pace’s website at
www.pace.com/combination and may be requested in hard copy form from the Company Secretary at Pace plc,
Victoria Road, Saltaire, West Yorkshire BD18 3LF on +44 (0)1274 538201. The combination is subject to
approval by Pace and ARRIS shareholders. It is also subject to certain regulatory approvals as set out in the
announcement. Should the combination proceed, the Group would recognise among other things transaction
costs and accelerated share option costs.
F-38
TABLE OF CONTENTS
ANNEX A
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
Annex A​
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “Agreement”), is entered into as of April 22, 2015, by
and among ARRIS Group, Inc., a Delaware corporation (“ARRIS”), Archie ACQ Limited, a private limited
company incorporated in England and Wales and wholly owned subsidiary of ARRIS (“New Parent”), Archie
U.S. Holdings LLC, a Delaware limited liability company and wholly owned subsidiary of New Parent (“U.S.
Holdco”), and Archie U.S. Merger LLC, a Delaware limited liability company and wholly owned subsidiary of
U.S. Holdco (“Merger Sub”). Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in Section 7.1(a).
RECITALS
WHEREAS, ARRIS, New Parent and Pace plc, a company incorporated in England and Wales with
company number 01672847 and whose registered office is at Victoria Road, Saltaire, BD18 3LF, United
Kingdom (“Pace”) have entered into a Co-Operation Agreement (the “Co-Operation Agreement”) dated as of
April 22, 2015;
WHEREAS, on the terms and subject to the conditions set forth in the Press Announcement, New Parent will
acquire the entire issued and to be issued share capital of Pace pursuant to a scheme of arrangement under
Sections 895 to 899 of the Companies Act, as such scheme of arrangement may be revised, amended or extended
from time to time (the “Pace Acquisition”);
WHEREAS, the Pace Acquisition is conditioned upon, among other things, this Agreement being duly
adopted by the affirmative vote of the holders of a majority of the outstanding Shares (as defined below) entitled
to vote on such matter at a meeting of holders of Shares duly called and held for such purpose in accordance
with applicable laws and the certificate of incorporation and bylaws of ARRIS;
WHEREAS, immediately subsequent to the Pace Acquisition, Merger Sub shall be merged with and into
ARRIS (the “Merger”), with ARRIS continuing as the surviving entity, and ARRIS shall become a wholly owned
subsidiary of U.S. Holdco (which, prior to the Merger, shall have been converted into a Delaware corporation),
on the terms and subject to the conditions set forth in this Agreement (including that the Pace Acquisition is a
condition to the Merger);
WHEREAS, for U.S. federal income tax purposes, it is intended that (i) the Merger qualify as a
“reorganization,” described in section 368 of the Internal Revenue Code of 1986, as amended, and (ii) this
Agreement constitutes, and is adopted as, a “plan of reorganization” (within the meaning of Treas. Reg. § 1.3682(g)) for this purpose;
WHEREAS, the board of directors of ARRIS has approved the Merger, approved and declared advisable this
Agreement, and resolved to recommend to its stockholders the adoption of this Agreement;
WHEREAS, the respective managers and members of each of U.S. Holdco and Merger Sub have approved
this Agreement and the transactions contemplated hereby, including the Merger; and
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the
Effective Time, Merger Sub shall be merged with and into ARRIS and the separate limited liability company
existence of Merger Sub shall thereupon cease. ARRIS shall be the surviving entity in the Merger (sometimes
hereinafter referred to as the “Surviving Corporation”), and the separate corporate existence of ARRIS with all its
rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger, except as set forth
in Article II. The Merger shall have the effects specified in the Delaware Limited Liability Company Act (the
“DLLCA”) and the Delaware General Corporation Law (the “DGCL”), as applicable.
A-1
TABLE OF CONTENTS
Section 1.2 Closing. Subject to Section 7.4, and subject to the prior satisfaction or waiver of the
conditions set forth in Section 6.1, unless otherwise mutually agreed in writing among ARRIS and New Parent,
the closing for the Merger (the “Closing”) shall take place at the offices of Troutman Sanders LLP at 600
Peachtree Street, Atlanta, Georgia 30308, on the day (the “Closing Date”) that is as soon as reasonably
practicable following (and to the extent possible, immediately following or, failing that, to the extent possible
on the same day as) the satisfaction of the condition set forth in Section 6.1(b) in accordance with this
Agreement.
Section 1.3 Effective Time. Subject to the provisions of this Agreement, on the Closing Date,
substantially concurrently with the Closing, ARRIS and Merger Sub will cause a Certificate of Merger with
respect to the Merger (the “Certificate of Merger”) to be executed, acknowledged and filed with the Secretary of
State of the State of Delaware in accordance with the relevant provisions of the DLLCA and the DGCL. The
Merger shall become effective at the time when the Certificate of Merger has been duly filed with the Secretary
of State of the State of Delaware or at such later time as may be agreed upon by the parties hereto in writing and
set forth in the Certificate of Merger in accordance with the DLLCA and the DGCL (the “Effective Time”).
ARTICLE II
Certificate of Incorporation of Surviving Corporation; Bylaws
Section 2.1 Certificate of Incorporation. At the Effective Time, the certificate of incorporation of ARRIS
in effect immediately prior to the Effective Time shall be and remain the certificate of incorporation of the
Surviving Corporation, until thereafter amended in accordance with the terms thereof or as provided by
applicable Law, except for the following amendment thereto:
Article FOURTH shall be amended and restated in its entirety to read as follows:
“FOURTH. The total number of shares for which the corporation shall have authority to issue is One
Thousand (1,000) shares of capital stock, par value $0.001, all of which shall be common stock.”
Section 2.2 Bylaws. At the Effective Time, the bylaws of ARRIS in effect immediately prior to the
Effective Time shall be and remain the bylaws of the Surviving Corporation, until thereafter amended in
accordance with the terms thereof, the certificate of incorporation of the Surviving Corporation or as provided
by applicable Law.
ARTICLE III
Directors and Officers
Section 3.1 Directors. The directors of U.S. Holdco immediately prior to the Effective Time shall, from
and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the
certificate of incorporation and bylaws of the Surviving Corporation.
Section 3.2 Officers. The officers of U.S. Holdco immediately prior to the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the
certificate of incorporation and bylaws of the Surviving Corporation.
ARTICLE IV
Effect of the Merger on Capital Stock; Exchange of Certificates
Section 4.1 Agreement to Issue. Immediately prior to the Effective Time, New Parent will issue the total
number of New Parent Ordinary Shares (as defined below) required to be delivered pursuant to Section 4.2(a) to
The Depositary Trust Company (“DTC”) to be used as Merger Consideration (as defined below), as further
described in Section 4.2 and Section 4.3. In consideration of and as condition to such agreement to issue, U.S.
Holdco shall transfer all of its shares of Lux Finco 2 to New Parent. No New Parent Ordinary Shares shall be
delivered to or entered in the name of U.S. Holdco in connection with the transactions contemplated by this
Section 4.1. U.S. Holdco shall unconditionally and irrevocably transfer all of its shares of Lux Finco 2 to New
Parent prior to the Closing.
A-2
TABLE OF CONTENTS
Section 4.2 Merger Consideration.
(a) Conversion of ARRIS Shares. At the Effective Time, each share of common stock, par value $0.01 per
share, of ARRIS (each a “Share”) issued and outstanding immediately prior to the Effective Time, other than any
Excluded Shares, shall, by virtue of the Merger and without any action on the part of New Parent, Pace, U.S.
Holdco, or Merger Sub or the holders of any Shares, be converted into, and thereafter only evidence, the right to
receive, without interest, one (1) validly issued and fully paid New Parent ordinary share (such shares the “New
Parent Ordinary Shares” and such consideration per Share the “Merger Consideration”) and all such Shares shall
cease to be outstanding, shall be cancelled and shall cease to exist, and each certificate representing Shares (a
“Certificate”) or non-certificated Share represented by book-entry (other than Excluded Shares) shall thereafter
represent only the right to receive the Merger Consideration and the right, if any, to receive any distribution or
dividend payable pursuant to Section 4.5.
(b) Cancellation of Excluded Shares. All Treasury Shares and all Shares that are owned of record by U.S.
Holdco or Merger Sub as of immediately prior to the Effective Time (the “Excluded Shares”) shall be cancelled
and shall cease to exist at the Effective Time, with no consideration being paid with respect thereto.
(c) Cancellation of Merger Sub Shares. The limited liability company interests in Merger Sub
immediately prior to the Effective Time (1) shall be converted into one share of common stock, par value $0.01
per share, of the Surviving Corporation, and (2) shall be cancelled and shall cease to exist.
Section 4.3 Exchange Agent.
(a) Exchange Agent. Prior to the Effective Time, New Parent, U.S. Holdco or Merger Sub shall designate a
bank or trust company to act as the exchange agent in connection with the Merger (the “Exchange Agent”). DTC
and the Exchange Agent shall allocate the responsibilities in this Article IV in a commercially reasonable
manner.
(b) Exchange Fund. As of the Effective Time, New Parent shall have deposited with DTC a number of
New Parent Ordinary Shares required to be delivered as Merger Consideration pursuant to Section 4.2(a). Each
New Parent Ordinary Share deposited with DTC shall be in non-certificated book-entry form. The issuance of the
New Parent Ordinary Shares hereunder shall be to DTC as nominee, in which case the transfer of legal title to the
New Parent Ordinary Shares to the holders of Shares (other than Excluded Shares) shall be conditional only upon
(i) U.S. Holdco having transferred all of its shares of Lux Finco 2 to New Parent (which US Holdco undertakes to
do prior to satisfaction of the condition in Section 6.1(b)) and (ii) compliance by those holders with Section 4.4.
In addition, New Parent or U.S. Holdco shall deposit, or cause to be deposited, with the Exchange Agent, as
necessary from time to time from and after the Effective Time, any dividends or other distributions payable
pursuant to Section 4.6 with respect to the New Parent Ordinary Shares with a record and payment date prior to
the surrender of such Shares (such New Parent Ordinary Shares, together with the amount of any dividends or
other distributions payable with respect thereto, being hereinafter referred to as the “Exchange Fund”).
Section 4.4 Certificated Shares. Promptly after the Effective Time, the Surviving Corporation shall cause
the Exchange Agent to mail to each holder of record of a Certificate, (a) a letter of transmittal (which shall notify
holders of the effectiveness of the Merger and specify that delivery shall be effected, and that risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates (or affidavit of loss in lieu thereof as
provided in Section 4.9) to the Exchange Agent), and (b) instructions for effecting the surrender of the
Certificates (or affidavit of loss in lieu thereof as provided in Section 4.9) to the Exchange Agent in exchange for
delivery of the Merger Consideration therefor. Upon surrender of Certificates (or affidavit of loss in lieu thereof
as provided in Section 4.9) for cancellation to the Exchange Agent, together with such letter of transmittal, duly
completed and validly executed in accordance with such instructions, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificates shall be entitled to receive in
exchange therefor: (x) New Parent Ordinary Shares in non-certificated book-entry form representing the New
Parent Ordinary Shares into which the Shares represented by such holder’s Certificates were converted pursuant
to Section 4.2, and the Certificates so surrendered shall forthwith be cancelled, and (y) a check in an amount of
United States dollars equal to any cash dividends or other distributions that such holder has the right to receive
pursuant to Section 4.6 less any applicable withholding Taxes as provided in Section 4.10 and without interest
thereon.
A-3
TABLE OF CONTENTS
Section 4.5 Uncertificated Shares. Promptly after the Effective Time, U.S. Holdco shall cause the
Exchange Agent to (a) mail to each holder of uncertificated Shares materials advising such holder of the
effectiveness of the Merger and the conversion of their Shares into the right to receive the Merger Consideration
and (b) deliver (i) New Parent Ordinary Shares in non-certificated book-entry form representing that number of
New Parent Ordinary Shares that such holder is entitled to receive in respect of each such uncertificated Share
pursuant to Section 4.2 and (ii) a check in an amount of United States dollars equal to any cash dividends or
other distributions that such holder has the right to receive pursuant to Section 4.6 less any applicable
withholding Taxes as provided in Section 4.10 and without interest thereon.
Section 4.6 Dividends and Distributions with Respect to Unexchanged Shares; Voting.
(a) All New Parent Ordinary Shares to be issued pursuant to the Merger shall be issued and outstanding as
of the Effective Time and whenever a dividend or other distribution is declared by New Parent in respect of the
New Parent Ordinary Shares, the record date for which is after the Effective Time, that declaration shall include
dividends or other distributions in respect of all New Parent Ordinary Shares issued in the Merger. The Exchange
Agent shall hold any New Parent Ordinary Shares in respect of unsurrendered Certificates in trust for the holder
of such Certificate until such Certificate (or affidavit of loss in lieu thereof as provided in Section 4.8) has been
surrendered for exchange in accordance with this Article IV. No dividends or other distributions in respect of the
New Parent Ordinary Shares shall be paid to any holder of any unsurrendered Certificate until such Certificate
(or affidavit of loss in lieu thereof as provided in Section 4.8) has been surrendered for exchange in accordance
with this Article IV. Subject to applicable Law and the provisions of this Article IV, following surrender of any
such Certificate (or affidavit of loss in lieu thereof as provided in Section 4.8), there shall be delivered to the
record holder of the certificates representing shares of New Parent Ordinary Shares in exchange therefor, and,
after deduction for any applicable withholding Taxes as provided in Section 4.10 and without interest thereon,
(i) at the time of such surrender, the dividends or other distributions with a record date after the Effective Time
with respect to such New Parent Ordinary Shares and not theretofore paid and (ii) at the appropriate payment
date, the dividends or other distributions payable with respect to such New Parent Ordinary Shares with a record
date after the Effective Time, but with a payment date subsequent to such surrender.
(b) Registered holders of unsurrendered Certificates shall be entitled to direct the Exchange Agent how to
vote the number of New Parent Ordinary Shares represented by such unsurrendered Certificates at any meeting of
New Parent shareholders with a record date at or after the Effective Time, regardless of whether such holders have
exchanged their Certificates.
Section 4.7 Transfers. From and after the Effective Time there shall be no transfers on the stock transfer
books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time.
Section 4.8 Termination of Exchange Fund. Any portion of the Exchange Fund (including the proceeds
of any investments of the Exchange Fund and any New Parent Ordinary Shares) which has not been transferred to
the holders of Shares as of the one year anniversary of the Effective Time shall be delivered at the direction of
U.S. Holdco to New Parent or its designee, upon demand. Any holder of Certificates (as applicable) who has not
theretofore complied with this Article IV prior to the one year anniversary of the Effective Time shall thereafter
look only to New Parent for delivery of New Parent Ordinary Shares and payment of any dividends and other
distributions in respect thereof, in each case, less any applicable withholding Taxes as provided in Section 4.10
and without any interest thereon. Notwithstanding the foregoing, none of the Surviving Corporation, New
Parent, the Exchange Agent or any other Person shall be liable to any former holder of Shares for any amount
properly delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws.
Section 4.9 Transferred Certificates; Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and compliance with the replacement requirements
established by the Exchange Agent including, if required by the Exchange Agent, the posting by such Person of
a bond in customary amount and upon such terms as may be required by New Parent as indemnity against any
claim with respect to such Certificate that may be made against it, the Exchange
A-4
TABLE OF CONTENTS
Agent or the Surviving Corporation, the Exchange Agent shall deliver to such Person (or its designee) in
exchange for such lost, stolen or destroyed Certificate, the New Parent Ordinary Shares and any dividends and
other distributions in respect of the New Parent Ordinary Shares that would have been delivered pursuant to the
provisions of this Article IV had such lost, stolen or destroyed Certificate been surrendered. If delivery of the
Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate
is registered, it shall be a condition of delivery that the Certificate so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the Person requesting such delivery shall have paid to the
Exchange Agent any transfer and other Taxes required by reason of the delivery of the Merger Consideration to
a Person other than the record holder of the Certificate surrendered or shall have established to the satisfaction of
the Exchange Agent that such Tax either has been paid or is not applicable.
Section 4.10 Withholding Rights. Each of New Parent, U.S. Holdco, Merger Sub, the Surviving
Corporation and the Exchange Agent, as applicable, shall be entitled to deduct and withhold from any
consideration or amount otherwise payable pursuant to this Agreement such amounts as it is required to deduct
and withhold with respect to the making of such payment under any applicable Tax Law. To the extent that
amounts are so withheld by New Parent, U.S. Holdco, Merger Sub, the Surviving Corporation or the Exchange
Agent, as the case may be, such withheld amounts (a) shall be remitted to the applicable Governmental Entity
and (b) shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which
such deduction and withholding was made. To the extent that the amount so required to be deducted or withheld
under applicable Tax Law from the payment of any consideration otherwise payable to any Person pursuant to
this Agreement exceeds the cash consideration otherwise payable to such Person pursuant to this Agreement,
each of New Parent, U.S. Holdco, Merger Sub, the Surviving Corporation and the Exchange Agent, as applicable,
is hereby authorized to sell such portion of the New Parent Ordinary Shares or other non-cash consideration
otherwise payable to such Person as is necessary to provide sufficient funds to enable it to comply with such
deduction and withholding requirement.
ARTICLE V
Treatment of ARRIS Stock Plan Awards
Section 5.1 Treatment of Options. Each option to acquire Shares granted under the ARRIS Stock Plans
(each, an “ARRIS Option”), whether vested or unvested, that is outstanding immediately prior to the Effective
Time shall, as of the Effective Time, cease to represent an option to acquire Shares and shall be converted, at the
Effective Time, into an option to acquire that number of New Parent Ordinary Shares equal to the number of
Shares subject to such ARRIS Option immediately prior to the Effective Time, at an exercise price per share
equal to the per share exercise price applicable to such ARRIS Option immediately prior to the Effective Time
(as converted, a “New Parent Option”) and, except as required in order to comply with applicable Law, such New
Parent Option will continue to have, and be subject to, the same terms and conditions that were applicable to the
corresponding ARRIS Option immediately prior to the Effective Time.
Section 5.2 Treatment of Restricted Shares. Each restricted Share granted under the ARRIS Stock Plans
(each, an “ARRIS Restricted Share”), that is outstanding immediately prior to the Effective Time shall, as of the
Effective Time, cease to be a Share and shall be converted into a restricted New Parent Ordinary Share (as
converted, a “New Parent Restricted Share”) and, except as required in order to comply with applicable Law,
such New Parent Restricted Share will continue to have, and be subject to, the same terms and conditions that
were applicable to the corresponding ARRIS Restricted Share immediately prior to the Effective Time.
A-5
TABLE OF CONTENTS
Section 5.3 Treatment of Restricted Stock Units. Each restricted stock unit granted under the ARRIS
Stock Plans (each, an “ARRIS RSU”) that is outstanding immediately prior to Effective Time shall, as of the
Effective Time, cease to represent a restricted stock unit with respect to Shares and shall be converted into a
restricted stock unit with respect to that number of New Parent Ordinary Shares equal to the number of Shares
subject to the ARRIS RSU immediately prior to the Effective Time (as converted, a “New Parent RSU”) and,
except as required in order to comply with applicable Law, such New Parent RSU will continue to have, and be
subject to, the same terms and conditions that were applicable to the corresponding ARRIS RSU immediately
prior to the Effective Time (including settlement in cash or shares, as applicable).
Section 5.4 Treatment of ESPP. Each right to purchase Shares under the ARRIS Stock Plans (each, an
“ARRIS ESPP”) that is outstanding immediately prior to the Effective Time shall, as of the Effective Time, cease
to represent a right to purchase Shares and shall be converted, at the Effective Time, into a right to acquire that
number of New Parent Ordinary Shares equal to the number of Shares subject to such ARRIS ESPP immediately
prior to the Effective Time, at an exercise price per share equal to the per share exercise price applicable to such
ARRIS ESPP immediately prior to the Effective Time (as converted, a “New Parent ESPP”) and, except as
required in order to comply with applicable Law, such New Parent ESPP will continue to have, and be subject to,
the same terms and conditions that were applicable to the corresponding ARRIS ESPP immediately prior to the
Effective Time
Section 5.5 Corporate Actions. At or prior to the Effective Time, ARRIS, the board of directors of ARRIS
and the compensation committee of the board of directors of ARRIS, as applicable, shall adopt any resolutions
and take any actions which are necessary to effectuate the provisions of Sections 5.1, 5.2, 5.3 and 5.4. New
Parent shall reserve for issuance a number of New Parent Ordinary Shares at least equal to the number of New
Parent Ordinary Shares that will be subject to New Parent Options, New Parent Restricted Shares, New Parent
RSUs and New Parent ESPPs as a result of the actions contemplated by Sections 5.1, 5.2, 5.3 and 5.4. Subject to
applicable Law, New Parent shall take all corporate action necessary to assume the ARRIS Stock Plans and the
award agreements thereunder that are applicable to the ARRIS Options, ARRIS Restricted Shares, ARRIS RSUs
and ARRIS ESPPs.
ARTICLE VI
Condition, Termination and Amendments
Section 6.1 Conditions. The respective obligation of each party to effect the Merger shall be subject to
the satisfaction, or, in the case of Section 6.1(b) or Section 6.1(c), waiver in whole or in part by ARRIS, at or prior
to the Closing of each of the following conditions:
(a) ARRIS Stockholder Approval. This Agreement shall have been duly adopted by the affirmative
vote of the holders of a majority of the outstanding Shares entitled to vote on such matter at an ARRIS
stockholders’ meeting duly called and held for such purpose in accordance with applicable Law and the
certificate of incorporation and bylaws of ARRIS; and
(b) Effectiveness of Pace Acquisition. The Pace Acquisition shall have become Effective
immediately prior to the Effective Time.
(c) Lux Finco 2 Transfer. U.S. Holdco shall have unconditionally and irrevocably transferred all of
its shares of Lux Finco 2 to New Parent.
Section 6.2 Termination. Subject to Section 7.4, this Agreement may be terminated at any time prior to
the Effective Time by a written instrument executed by each of the parties hereto, whether before or after
adoption of this Agreement by the holders of Shares and the sole member of Merger Sub.
Section 6.3 Amendment. Subject to Section 7.4, and subject to the provisions of applicable Law, at any
time prior to the Effective Time, this Agreement may be amended, modified or supplemented in writing by the
parties hereto, if such action has been approved by action of the board of directors (or equivalent governing
body) of each the respective parties.
A-6
TABLE OF CONTENTS
ARTICLE VII
Miscellaneous Provisions
Section 7.1 Certain Definitions. As used in this Agreement, the following terms have the meanings set
forth below:
(a) “ARRIS Stock Plans” means, collectively, the Broadband Parent Corporation 2001 Stock
Incentive Plan; the ARRIS Group, Inc. 2004 Stock Incentive Plan; the ARRIS Group, Inc. 2007 Stock
Incentive Plan; the ARRIS Group, Inc. 2008 Stock Incentive Plan; the ARRIS Group, Inc. 2011 Stock
Incentive Plan, as amended; the ARRIS Group, Inc. 2012 Israeli Sub Plan to the 2011 Stock; the Big Band
Networks, Inc. 2007 Equity Incentive Plan, as amended; the Big Band Networks, Inc. 2007 Equity
Incentive Plan Israeli Sub-Plan; the ARRIS Group, Inc. Amended and Restated Employee Stock Purchase
Plan (2015), the ARRIS Group, Inc. 2012 Israeli Sub Plan to the Employee Stock Purchase Plan; and the
ARRIS Group, Inc., Sub-Plan to the Amended and Restated Employee Stock Purchase Plan for participants
located in the European Union/European Economic Area.
(b) “business day” means any day ending at 11:59 p.m. (Eastern Time) other than a Saturday or
Sunday or a day on which banks are required or authorized to close in the County of New York or in
London, England.
(c) “Companies Act” means the UK Companies Act 2006, as amended.
(d) “Effective” means that the Pace Acquisition shall have become effective in accordance with its
terms or, in the event ARRIS has elected to implement the Pace Acquisition by way of a takeover offer as
defined in section 974 of the Companies Act, such takeover offer shall have become or been declared
unconditional in all respects.
(e) “Governmental Entity” means any domestic or foreign governmental or regulatory authority,
agency, commission, body, court or other legislative, executive or judicial governmental entity.
(f) “Law” means any federal, state, local or foreign laws or regulations (whether civil, criminal or
administrative), common law, statutory instruments, treaties, conventions, directives, regulations or rules
made thereunder, ordinance, regulations, judgments, orders, injunctions, decrees, resolutions, arbitration
awards, agency requirements, writs, franchises, variances, exemptions, approvals, licenses or permits in any
applicable jurisdiction (including the United States, the United Kingdom, the European Union or
elsewhere), including any rules of any relevant Governmental Entity.
(g) “Lux Finco 2” means a limited liability company to be organized under the laws of Luxembourg
as a wholly owned subsidiary of U.S. Holdco and capitalized with promissory notes in amounts and terms as
agreed by ARRIS and New Parent.
(h) “Person” means any individual, corporation, general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, Governmental Entity, or other entity of any
kind or nature.
(i) “Press Announcement” means the announcement detailing the terms and conditions of the Pace
Acquisition to be made in accordance with Rule 2.7 of the U.K. City Code on Takeovers and Mergers, in
the form set out in Schedule 1 to the Co-Operation Agreement.
(j) “Tax” means all United States and non-United States taxes of any kind, including, without
limitation, federal, state, local, provincial and other taxes and income, gain, profits, windfall profits,
franchise, gross receipts, environmental, customs duty, capital stock, severances, stamp, transfer,
documentary, payroll, sales, employment, unemployment, disability, use, property, withholding, backup
withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts
and any interest in respect of such penalties and additions.
(k) “Treasury Shares” means Shares held in treasury by ARRIS.
A-7
TABLE OF CONTENTS
Section 7.2 Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which taken together shall constitute one and the same
instrument.
Section 7.3 Interpretation. The headings herein are for convenience of reference only, do not constitute
part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a
reference in this Agreement is made to a Section, such reference shall be to a Section of to this Agreement unless
otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they
shall be deemed to be followed by the words “without limitation.”
Section 7.4 Rights of Pace. Pursuant to the Co-Operation Agreement, New Parent and ARRIS have agreed
to comply with their obligations under this Agreement and not to make any amendments to this Agreement or to
terminate this Agreement, in each case, without the prior written consent of Pace (which cannot be unreasonably
withheld, conditioned or delayed) and otherwise subject to the terms and conditions set forth in the CoOperation Agreement with respect thereto.
Section 7.5 No Third Party Beneficiaries. Except as provided in Sections 7.4 and 7.6, the parties hereto
agree that this Agreement is solely for the benefit of the parties hereto, in accordance with and subject to the
terms of this Agreement, and nothing in this Agreement, expressed or implied, is intended or shall be construed
to confer upon any Person other than the parties hereto any right, remedy or claim under or by reason of this
Agreement.
Section 7.6 Indemnification.
(a) New Parent and U.S. Holdco, respectively, agree that all rights to indemnification, advancement of
expenses or exculpation (including all limitations on personal liability) existing as of the date of this Agreement
in favor of each present and former director, officer or employee of ARRIS or any of its subsidiaries provided for
in their respective organizational documents or in any agreement to which ARRIS or any of its subsidiaries is a
party in respect of actions or omissions occurring at or prior to the Effective Time (including actions or
omissions occurring at or prior to the Effective Time arising out of the transactions contemplated by this
Agreement) shall survive the consummation of the Merger and shall continue in full force and effect in
accordance with their terms. For a period of six (6) years after the Effective Time, New Parent and U.S. Holdco,
respectively, shall maintain in effect the provisions for indemnification, advancement of expenses or
exculpation in the organizational documents of ARRIS and its subsidiaries or in any agreement to which ARRIS
or any of its subsidiaries is a party and shall not amend, repeal or otherwise modify such provisions in any
manner that would adversely affect the rights thereunder of any individuals who at any time prior to the
Effective Time were directors, officers or employees of ARRIS or any of its subsidiaries in respect of actions or
omissions occurring at or prior to the Effective Time (including actions or omissions occurring at or prior to the
Effective Time arising out of the transactions contemplated by this Agreement); provided, however, that in the
event any claim, action, suit proceeding or investigation is pending, asserted or made either prior to the
Effective Time or within such six year period, all rights to indemnification, advancement of expenses or
exculpation required to be continued pursuant to this Section 7.6(a) in respect thereof shall continue until
disposition thereof.
(b) At and after the Effective Time, New Parent, U.S. Holdco and ARRIS shall, to the fullest extent
permitted under applicable Law, indemnify and hold harmless each present and former director, officer or
employee of ARRIS or any of its subsidiaries and each person who served as a director, officer, member, trustee
or fiduciary of another company, joint venture, trust or other enterprise if such service was at the request or for
the benefit of ARRIS or any of its subsidiaries (each, together with his or her respective heirs and representatives,
an “ARRIS Indemnified Party” and, collectively, the “ARRIS Indemnified Parties”) against all costs and
expenses (including advancing attorneys’ fees and expenses in advance of the final disposition of any actual or
threatened claim, suit, proceeding or investigation to each ARRIS Indemnified Party to the fullest extent
permitted by Law), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in
connection with any actual or threatened claim, action, suit, proceeding or investigation (whether arising before,
at or after the Effective Time), whether civil, criminal, administrative or investigative, arising out of or
pertaining to any action or omission in such person’s capacity as a director, officer or employee of ARRIS or any
of its subsidiaries or as a director, officer, member, trustee or fiduciary of another company, joint venture, trust or
other enterprise if such service was at the request or
A-8
TABLE OF CONTENTS
for the benefit of ARRIS or any of its subsidiaries, in each case occurring or alleged to have occurred at or before
the Effective Time (including actions or omissions occurring at or prior to the Effective Time arising out of the
transactions contemplated by this Agreement).
(c) For a period of six years from the Effective Time, New Parent and U.S. Holdco, respectively, shall cause
to be maintained in effect (i) the coverage provided by the policies of directors’ and officers’ liability insurance
and fiduciary liability insurance in effect as of the Effective Time maintained by ARRIS and its subsidiaries with
respect to matters arising on or before the Effective Time (provided that New Parent and U.S. Holdco may
substitute therefor policies with a carrier with comparable credit ratings to the existing carrier of at least the same
coverage and amounts containing terms and conditions that are no less favorable to the insured) or (ii) a “tail”
policy (which ARRIS may purchase at its option prior to the Effective Time, and, in such case, New Parent and
ARRIS, respectively, shall cause such policy to be in full force and effect, and shall cause all obligations
thereunder to be honored by ARRIS) under ARRIS’s existing directors’ and officers’ insurance policy that covers
those persons who are currently covered by ARRIS’s directors’ and officers’ insurance policy in effect as of the
date hereof for actions and omissions occurring at or prior to the Effective Time, is from a carrier with
comparable credit ratings to ARRIS’s existing directors’ and officers’ insurance policy carrier and contains terms
and conditions that are no less favorable to the insured than those of ARRIS’s directors’ and officers’ insurance
policy in effect as of the date hereof.
(d) The rights of each ARRIS Indemnified Party under this Section 7.6 shall be in addition to, and not in
limitation of, any other rights such ARRIS Indemnified Party may have under the organizational documents of
ARRIS or any of its subsidiaries, as applicable, any agreement, any insurance policy, Delaware law (or any other
applicable Law) or otherwise. The provisions of this Section 7.6 shall survive the consummation of the Merger
and shall not be terminated or modified in such a manner as to adversely affect any ARRIS Indemnified Party
without the written consent of such affected ARRIS Indemnified Party (it being expressly agreed that the ARRIS
Indemnified Parties shall be third party beneficiaries of this Section 7.6 and shall be entitled to enforce the
covenants contained in this Section 7.6). New Parent and U.S. Holdco shall be jointly and severally responsible
for paying all reasonable expenses, including attorneys’ fees, that may be incurred by any ARRIS Indemnified
Party in enforcing the indemnity and other obligations provided for in this Section 7.6.
(e) In the event any of New Parent, U.S. Holdco or any of their respective successors or assigns
(i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or
entity of such consolidation or merger, or (ii) transfers or conveys more than 50% of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper provision shall be made so that the
successors and assigns of New Parent and/or U.S. Holdco, as the case may be, assume the obligations set forth in
this Section 7.6.
Section 7.7 Governing Law.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN, AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF, THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF TO THE
EXTENT THAT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER JURISDICTION.
(b) Any suit, claim, action, hearing, charge, or other procedure of any nature (an “Action”) involving the
parties hereto, arising out of or relating to this Agreement or the transactions contemplated hereby shall be
brought solely and exclusively in the state courts of the State of Delaware; provided that if (and only after) such
courts determine that they lack subject matter jurisdiction over any such Action, such Action shall be brought
solely and exclusively in the Federal courts of the United States located in the District of Delaware, or any direct
appellate court therefrom. Each of the parties hereto agrees that a final judgment (subject to any appeals
therefrom) in any such Action shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by Law. Each party hereby irrevocably submits to the exclusive
jurisdiction of such courts in respect in any Action between the parties arising out of or relating to this
Agreement or the transactions contemplated hereby, and hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objections which it
A-9
TABLE OF CONTENTS
may now or hereafter have to the laying of venue of any Action between the parties arising out of or relating to
this Agreement or the transactions contemplated hereby in any such court in accordance with the provisions of
this Section 7.7(b). Each of the parties hereto irrevocably waives, to the fullest extent permitted by Law, the
defense of an inconvenient forum to the maintenance of such Action in any such court. Nothing in this
Agreement will affect the right of any party to this Agreement.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (IV)
EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.7(c).
Section 7.8 Specific Performance. The parties agree that irreparable damage would occur in the event
that any provision of this Agreement were not performed in accordance with the terms hereof. It is accordingly
agreed that if the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in accordance with Section 7.7, this being
in addition to any other remedy to which such party is entitled at law or in equity.
[Remainder of Page Intentionally Left Blank.]
A-10
TABLE OF CONTENTS
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date hereof.
ARRIS GROUP, INC.
By: /s/ Lawrence A. Margolis
Name: Lawrence A. Margolis
Title: Executive Vice President, Law &
Administration, and Secretary
ARCHIE ACQ LIMITED
By: /s/ Lawrence A. Margolis
Name: Lawrence A. Margolis
Title: Director
ARCHIE U.S. HOLDINGS LLC
By: /s/ Lawrence A. Margolis
Name: Lawrence A. Margolis
Title: President
ARCHIE U.S. MERGER LLC
By: /s/ Lawrence A. Margolis
Name: Lawrence A. Margolis
Title: President
A-11
TABLE OF CONTENTS
ANNEX B
2.7 ANNOUNCEMENT
TABLE OF CONTENTS
Annex B​
Part I
Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any
jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such
jurisdiction.
FOR IMMEDIATE RELEASE
22 APRIL 2015​
RECOMMENDED COMBINATION
OF
PACE PLC
AND
ARRIS GROUP, INC.
Summary
•
The Boards of ARRIS and Pace are pleased to announce that they have reached agreement on the terms of a
recommended combination of Pace with ARRIS.
•
Under the terms of the Merger, Pace Shareholders will be entitled to receive:
for each Pace Share: 132.5 pence in cash
and
0.1455 New ARRIS Shares
•
The Merger terms represent an indicative value of 426.5 pence per Pace Share based on ARRIS’s closing
share price of US$30.16 on the Latest Practicable Date (being 21 April 2015).
•
The indicative value of 426.5 pence per Pace Share values the entire issued and to be issued share capital of
Pace on a fully diluted basis at approximately £1.4 billion and represents:
◦
a premium of approximately 27.6 per cent. to the closing price of 334.2 pence per Pace Share on
the Latest Practicable Date; and
◦
an implied enterprise value/Adjusted EBITDA multiple of Pace of approximately 8.2x.
•
The Boards of ARRIS and Pace have agreed that, in addition to the consideration payable in connection
with the Merger, Pace Shareholders will continue to be entitled to receive the proposed final dividend for
2014 of 4.75 cents, payable on 3 July 2015 to Pace Shareholders on the register on 5 June 2015.
•
The Merger will enable the Combined Group to better serve customers in markets across the globe with its
enhanced scope and scale, broad geographic footprint and innovative product offerings.
•
The Merger is expected to generate compelling financial benefits, including significant synergies from the
optimisation of back-office infrastructure, component procurement and go-to-market efficiencies, and the
removal of Pace’s public company costs.
•
The Combined Group is expected to have 2014 pro forma revenues of approximately US$8 billion and will
employ over 8,500 people globally in more than 15 countries.
•
ARRIS expects the Transaction to be US$0.45 – US$0.55 per share accretive to ARRIS’s Non-GAAP EPS1
in the first twelve months following completion. ARRIS expects the Transaction to reduce the US nonGAAP effective tax rate of New ARRIS to approximately 26 to 28 per cent. in the first full year following
closing.
1
Non-GAAP EPS excludes stock compensation expense, amortization of intangible assets, restructuring
charges, acquisition, integration, other one-time items and their related income tax effect. The statement that
the Transaction is expected to be earnings accretive should not be construed as a profit forecast and is
therefore not subject to the requirements of Rule 28 of the Code. It should not be interpreted to mean that the
earnings per share in any future financial period will necessarily match or be greater than those for the relevant
preceding financial period.
B-1
TABLE OF CONTENTS
•
ARRIS has a strong track record of successfully generating shareholder value from prior transactions,
including its acquisition of Motorola Home in 2013, since the announcement of which ARRIS’s share price
has more than doubled.
•
It is New ARRIS’s intent, upon completion of the Merger, to continue to invest in its organic businesses
(including the businesses of Pace), to continue to add adjacent acquisitions, to reduce its leverage and to
consider share repurchases as appropriate.
•
The Merger will result in Pace Shareholders holding approximately 24 per cent. of the Combined Group.
•
The Pace Board, which has been so advised by J.P. Morgan Cazenove, considers the terms of the Merger to
be fair and reasonable. In providing advice to the Pace Board, J.P. Morgan Cazenove has taken into
account the commercial assessments of the Pace Directors.
•
The Pace Board believes that the terms of the Transaction are in the best interests of Pace Shareholders as a
whole and intends unanimously to recommend that Pace Shareholders vote in favour of the resolutions to
be proposed at the Court Meeting and the General Meeting to approve the Merger, as the Pace Directors
have irrevocably undertaken to do in respect of their own beneficial holdings of 1,063,293 Pace Shares
representing, in aggregate, approximately 0.34 per cent. of the ordinary share capital of Pace in issue on the
Latest Practicable Date.
•
In order to undertake the Transaction, ARRIS has formed a new company, New ARRIS, which is
incorporated in England and Wales. Following completion of the Transaction, New ARRIS will be the
holding company of the Pace Group and the ARRIS Group and will operate globally under the ARRIS
brand name. To do so, ARRIS will undertake the ARRIS Merger pursuant to the US Merger Agreement.
•
Pursuant to the ARRIS Merger, ARRIS Stockholders will receive one New ARRIS Share for each ARRIS
Share. The ARRIS Board has approved the Transaction and intends to recommend that ARRIS
Stockholders vote in favour of the adoption of the US Merger Agreement.
•
It is intended that the New ARRIS Shares will be listed on NASDAQ.
•
It is intended that the Merger will be implemented by means of a court-sanctioned Scheme of Arrangement
between Pace and the Scheme Shareholders under Part 26 of the Companies Act.
•
The Merger will be conditional on, amongst other things, the approval of the Scheme by the Scheme
Shareholders, the sanction of the Scheme by the Court, the adoption of the US Merger Agreement by
ARRIS Stockholders, and the receipt of certain merger control clearances, including under the United
States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations
promulgated thereunder.
•
The Conditions to the Merger are set out in full in Appendix I to this Announcement.
•
It is expected that the Scheme Circular will be published in the third quarter of 2015 and that, subject to the
satisfaction, or where relevant waiver, of all relevant Conditions, the Scheme will become Effective and the
Transaction is expected to complete in late 2015.
Commenting on the Merger, Bob Stanzione, Chairman, Chief Executive Officer and President of ARRIS said:
“This transaction is another example of ARRIS’s ongoing strategy of investing in the right opportunities to
position our company for growth. Adding Pace’s talent, products and diverse customer base will provide ARRIS
with a large scale entry into the satellite segment, broaden our portfolio and expand our global presence. We
expect this merger will enable ARRIS to increase our speed of innovation. We believe this is a tremendous
opportunity for ARRIS and our customers, employees, shareholders and partners around the world as we
collaborate to invent the future. We look forward to working with the talented and accomplished team at
Pace.”
B-2
TABLE OF CONTENTS
Commenting on the Merger, Allan Leighton, Chairman of Pace said:
“Pace plc is a great company with a strong track record of pioneering innovation and excellent customer
service. Through a combination of organic development and acquisitions, Pace has grown to be a leading
technology solutions provider to the PayTV and Broadband industries serving cable, satellite and telco
customers across the globe. Over the last three years, Mike Pulli and the wider Pace team have successfully
executed against our strategic plan to develop Pace into a more distinctive, profitable and cash generative
company, creating significant value for shareholders.
The Pace Directors believe that ARRIS’s offer recognises this value and also gives our shareholders the
opportunity to share in the future success of the Combined Group. While we believe that Pace is strongly
positioned to continue to execute its strategy in the medium and long term, we believe that the combination of
the complementary ARRIS and Pace businesses will create a platform for future growth above and beyond our
standalone potential. We believe this is a great fit for both companies, our employees, customers and trading
partners.”
This summary should be read in conjunction with the full text of the following announcement including the
Appendices. The Conditions and certain further terms of the Merger are set out in Appendix I. Appendix II
contains bases and sources of certain information contained within this document. Appendix III contains
details of the irrevocable undertakings given to ARRIS. Appendix IV contains the definitions of certain terms
used in this Announcement.
There will be an ARRIS investor call at 5:00pm US Eastern time, 22 April 2015. Dial-in details are set out below:
UK toll free: 080 0055 6013
Secondary UK dial in: +44 20 7136 5118
US toll free: 888 713 4218
Secondary US dial in: +1 617 213 4870
Passcode: 141904410
A replay of the conference call can be accessed approximately two hours after the call through 29 April 2015 by
dialing +1 (888) 286-8010 or +1 (617) 801-6888 and using the pass code 55255256.
Live internet access to the call will be available through the Investor Relations section of the ARRIS’s website at
www.arris.com.
A replay will also be made available for a period of 12 months following the conference call on ARRIS’s website
at www.arris.com.
Enquiries:
ARRIS Investor Contacts
Bob Puccini
Tel: (+1 720 895 7787)
ARRIS Media Contacts
Jeanne Russo
Tel: (+1 215 323 1880)
David Hulmes
Tel: (+44 118 921 5550)
Evercore (Financial Adviser to ARRIS)
Naveen Nataraj
Tel: (+1 212 857 3100)
Edward Banks
Tel: (+44 20 7653 6000)
B-3
TABLE OF CONTENTS
Pace Investor Contacts
Mark Shuttleworth
Chris Mather
Tel: (+44 1274 538 330)
J.P. Morgan Cazenove (Financial Adviser and Corporate Broker to Pace)
Hugo Baring
Thomas White
Dwayne Lysaght
Sam Roberts
Tel: (+44 20 7742 4000)
Jefferies (Corporate Broker)
Nick Adams
David Watkins
Tel: (+44 20 7029 8000)
Pace Media Contacts
(Pendomer Communications)
Charles Chichester
Tel: (+44 20 3603 5220)
Further information
This Announcement is provided for informational purposes only and does not constitute an offer to sell, or an
invitation to subscribe for, purchase or exchange, any securities or the solicitation of any vote or approval in any
jurisdiction, nor shall there be any sale, issuance, exchange or transfer of the securities referred to in this
document in any jurisdiction in contravention of applicable law. This Announcement does not constitute a
prospectus or a prospectus equivalent document.
Any vote by the Scheme Shareholders in respect of the Merger should only be made on the basis of the
information contained in the Scheme Circular, which will contain the full terms and conditions of the Merger
(including details of how to vote). Pace Shareholders are advised to read the formal documentation in relation to
the Merger carefully once it has been dispatched.
Please be aware that addresses, electronic addresses and certain other information provided by Pace
Shareholders, persons with information rights and other relevant persons in connection with the receipt of
communications from Pace may be provided to New ARRIS during the offer period as required under Section 4
of Appendix 4 of the Code.
Evercore (which is authorised and regulated by the Financial Conduct Authority in the United Kingdom), is
acting as financial adviser to ARRIS and no-one else in connection with the Transaction and will not be
responsible to anyone other than ARRIS for providing the protections afforded to clients of Evercore nor for
providing advice in relation to the Transaction or any other matters referred to in this Announcement.
J.P. Morgan Cazenove (which is authorised and regulated by the Financial Conduct Authority in the United
Kingdom), is acting as financial adviser exclusively for Pace and no-one else in connection with the Transaction
and will not be responsible to anyone other than Pace for providing the protections afforded to clients of J.P.
Morgan Cazenove nor for providing advice in relation to the Transaction or any other matters referred to in this
Announcement.
Jefferies (which is authorised and regulated by the Financial Conduct Authority in the United Kingdom), is
acting as financial adviser exclusively for Pace and no-one else in connection with the Transaction and will not
be responsible to anyone other than Pace for providing the protections afforded to clients of Jefferies nor for
providing advice in relation to the Transaction or any other matters referred to in this Announcement.
B-4
TABLE OF CONTENTS
Overseas jurisdictions
The availability of the New ARRIS Shares in, and the release, publication or distribution of this Announcement
in or into, jurisdictions other than the United Kingdom may be restricted by law and therefore persons into
whose possession this Announcement comes who are not resident in the United Kingdom should inform
themselves about, and observe any applicable restrictions. Pace Shareholders who are in any doubt regarding
such matters should consult an appropriate independent adviser in their relevant jurisdiction without delay. Any
failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction.
This Announcement has been prepared for the purposes of complying with English law and the Code and the
information disclosed may not be the same as that which would have been disclosed if this Announcement had
been prepared in accordance with the laws of jurisdictions outside the United Kingdom.
Rule 2.10 disclosures
In accordance with Rule 2.10 of the Takeover Code, as at close of business on 21 April 2015 (being the Latest
Practicable Date), there were 316,644,229 Pace Shares in issue and admitted to trading on the main market of the
London Stock Exchange. There are no Pace Shares held in treasury. The ISIN Number for the Pace Shares is
GB0006672785.
In accordance with Rule 2.10 of the Takeover Code, as at close of business on 21 April 2015 (being the Latest
Practicable Date), there were 146,070,290 ARRIS Shares issued and outstanding and admitted to trading on
NASDAQ. The ISIN Number for the ARRIS Shares is US04270V1061.
Notes to US investors in Pace
In furtherance of the Transaction, New ARRIS intends to file with the SEC a registration statement on Form S-4
containing a Proxy Statement of ARRIS that will also constitute a Prospectus of New ARRIS relating to the New
ARRIS Shares to be issued to ARRIS Stockholders in the Transaction. In addition, any of ARRIS, New ARRIS
and Pace may file additional documents with the SEC.
INVESTORS AND SECURITY HOLDERS OF ARRIS AND PACE ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS, AND OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION
WITH THE TRANSACTION CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. Those documents, if and when filed, as well as ARRIS’s and New
ARRIS’s other public filings with the SEC may be obtained without charge at the SEC’s website at www.sec.gov,
at ARRIS’s website at www.arris.com and at Pace’s website at www.pace.com. It is expected that the New ARRIS
Shares to be issued to Pace Shareholders under the Scheme will be issued in reliance upon the exemption from
the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof.
ARRIS, its directors and certain of its executive officers may be considered participants in the solicitation of
proxies in connection with the transactions contemplated by the Proxy Statement/Prospectus. Information about
the directors and executive officers of ARRIS is set forth in its Annual Report on Form 10-K for the year ended
31 December 2014, which was filed with the SEC on 27 February 2015, and its proxy statement for its 2015
annual meeting of stockholders, which was filed with the SEC on 9 April 2015. Other information regarding
potential participants in the proxy solicitations and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the Proxy Statement/​Prospectus.
Pace and New ARRIS are each incorporated under the laws of England. Some of the officers and directors of Pace
and New ARRIS are residents of countries other than the United States. It may not be possible to bring an action
against Pace and New ARRIS in a non-US court for violations of the US securities laws. It may be difficult to
compel Pace, New ARRIS and their respective affiliates to subject themselves to the jurisdiction and judgment
of a US court.
Share purchases
In accordance with normal UK practice and subject to compliance with the US Securities Exchange Act of 1934,
as amended, ARRIS or its nominees, or its brokers (acting as agents), may from time to time make
B-5
TABLE OF CONTENTS
certain purchases of, or arrangements to purchase, Pace Shares outside of the United States, other than pursuant
to the Merger, until the date on which the Merger becomes Effective, lapses or is otherwise withdrawn. These
purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices.
Any information about such purchases will be disclosed as required in the UK, will be reported to the Regulatory
Information Service of the London Stock Exchange and will be available on the London Stock Exchange
website at http://www.londonstockexchange.com/exchange/news/​market-news/market-news-home.html.
Notes regarding New ARRIS Shares
The New ARRIS Shares to be issued pursuant to the Merger have not been and will not be registered under the
relevant securities laws of Japan and the relevant clearances have not been, and will not be, obtained from the
securities commission of any province of Canada. No prospectus in relation to the New ARRIS Shares has been,
or will be, lodged with, or registered by, the Australian Securities and Investments Commission. Accordingly,
the New ARRIS Shares are not being, and may not be, offered, sold, resold, delivered or distributed, directly or
indirectly in or into Australia, Canada or Japan or any other jurisdiction if to do so would constitute a violation
of relevant laws of, or require registration thereof in, such jurisdiction (except pursuant to an exemption, if
available, from any applicable registration requirements or otherwise in compliance with all applicable laws).
No Profit Forecast or Quantified Financial Benefits Statement
No statement in this Announcement is intended as a profit forecast, profit estimate or quantified financial
benefits statement and no statement in this Announcement should be interpreted to mean that earnings per Pace
Share or ARRIS Share for the current or future financial years would necessarily match or exceed the respective
historical published earnings per Pace Share or ARRIS Share or to mean that the Combined Group’s earnings in
the first twelve months following the Merger, or in any subsequent period, would necessarily match, or be
greater than or be less than those of ARRIS and/or Pace for the relevant preceding financial period or any other
period.
Dealing Disclosure requirements
Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant
securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in
respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening
Position Disclosure following the commencement of the offer period and, if later, following the announcement
in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details
of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of each of (i)
the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to
whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time (BST)) on the 10 th business day
following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time
(BST)) on the 10 th business day following the announcement in which any securities exchange offeror is first
identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities
exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing
Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of
relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure
if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A
Dealing Disclosure must contain details of the dealing concerned and of the person’s interests and short
positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any
securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A
Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London
time (BST)) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to
acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they
will be deemed to be a single person for the purpose of Rule 8.3.
B-6
TABLE OF CONTENTS
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing
Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with
any of them (see Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures
and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel’s website at
http://www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the
offer period commenced and when any offeror was first identified. You should contact the Panel’s Market
Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an
Opening Position Disclosure or a Dealing Disclosure.
Forward-looking statements
This Announcement contains certain forward-looking statements with respect to a possible combination
involving ARRIS and Pace. The words “believe”, “expect”, “anticipate”, “project” and similar expressions,
among others, generally identify forward-looking statements. These forward-looking statements are based on
numerous assumptions and assessments made in light of ARRIS’s or, as the case may be, Pace’s experience and
perception of historical trends, current conditions, business strategies, operating environment, future
developments and other factors it believes appropriate. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those indicated in the forward-looking
statements. Such risks and uncertainties include, but are not limited to, the possibility that a possible
combination will not be completed, failure to obtain necessary regulatory approvals or required financing or to
satisfy any of the other conditions to the possible combination, adverse effects on the market price of ARRIS
Shares and on ARRIS’s or Pace’s operating results because of a failure to complete the possible combination,
failure to realise the expected benefits of the possible combination, negative effects relating to the
announcement of the possible combination or any further announcements relating to the possible combination
or the consummation of the possible combination on the market price of ARRIS Shares or Pace Shares,
significant transaction costs and/or unknown liabilities, customer reaction to the announcement of the
combination, possible litigation relating to the combination or the public disclosure thereof, general economic
and business conditions that affect the combined companies following the consummation of the possible
combination, changes in global, political, economic, business, competitive, market and regulatory forces, future
exchange and interest rates, changes in tax laws, regulations, rates and policies, future business combinations or
disposals and competitive developments. These factors are not intended to be an all-encompassing list of risks
and uncertainties. Additional information regarding these and other factors can be found in ARRIS’s reports
filed with the SEC, including its Annual Report on Form 10-K for the year ended 31 December 2014, the
contents of which are not incorporated by reference into, nor do they form part of, this Announcement. By their
nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to
events and depend on circumstances that will occur in the future. The factors described in the context of such
forward-looking statements in this Announcement could cause ARRIS’s plans with respect to Pace, ARRIS’s or
Pace’s actual results, performance or achievements, industry results and developments to differ materially from
those expressed in or implied by such forward-looking statements. Although it is believed that the expectations
reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations
will prove to have been correct and persons reading this Announcement are therefore cautioned not to place
undue reliance on these forward-looking statements which speak only as at the date of this Announcement.
ARRIS and Pace expressly disclaim any obligation to release publicly any revisions to forward-looking
statements as a result of subsequent events or developments, except as required by law.
Publication on website
Pursuant to Rule 26.1 of the Code, a copy of this Announcement and other documents in connection with the
Merger will, subject to certain restrictions, be available for inspection on ARRIS’s website at www.arris.com and
Pace’s website at www.pace.com no later than 12 noon (London time (BST)) on the day following this
Announcement. The contents of the websites referred to in this Announcement are not incorporated into, and do
not form part of, this Announcement.
B-7
TABLE OF CONTENTS
Part II
Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any
jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such
jurisdiction.
FOR IMMEDIATE RELEASE
22 APRIL 2015​
RECOMMENDED COMBINATION
OF
PACE PLC
AND
ARRIS GROUP, INC.
1.
Introduction
The Boards of ARRIS and Pace are pleased to announce that they have reached agreement on the terms of a
recommended combination of Pace with ARRIS.
2.
The Merger
Under the terms of the Merger, Pace Shareholders will be entitled to receive:
for each Pace Share: 132.5 pence in cash
and
0.1455 New ARRIS Shares
The Merger terms represent an indicative value of 426.5 pence per Pace Share based on ARRIS’s closing
share price of US$30.16 on the Latest Practicable Date (being 21 April 2015).
The indicative value of 426.5 pence per Pace Share values the entire issued and to be issued share capital of
Pace on a fully diluted basis at approximately £1.4 billion and represents:
◦
a premium of approximately 27.6 per cent. to the closing price of 334.2 pence per Pace Shares on
the Latest Practicable Date; and
◦
an implied enterprise value/Adjusted EBITDA multiple of Pace of approximately 8.2x.
On the basis of approximately 48.2 million New ARRIS Shares being issued pursuant to the Merger,
following the Transaction, Pace Shareholders will hold New ARRIS Shares representing approximately 24
per cent. of the issued share capital of New ARRIS and ARRIS Stockholders will hold New ARRIS Shares
representing approximately 76 per cent. of the issued share capital of New ARRIS.
The Boards of ARRIS and Pace have agreed that, in addition to the consideration payable in connection
with the Merger, Pace Shareholders will continue to be entitled to receive the proposed final dividend for
2014 of 4.75 cents, payable on 3 July 2015 to Pace Shareholders on the register on 5 June 2015.
3.
Background to and reasons for the Transaction
The Merger will enable the Combined Group to better serve customers in markets across the globe with its
enhanced scope and scale, broad geographic footprint and innovative product offerings.
The Merger is expected to generate compelling financial benefits, including significant synergies from the
optimisation of back-office infrastructure, component procurement and go-to-market efficiencies, and the
removal of Pace’s public company costs.
The Combined Group is expected to have 2014 pro forma revenues of approximately US$8 billion and will
employ over 8,500 people globally in more than 15 countries.
B-8
TABLE OF CONTENTS
In particular, ARRIS believes:
◦
the Merger of the two companies with complementary product and geographic positions in
consumer premises equipment (“CPE”) and network infrastructure will create a global industry
player with impressive characteristics and a compelling investment thesis;
◦
the enhanced scope and scale of New ARRIS will enable it to maintain pace with recent
consolidation among operators and increase volumes across a broad array of product cost tiers,
and create manufacturing and procurement efficiencies;
◦
the Merger will diversify New ARRIS’s geographic and customer footprint, building on the
Combined Group’s strong global presence, including complementary positions in both Latin
America and Asia, two of our industry’s highest growth regions; and
◦
the Merger will provide New ARRIS with a large scale entry into the satellite segment.
ARRIS expects the Transaction to be US$0.45 - US$0.55 per share accretive to ARRIS’s Non-GAAP EPS2 in
the first twelve months following completion.
ARRIS expects the Transaction to reduce the non-GAAP effective tax rate of New ARRIS to approximately
26 to 28 per cent. in the first full year following closing.
ARRIS has a strong track record of successfully generating shareholder value from prior transactions,
including its acquisition of Motorola Home in 2013, since the announcement of which ARRIS’s share price
has more than doubled.
It is New ARRIS’s intent, upon completion of the Merger, to continue to invest in its organic businesses
(including the businesses of Pace), to continue to add adjacent acquisitions, to reduce its leverage and to
consider share repurchases as appropriate.
4.
Pace Recommendation
The Pace Board, which has been so advised by J.P. Morgan Cazenove, considers the terms of the Merger to
be fair and reasonable. In providing its advice, J.P. Morgan Cazenove has taken into account the
commercial assessments of the Pace Directors.
The Pace Board considers that the terms of the Transaction are in the best interests of Pace Shareholders as a
whole and intends unanimously to recommend that Pace Shareholders vote in favour of the resolutions to
be proposed at the Court Meeting and the General Meeting to approve the Merger, as the Pace Directors
have irrevocably undertaken to do in respect of their own beneficial shareholdings in Pace which amount in
aggregate to 1,063,293 Pace Shares, representing approximately 0.34 per cent. of the ordinary share capital
of Pace in issue on the Latest Practicable Date.
5.
Background to and reasons for the Pace recommendation
Pace has a strong track record of innovation, first-to-market solutions and excellent customer service,
having successfully operated as a provider of technology solutions to the PayTV and Broadband industries
for over thirty years. Through a combination of organic development and acquisitions Pace has grown to be
a leading technology solutions provider to the PayTV and Broadband industries serving cable, satellite and
telco customers across the globe.
Over the past three years, Pace’s management has significantly transformed Pace, resulting in a material
improvement in operational efficiency, cash flow management and recent entry into the network
infrastructure segment through the acquisition of Aurora Networks Inc. Since Mike Pulli was
2
Non-GAAP EPS excludes stock compensation expense, amortization of intangible assets, restructuring
charges, acquisition, integration, other one-time items and their related income tax effect. The statement that
the Transaction is expected to be earnings accretive should not be construed as a profit forecast and is
therefore not subject to the requirements of Rule 28 of the Code. It should not be interpreted to mean that the
earnings per share in any future financial period will necessarily match or be greater than those for the relevant
preceding financial period.
B-9
TABLE OF CONTENTS
appointed CEO in December 2011, return on sales has increased from 6.1 per cent. to 9.2 per cent., Adjusted
Basic EPS3 has increased 114 per cent., approximately US$600 million Free Cash Flow4 has been delivered
and Pace has delivered total shareholder returns of 403 per cent.
The Pace Board believes that the Transaction will create a global industry leader in the provision of
technology solutions to the PayTV and Broadband industries. The Combined Group will be well
positioned to better serve, and provide incrementally innovative solutions for, its customers in a rapidly
evolving and increasingly complex digital communications landscape. The Transaction provides excellent
opportunities for Pace’s employees to continue providing world-class expertise for Pace’s customers across
a broadened remit and platform. The Pace Board believes the Pace-ARRIS combination represents the most
compelling combination within the industry.
Pace and ARRIS have complementary customer profiles and the breadth and depth of commercial, research,
and development experience and capabilities of the Combined Group will accelerate the ability of both
companies to reach their full potential for shareholders and customers across the globe. Pace will benefit
from the Combined Group’s financial resources and the expected cost savings a combination is expected to
generate. The share component of the consideration provides Pace Shareholders with meaningful ownership
in New ARRIS allowing them to access the benefits of the Merger in addition to the continued exposure to
the PayTV and Broadband technology solutions sector.
In light of these factors, the Pace Board believes the terms of the Transaction substantially recognise Pace’s
growth potential and its longer term prospects and the Transaction is in the best interests of Pace
Shareholders as a whole. In reaching its conclusion, the Pace Directors considered the terms of the
Transaction in relation to the value and prospects of the underlying business, the potential benefits ARRIS
expects to achieve from combining its operations with those of Pace and the potential medium term
standalone value of Pace Shares. The Pace Directors intend unanimously to recommend that Pace
Shareholders vote in favour of the Scheme at the Court Meeting and the resolutions relating to the
Combination at the Pace General Meeting.
6.
Irrevocable undertakings to vote in favour of the Merger
The Pace Directors who hold Shares in Pace, being Mike Pulli, Allan Leighton, Pat Chapman-Pincher, John
Grant and Mike Inglis, have irrevocably undertaken to vote in favour of the Scheme at the Court Meeting
and the resolutions to be proposed at the General Meeting in respect of their holdings of Pace Shares which
amount, in aggregate, to 1,063,293 Pace Shares representing approximately 0.34 per cent. of the ordinary
share capital of Pace in issue on the Latest Practicable Date.
Further details of these irrevocable undertakings are set out in Appendix III to this Announcement.
7.
Information on the Pace Group
Pace is a leading technology developer for the global Pay TV industry, working across satellite, cable, IPTV
and terrestrial platforms. Pace has highly experienced specialist engineering teams, developing intelligent
and innovative products and services for both Pay TV operators and Telcos across the world.
Pace has built up its experience and expertise over 30 years and enjoys a customer base of over 200
operators around the globe (including eight of the world’s largest Pay TV operators).
Pace’s principal activities are the development, design and distribution of technologies, products and
services for managed subscription television, telephony and broadband services and the provision of
engineering design and software applications to its customers. It also provides related support services
including consulting, systems integration and customer care centres.
3
4
Based on earnings before the post-tax value of exceptional costs and amortisation of other intangibles.
Calculated as cash flow before proceeds from issue of shares, dividends, acquisition cash flows and debt
repayment/drawdown.
B-10
TABLE OF CONTENTS
Pace was founded in 1982 and is headquartered in Saltaire, United Kingdom. It employs over 2,000 people
in locations around the world, including France, the USA, Brazil, India and China.
Pace is a member of the FTSE 250 and listed on the Official List of the London Stock Exchange. Its shares
were admitted to trading on 27 June 1996.
For the year ended 31 December 2014, Pace generated revenues of US$2,620 million and Adjusted
EBITDA of approximately US$270 million.
8.
Information on the ARRIS Group
ARRIS is a global provider of entertainment and communications solutions. It operates in two business
segments: Customer Premises Equipment (“CPE”) and Network & Cloud (“N&C”). It enables service
providers, including cable, telephone, and digital broadcast satellite operators, and media programmers to
deliver media, voice, and IP data services to their subscribers.
ARRIS is a leader in set tops, digital video and Internet Protocol Television (“IPTV”) distribution systems,
broadband access infrastructure platforms, and associated data and voice CPE, which it also sells directly to
consumers through retail channels. ARRIS’s solutions are complemented by a broad array of services
including technical support, repair and refurbishment, and system design and integration.
ARRIS is headquartered in Suwanee, Georgia, USA, and is listed on NASDAQ. For the year ended
31 December 2014, ARRIS generated revenues of approximately US$5,323 million and operating income
of approximately US$341 million.
9.
Information on New ARRIS
9.1 Overview
The New ARRIS Group will operate under a new holding company, New ARRIS, and will retain operational
headquarters in Suwanee, Georgia, USA.
9.2 New ARRIS
New ARRIS is a private limited company incorporated and tax resident in England and Wales. New ARRIS
was formed solely for the purpose of effecting the Transaction. Prior to the Effective Date, New ARRIS will
be converted, pursuant to section 90 of the Companies Act, to a public limited company. To date, New
ARRIS has not conducted any activities other than those incidental to its formation and the execution of
the Co-operation Agreement and the New ARRIS Facility. Following completion of the Transaction, New
ARRIS will become the holding company of the Pace Group and the ARRIS Group.
Application will be made for the listing of New ARRIS Shares on NASDAQ. It is expected that on the
Effective Date, New ARRIS will be listed on NASDAQ.
10. Management and employees
ARRIS and Pace attach great importance to the skills and experience of the existing management and
employees of ARRIS and Pace, and New ARRIS will benefit from the combined talent of both
organisations.
ARRIS confirms that, following implementation of the Merger, the existing contractual and statutory
employment rights, including in relation to pensions, of all Pace Group employees will be fully
safeguarded.
The ARRIS Board recognises that in order to achieve the expected benefits of the Merger, operational and
administrative restructuring will be required following completion of the Merger. The detailed steps for
such a restructuring are not yet known but ARRIS will aim to retain the best talent across the Combined
Group.
B-11
TABLE OF CONTENTS
11. Dividends
The Boards of ARRIS and Pace have agreed that, in addition to the consideration payable in connection
with the Merger, Pace Shareholders will continue to be entitled to receive the proposed final dividend for
2014 of 4.75 cents, payable on 3 July 2015 to Pace Shareholders on the register on 5 June 2015.
12. Pace Share Schemes
Participants in the Pace Share Schemes will be contacted regarding the effect of the Merger on their rights
under the Pace Share Schemes (including awards to be made under the Performance Share Plan,
International Performance Share Plan and Deferred Share Plan shortly after today’s date) and appropriate
proposals will be made to such participants in due course. In relation to the options that subsist under the
Pace Sharesave Plan and the Pace Americas US Sharesave Plan, the proposals will include a choice for
participants to allow their awards to vest and become exercisable or to agree to the rollover of their awards
into New ARRIS Shares.
The Pace Share Schemes contain provisions whereby Pace’s Remuneration Committee has certain
discretions as regards the vesting of certain awards in these circumstances. Pace’s Remuneration Committee
will exercise such discretion in such manner as it considers appropriate, which may include allowing all
applicable options and awards to vest in full.
13. The Merger and the ARRIS Merger
13.1 Structure of the Merger
It is intended that the Merger will be implemented by means of a Court-sanctioned scheme of arrangement
between Pace and the Scheme Shareholders under Part 26 of the Companies Act.
The purpose of the Scheme is to provide for New ARRIS to become the direct or indirect owner of the entire
issued and to be issued share capital of Pace. In order to achieve this, the Scheme Shares will be transferred
to New ARRIS (or a subsidiary of New ARRIS). In consideration for this, the Scheme Shareholders will
receive cash and New ARRIS Shares on the basis set out in section 2 of this Announcement. The transfer of
those Scheme Shares to New ARRIS (or a subsidiary of New ARRIS) will result in Pace becoming a direct or
indirect wholly owned subsidiary of New ARRIS.
The Scheme requires approval by Pace Shareholders by the passing of a resolution at the Court Meeting.
The Scheme must be approved at the Court Meeting by a majority in number representing not less than
three-fourths in value of the Scheme Shareholders present and voting, either in person or by proxy. In
addition, the implementation of the Scheme will require approval by the passing of certain resolutions at
the General Meeting to be held immediately after the Court Meeting.
The Scheme must also be sanctioned by the Court. The Scheme will only become Effective upon delivery
to the Registrar of Companies of the Scheme Court Order.
Once the Scheme becomes Effective, it will be binding on all Scheme Shareholders, whether or not they
voted at the Court Meeting and the General Meeting and, if they did vote, whether or not they voted in
favour of or against the resolutions proposed at those meetings.
ARRIS or New ARRIS reserves the right, subject to the prior consent of the Panel, to elect to implement the
acquisition of the Pace Shares by way of a takeover offer (as such term is defined in section 974 of the
Companies Act). In such event, such Offer will be implemented on the same terms (subject to appropriate
amendments as described in Part 2 of Appendix I), so far as applicable, as those which would apply to the
Scheme. Furthermore, if such Offer is made and sufficient acceptances of such Offer are received, when
aggregated with Pace Shares otherwise acquired by New ARRIS, it is the intention of New ARRIS to apply
the provisions of section 979 of the Companies Act to acquire compulsorily any outstanding Pace Shares to
which such Offer relates.
B-12
TABLE OF CONTENTS
13.2 Conditions
The Scheme is subject to certain Conditions and certain further terms referred to in Appendix I of this
Announcement. The Conditions will be set out in the Scheme Circular to be sent to all Pace Shareholders.
The Conditions in Appendix I provide that the Merger is conditional on, amongst other things:
(a) the Court Meeting and General Meeting being held on or before the 22 nd day after the expected date
of the meetings to be set out in the Scheme Circular in due course or such later date (if any) as ARRIS
and Pace may agree;
(b) the Scheme Court Hearing being held on or before the 22 nd day after the expected date of the hearing
to be set out in the Scheme Circular in due course, or such later date (if any) as ARRIS and Pace may
agree;
(c) the Scheme becoming unconditional and becoming Effective by no later than 22 April 2016 or such
later date (if any) as ARRIS and Pace may agree and (if required) the Court may allow;
(d) the Form S-4 having become effective under the Securities Act and not having been the subject of any
stop order suspending its effectiveness, and no proceedings seeking any such stop order having been
initiated or threatened by the SEC;
(e) the US Merger Agreement being duly adopted by the affirmative vote of the holders of a majority of
the outstanding ARRIS Shares entitled to vote on such matter at an ARRIS Stockholders’ Meeting
duly called and held for such purpose in accordance with applicable law and the certificate of
incorporation and bylaws of ARRIS;
(f)
NASDAQ having authorised the listing of all of the New ARRIS Shares upon official notice of
issuance and not having withdrawn such authorisation; and
(g) all notifications and filings as may be required under the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations promulgated thereunder (the “HSR Act”),
having been made in connection with the acquisition of Pace shares by ARRIS and all applicable HSR
Act waiting periods (including any extensions thereof) relating to the acquisition of Pace shares by
ARRIS having expired or been terminated.
The Merger is also conditional on the receipt of various other anti-trust clearances in a number of
jurisdictions, including Brazil, Colombia, Germany, Portugal and South Africa.
Pace Shareholders should note that completion of the Scheme will be conditional upon the satisfaction or,
where appropriate, waiver of all the above Conditions in addition to the satisfaction or, where appropriate,
waiver of the other Conditions and certain further terms set out in Appendix I to this Announcement.
The terms of the Scheme will provide that the Scheme Shares will be acquired under the Scheme fully paid
and free from all liens, charges and encumbrances, rights of pre-emption and any other third party rights of
any nature whatsoever and together with all rights attaching thereto, including the right to receive and
retain all dividends and other distributions declared, paid or made after the date on which the Scheme
becomes Effective. If any dividend or other distribution or return of capital is proposed, declared, made,
paid or becomes payable by Pace in respect of a Scheme Share on or after the date of this Announcement
and prior to the Scheme becoming Effective, other than the Permitted Dividend, New ARRIS reserves the
right to reduce the value of the consideration payable for each Scheme Share by up to the amount per
Scheme Share of such dividend, distribution or return of capital except where the Scheme Share is or will be
acquired pursuant to the Scheme on a basis which entitles New ARRIS to receive the dividend, distribution
or return of capital and to retain it.
If any such dividend or distribution is paid or made after the date of this Announcement and New ARRIS
exercises its rights described above, any reference in this Announcement to the consideration payable
under the Scheme shall be deemed to be a reference to the consideration as so reduced. Any exercise by
ARRIS of its rights referred to in this paragraph shall be the subject of an announcement and, for the
avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the
Scheme.
B-13
TABLE OF CONTENTS
13.3 The ARRIS Merger
Immediately following the Merger, US Merger Sub will merge with and into ARRIS, with ARRIS
continuing as the surviving corporation. On the Effective Date, all ARRIS common shares will be cancelled
and will automatically be converted into the right to receive New ARRIS Shares on a one-for-one basis.
Following the ARRIS Merger, ARRIS will become an indirect wholly owned subsidiary of New ARRIS. The
ARRIS Merger is subject to the terms and conditions of the US Merger Agreement. Following completion
of the Merger, the then-current ARRIS Board of Directors will serve as the New ARRIS Board of Directors.
13.4 ARRIS stockholder approval
Pursuant to the US Merger Agreement, immediately following the Merger, US Merger Sub will merge with
and into ARRIS and ARRIS will continue as the surviving corporation. As a result, the US Merger
Agreement must be duly adopted by the affirmative vote of the holders of a majority of the outstanding
ARRIS Shares entitled to vote on such matter at an ARRIS Stockholders’ meeting duly called and held for
such purpose in accordance with applicable law and the certificate of incorporation and bylaws of ARRIS.
ARRIS and New ARRIS are required to send ARRIS Stockholders a proxy/​p rospectus which will, among
other things, summarise the background to and reasons for the transactions to be consummated pursuant to
the US Merger Agreement, provide information about the special meeting of ARRIS Stockholders at which
the adoption of the US Merger Agreement will be considered, and provide information relating to the New
ARRIS Group and the New ARRIS Shares.
The ARRIS Board has approved the Transaction and intends to recommend that ARRIS Stockholders vote
in favour of the adoption of the US Merger Agreement.
14. De-listing and re-registration
Applications will be made to the UK Listing Authority and the London Stock Exchange for the
cancellation of the listing of the Pace Shares on the Official List and of the trading in Pace Shares on the
London Stock Exchange’s main market for listed securities respectively, upon or shortly after the Scheme
becoming Effective. When the Scheme becomes Effective, the share certificates in respect of Pace Shares
will cease to be valid and entitlements to Pace Shares held in CREST will be cancelled.
New ARRIS intends to re-register Pace as a private company as soon as it is appropriate to do so under the
provisions of the Companies Act.
It is intended that, subject to and following the Scheme becoming Effective, and subject to requirements of
NASDAQ and applicable securities law, New ARRIS will take all actions necessary or appropriate action to
voluntarily terminate the listing of ARRIS Shares on NASDAQ. The last trading day of ARRIS Shares on
NASDAQ will be the last Business Day before the Effective Date.
15. Settlement, listing and dealing of New ARRIS Shares
Once the Scheme has become Effective, New ARRIS Shares will be allotted to Scheme Shareholders and
former ARRIS Stockholders.
Application will be made for the listing of New ARRIS Shares on NASDAQ. It is expected that on the
ARRIS Merger Effective Date, New ARRIS will be listed on NASDAQ.
Details of how UK shareholders can hold, access and trade the New ARRIS Shares will be set out in the
Scheme Circular.
16. Financing of the Merger
New ARRIS will finance the cash component (the “Cash Component”) of the consideration payable in
connection with the Merger from existing cash balances made available to it by ARRIS and under the New
ARRIS Facility.
B-14
TABLE OF CONTENTS
Evercore, as financial adviser to ARRIS, is satisfied that ARRIS and New ARRIS have the necessary
financial resources available to satisfy in full the cash consideration payable under the Merger.
Under the terms of the New ARRIS Facility, New ARRIS has agreed that it will not, without the consent of
the administrative agent:
(a) amend or waive any term of the Scheme Circular in a manner materially adverse to the interests of the
lenders from those in this Announcement, save for any amendment or waiver required by the Panel, the
Code, a court or any other applicable law, regulation or regulatory body; and
(b) should the Merger be implemented by way of an Offer, amend or waive the acceptance condition (as
determined under the terms of that Offer at the relevant time) to permit the Offer to become
unconditional as to acceptances until New ARRIS has (directly or indirectly) acquired acceptances
which, when aggregated with all Pace shares to which the Offer relates (excluding Treasury Shares)
directly or indirectly acquired by New ARRIS represent at least 90 per cent. of the Pace shares to which
the Offer relates (excluding Treasury Shares).
It is ARRIS’s current intention to seek the consent of the lenders under the Existing ARRIS Facility in order
to amend and extend that facility to increase its size and extend its term, in which case New ARRIS may use
the proceeds from this amended facility to fund the Cash Component instead of the New ARRIS Facility.
Further information on the financing of the Merger will be set out in the Scheme Circular.
The pro forma leverage of the Combined Group is expected to be below 2.5 times net debt to Non-GAAP
EBITDA (based on the pro forma EBITDA for the Combined Group for 2014 and taking into account the
acquisition financing and the payment of the Cash Component). On the basis that the amended facility
referred to above is put in place, ARRIS expects that the available liquidity of the Combined Group on
closing will be approximately US$1,150 million.
17. Offer-related arrangements
17.1 Confidentiality agreements
Pace and ARRIS have entered into a mutual Confidentiality Agreement, as amended and restated, dated 20
April 2015 pursuant to which each party has undertaken to keep confidential information relating to the
other party and not to disclose it to third parties (other than to permitted disclosees) unless required by law
or regulation. These confidentiality obligations will remain in force until the completion of the
Transaction.
Pace and ARRIS have also entered into a Clean Team Confidentiality Agreement dated 13 April 2015
which sets out how any confidential information that is competitively sensitive can be disclosed, used or
shared, and a Synergies Clean Team Confidentiality Agreement dated 17 April 2015 which sets out how
certain competitively sensitive synergy information can be disclosed, used or shared, in each case to a clean
team made up of certain named representatives of the parties’ respective external legal advisers.
17.2 Co-operation Agreement
Pace, ARRIS and New ARRIS have entered into the Co-operation Agreement pursuant to which Pace has
agreed to provide ARRIS with such information and assistance as ARRIS may reasonably require for the
purposes of obtaining the regulatory clearances that ARRIS determines are necessary or desirable in order
to satisfy the Regulatory Conditions and making any submission, filing or notification to any regulatory
authority.
ARRIS has agreed that it shall use reasonable endeavours to obtain the regulatory clearances that ARRIS
determines are necessary or desirable in order to satisfy the Regulatory Conditions as soon as reasonably
practicable.
B-15
TABLE OF CONTENTS
By way of compensation for any loss suffered by Pace in connection with the preparation and negotiation
of the Merger, the Co-operation Agreement and any other document relating to the Merger, ARRIS has
undertaken that, on the occurrence of a Break Payment Event (as defined below), ARRIS will pay or procure
the payment to Pace of an amount in cash, in US dollars, equal to US$20 million (the “Break Payment”) in
the event that on or prior to 22 April 2016:
(a) on 22 April 2016, any Regulatory Condition shall not have been satisfied or waived by ARRIS or New
ARRIS;
(b) ARRIS or New ARRIS invokes any Regulatory Condition; or
(c) the ARRIS Board withdraws or qualifies its recommendation without Pace’s consent and either: (i) the
US Merger Agreement has not been approved at the ARRIS Stockholders’ Meeting; (ii) the ARRIS
Stockholders’ Meeting has not occurred; (iii) the Co-operation Agreement has been terminated in
accordance with its terms; or (iv) the Effective Date has not occurred by 22 April 2016,
each a “Break Payment Event”.
ARRIS shall have no obligation to pay the Break Payment to Pace if: (a) the failure of ARRIS to satisfy a
Regulatory Condition or the invoking of a Regulatory Condition is due to a material breach of Pace’s
undertakings to provide certain information and assistance to ARRIS for the purposes of satisfying the
Regulatory Conditions; or (b) Pace withdraws or qualifies its recommendation before a Break Payment
Event referred to in (b) or (c) above occurs.
The Co-operation Agreement further provides that, in the event that the ARRIS Stockholders do not
approve the US Merger Agreement at the ARRIS Stockholders Meeting but ARRIS has not withdrawn its
recommendation, ARRIS shall indemnify Pace for all costs and expenses (including irrevocable VAT)
incurred by Pace in connection with the Merger up to an aggregate amount of US$12 million (“Expense
Reimbursement Payment”).
ARRIS is only obliged to pay one Break Payment and any Break Payment will be reduced by the amount of
the Expense Reimbursement Payment with such payment to be Pace’s exclusive remedy in connection with
any claim it may have in respect of any or all Break Payment Events or the circumstances giving rise to the
Expense Reimbursement Payment.
ARRIS may switch to an Offer with the consent of the Panel only after having received the prior written
consent of Pace (such consent not to be unreasonably withheld or delayed).
ARRIS has agreed to certain customary restrictions on the conduct of its business during the period
pending completion of the Merger.
The Co-operation Agreement contains provisions in relation to the Pace Share Schemes. Details of these
arrangements will be set out in the Scheme Circular.
The Co-operation Agreement can be terminated:
(a) by written agreement of ARRIS and Pace;
(b) by ARRIS or Pace if any Condition is invoked in accordance with the terms of the Scheme (or the Offer
as the case may be) but only in circumstances which constitute “material significance” to ARRIS for
the purposes of Rule 13.5 of the Code (other than Conditions 1 or 2 in Appendix I or, in the case of an
Offer, the acceptance condition);
(c) by ARRIS or Pace, if the ARRIS Board withdraws or qualifies its recommendation without Pace’s
consent;
(d) by ARRIS or Pace if the Pace Board notifies ARRIS or publicly states that it no longer recommends (or
intends to recommend) that Pace Shareholders vote in favour of the Scheme;
(e) by ARRIS or Pace if there is an announcement by a third party announcing a firm intention to make an
offer for Pace which is recommended by the Pace Board; or
B-16
TABLE OF CONTENTS
(f)
by ARRIS or Pace if the Transaction has not completed by 22 April 2016.
18. Overseas shareholders
The availability of the New ARRIS Shares under the terms of the Merger to persons not resident in the
United Kingdom may be affected by the laws and regulations of the relevant jurisdiction. Such persons
should inform themselves about and observe any applicable requirements. Further details in relation to
Overseas Shareholders will be contained in the Scheme Circular.
This Announcement does not constitute an offer or invitation to purchase any securities.
19. Taxation
It is expected that Pace Shareholders who are resident in the UK for tax purposes will generally not be
charged to tax in the UK in respect of that element of the consideration provided to them in the form of New
ARRIS Shares, but that any cash consideration received by such shareholders for their Pace Shares will
crystallise a disposal for such shareholders for the purposes of UK tax on chargeable gains and may,
depending on the circumstances of such shareholders, give rise to a charge to UK capital gains tax or UK
corporation tax.
It is expected that, for US federal income tax purposes, the Transaction generally will be taxable to US
shareholders of both ARRIS and Pace. The tax consequences of the Transaction may vary based on an
individual shareholder’s circumstances, and a more complete description of the anticipated tax
consequences of the Transaction will be made available in the Scheme Circular and the ARRIS Proxy
Statement.
20. Fractional entitlements
Fractions of New ARRIS Shares will not be allotted to Scheme Shareholders but will be aggregated and sold
as soon as practicable after the Scheme becomes Effective. The net proceeds of such sale will then be paid
in cash to the relevant Scheme Shareholders in accordance with their fractional entitlements.
21. Disclosure of interests in Pace Shares
In connection with the Merger, ARRIS will make an Opening Position Disclosure in respect of Pace Shares
and ARRIS Shares by no later than 12 noon on 7 May 2015, setting out the details required to be disclosed
by it under Rule 8.1(a) of the Takeover Code.
22. Expected timetable
Further details of the Scheme will be contained in the Scheme Circular. It is expected the Scheme Circular
will be published in the third quarter of 2015 and that, subject to the satisfaction, or where relevant waiver,
of all relevant Conditions as set out in Appendix I to this Announcement, the Scheme will become
Effective and the Transaction is expected to complete in late 2015.
23. Documents available on website
Copies of the following documents will shortly be available on ARRIS’s website at www.arris.com and
Pace’s website at www.pace.com by no later than 12 noon (London time (BST)) on the Business Day
following the date of this Announcement:
•
this Announcement;
•
the Co-operation Agreement;
•
the US Merger Agreement;
•
the irrevocable undertakings described in paragraph 6 and listed in Appendix III;
•
the confidentiality agreements described in paragraph 17; and
•
the documents relating to the financing of the Merger referred to in paragraph 16.
B-17
TABLE OF CONTENTS
24. General
The Merger will be made subject to the Conditions and on the terms contained in Appendix I to this
Announcement and on the further terms and conditions to be set out in the Scheme Circular. The Scheme
will be governed by English law and subject to the applicable rules and regulations of the London Stock
Exchange, the Panel and the Financial Conduct Authority.
The Conditions and certain further terms of the Merger are set out in Appendix I. Appendix II contains
bases and sources of certain information contained within this document. Appendix III contains details
of the irrevocable undertakings given to ARRIS. Appendix IV contains the definitions of certain terms
used in this Announcement.
There will be an ARRIS investor call at 5:00pm US Eastern time, 22 April 2015. Dial-in details are set out below:
UK toll free: 080 0055 6013
Secondary UK dial in: +44 20 7136 5118
US toll free: 888 713 4218
Secondary US dial in: +1 617 213 4870
Passcode: 141904410
A replay of the conference call can be accessed approximately two hours after the call through 29 April 2015 by
dialing +1 (888) 286-8010 or +1 (617) 801-6888 and using the pass code 55255256.
Live internet access to the call will be available through the Investor Relations section of the ARRIS’s website at
www.arris.com.
A replay will also be made available for a period of 12 months following the conference call on ARRIS’s website
at www.arris.com.
Enquiries:
ARRIS Investor Contacts
Bob Puccini
Tel: (+1 720 895 7787)
ARRIS Media Contacts
Jeanne Russo
Tel: (+1 215 323 1880)
David Hulmes
Tel: (+44 118 921 5550)
Evercore (Financial Adviser to ARRIS)
Naveen Nataraj
Tel: (+1 212 857 3100)
Edward Banks
Tel: (+44 20 7653 6000)
Pace Investor Contacts
Mark Shuttleworth
Chris Mather
Tel: (+44 1274 538 330)
J.P. Morgan Cazenove (Financial Adviser and Corporate Broker to Pace)
Hugo Baring
Thomas White
Dwayne Lysaght
Sam Roberts
Tel: (+44 20 7742 4000)
B-18
TABLE OF CONTENTS
Jefferies (Corporate Broker)
Nick Adams
David Watkins
Tel: (+44 20 7029 8000)
Pace Media Contacts
(Pendomer Communications)
Charles Chichester
Tel: (+44 20 3603 5220)
Further information
This Announcement is provided for informational purposes only and does not constitute an offer to sell, or an
invitation to subscribe for, purchase or exchange, any securities or the solicitation of any vote or approval in any
jurisdiction, nor shall there be any sale, issuance, exchange or transfer of the securities referred to in this
document in any jurisdiction in contravention of applicable law. This Announcement does not constitute a
prospectus or a prospectus equivalent document.
Any vote by the Scheme Shareholders in respect of the Merger should only be made on the basis of the
information contained in the Scheme Circular, which will contain the full terms and conditions of the Merger
(including details of how to vote). Pace Shareholders are advised to read the formal documentation in relation to
the Merger carefully once it has been dispatched.
Please be aware that addresses, electronic addresses and certain other information provided by Pace
Shareholders, persons with information rights and other relevant persons in connection with the receipt of
communications from Pace may be provided to New ARRIS during the offer period as required under Section 4
of Appendix 4 of the Code.
Evercore (which is authorised and regulated by the Financial Conduct Authority in the United Kingdom), is
acting as financial adviser to ARRIS and no-one else in connection with the Transaction and will not be
responsible to anyone other than ARRIS for providing the protections afforded to clients of Evercore nor for
providing advice in relation to the Transaction or any other matters referred to in this Announcement.
J.P. Morgan Cazenove (which is authorised and regulated by the Financial Conduct Authority in the United
Kingdom), is acting as financial adviser exclusively for Pace and no-one else in connection with the Transaction
and will not be responsible to anyone other than Pace for providing the protections afforded to clients of J.P.
Morgan Cazenove or its affiliates nor for providing advice in relation to the Transaction or any other matters
referred to in this Announcement.
Jefferies (which is authorised and regulated by the Financial Conduct Authority in the United Kingdom), is
acting as financial adviser exclusively for Pace and no-one else in connection with the Transaction and will not
be responsible to anyone other than Pace for providing the protections afforded to clients of Jefferies nor for
providing advice in relation to the Transaction or any other matters referred to in this Announcement.
Overseas jurisdictions
The availability of the New ARRIS Shares in, and the release, publication or distribution of this Announcement
in or into, jurisdictions other than the United Kingdom may be restricted by law and therefore persons into
whose possession this Announcement comes who are not resident in the United Kingdom should inform
themselves about, and observe, any applicable restrictions. Pace Shareholders who are in any doubt regarding
such matters should consult an appropriate independent adviser in their relevant jurisdiction without delay. Any
failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction.
This Announcement has been prepared for the purposes of complying with English law and the Code and the
information disclosed may not be the same as that which would have been disclosed if this Announcement had
been prepared in accordance with the laws of jurisdictions outside the United Kingdom.
B-19
TABLE OF CONTENTS
Rule 2.10 disclosures
In accordance with Rule 2.10 of the Takeover Code, as at close of business on 21 April 2015 (being the Latest
Practicable Date), there were 316,644,229 Pace Shares in issue and admitted to trading on the main market of the
London Stock Exchange. There are no Pace Shares held in treasury. The ISIN Number for the Pace Shares is
GB0006672785.
In accordance with Rule 2.10 of the Takeover Code, as at close of business on 21 April 2015 (being the Latest
Practicable Date), there were 146,070,290 ARRIS Shares issued and outstanding and admitted to trading on
NASDAQ. The ISIN Number for the ARRIS Shares is US04270V1061.
Notes to US investors in Pace
In furtherance of the Transaction, New ARRIS intends to file with the SEC a registration statement on Form S-4
containing a Proxy Statement of ARRIS that will also constitute a Prospectus of New ARRIS relating to the New
ARRIS Shares to be issued to ARRIS Stockholders in the Transaction. In addition, ARRIS, New ARRIS and Pace
may file additional documents with the SEC.
INVESTORS AND SECURITY HOLDERS OF ARRIS AND PACE ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS, AND OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION
WITH THE TRANSACTION CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. Those documents, if and when filed, as well as ARRIS’s and New
ARRIS’s other public filings with the SEC may be obtained without charge at the SEC’s website at www.sec.gov,
at ARRIS’s website at www.arris.com and at Pace’s website at www.pace.com. It is expected that the New ARRIS
Shares to be issued to Pace Shareholders under the Scheme will be issued in reliance upon the exemption from
the registration requirements of the Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof.
ARRIS, its directors and certain of its executive officers may be considered participants in the solicitation of
proxies in connection with the transactions contemplated by the Proxy Statement/Prospectus. Information about
the directors and executive officers of ARRIS is set forth in its Annual Report on Form 10-K for the year ended
31 December 2014, which was filed with the SEC on 27 February 2015, and its proxy statement for its 2015
annual meeting of stockholders, which was filed with the SEC on 9 April 2015. Other information regarding
potential participants in the proxy solicitations and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the Proxy Statement/​Prospectus when it is filed.
Pace and New ARRIS are each incorporated under the laws of England. Some of the officers and directors of Pace
and New ARRIS are residents of countries other than the United States. It may not be possible to bring an action
against Pace and New ARRIS in a non-US court for violations of the US securities laws. It may be difficult to
compel Pace, New ARRIS and their respective affiliates to subject themselves to the jurisdiction and judgment
of a US court.
Share purchases
In accordance with normal UK practice and subject to compliance with the United States Securities Exchange
Act of 1934, as amended, ARRIS or its nominees, or its brokers (acting as agents), may from time to time make
certain purchases of, or arrangements to purchase, Pace Shares outside of the United States, other than pursuant
to the Merger, until the date on which the Merger becomes Effective, lapses or is otherwise withdrawn. These
purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices.
Any information about such purchases will be disclosed as required in the UK, will be reported to the Regulatory
Information Service of the London Stock Exchange and will be available on the London Stock Exchange
website at http://www.londonstockexchange.com/exchange/news/​market-news/market-news-home.html.
Notes regarding New ARRIS Shares
The New ARRIS Shares to be issued pursuant to the Merger have not been and will not be registered under the
relevant securities laws of Japan and the relevant clearances have not been, and will not be, obtained from the
securities commission of any province of Canada. No prospectus in relation to the New ARRIS
B-20
TABLE OF CONTENTS
Shares has been, or will be, lodged with, or registered by, the Australian Securities and Investments Commission.
Accordingly, the New ARRIS Shares are not being, and may not be, offered, sold, resold, delivered or distributed,
directly or indirectly in or into Australia, Canada or Japan or any other jurisdiction if to do so would constitute a
violation of relevant laws of, or require registration thereof in, such jurisdiction (except pursuant to an
exemption, if available, from any applicable registration requirements or otherwise in compliance with all
applicable laws).
No Profit Forecast or Quantified Financial Benefits Statement
No statement in this Announcement is intended as a profit forecast, profit estimate or quantified financial
benefits statement and no statement in this Announcement should be interpreted to mean that earnings per Pace
Share or ARRIS Share for the current or future financial years would necessarily match or exceed the respective
historical published earnings per Pace Share or ARRIS Share or to mean that the Combined Group’s earnings in
the first twelve months following the Merger, or in any subsequent period, would necessarily match or be greater
than or be less than those of ARRIS and/or Pace for the relevant preceding financial period or any other period.
Dealing Disclosure requirements
Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or more of any class of relevant
securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in
respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening
Position Disclosure following the commencement of the offer period and, if later, following the announcement
in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details
of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of each of (i)
the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to
whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time (BST)) on the 10 th business day
following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time
(BST)) on the 10 th business day following the announcement in which any securities exchange offeror is first
identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities
exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing
Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 per cent. or more of any class of
relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure
if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A
Dealing Disclosure must contain details of the dealing concerned and of the person’s interests and short
positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any
securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A
Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London
time (BST)) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to
acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they
will be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing
Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with
any of them (see Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures
and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel’s website at
http://www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the
offer period commenced and when any offeror was first identified. You should contact the Panel’s Market
Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an
Opening Position Disclosure or a Dealing Disclosure.
B-21
TABLE OF CONTENTS
Forward-looking statements
This Announcement contains certain forward-looking statements with respect to a possible combination
involving ARRIS and Pace. The words “believe”, “expect”, “anticipate”, “project” and similar expressions,
among others, generally identify forward-looking statements. These forward-looking statements are based on
numerous assumptions and assessments made in light of ARRIS’s or, as the case may be, Pace’s experience and
perception of historical trends, current conditions, business strategies, operating environment, future
developments and other factors it believes appropriate. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially from those indicated in the forward-looking
statements. Such risks and uncertainties include, but are not limited to, the possibility that a possible
combination will not be completed, failure to obtain necessary regulatory approvals or required financing or to
satisfy any of the other conditions to the possible combination, adverse effects on the market price of ARRIS
Shares and on ARRIS’s or Pace’s operating results because of a failure to complete the possible combination,
failure to realise the expected benefits of the possible combination, negative effects relating to the
announcement of the possible combination or any further announcements relating to the possible combination
or the consummation of the possible combination on the market price of ARRIS Shares or Pace Shares,
significant transaction costs and/or unknown liabilities, customer reaction to the announcement of the
combination, possible litigation relating to the combination or the public disclosure thereof, general economic
and business conditions that affect the combined companies following the consummation of the possible
combination, changes in global, political, economic, business, competitive, market and regulatory forces, future
exchange and interest rates, changes in tax laws, regulations, rates and policies, future business combinations or
disposals and competitive developments. These factors are not intended to be an all-encompassing list of risks
and uncertainties. Additional information regarding these and other factors can be found in ARRIS’s reports
filed with the SEC, including its Annual Report on Form 10-K for the year ended 31 December 2014, the
contents of which are not incorporated by reference into, nor do they form part of, this Announcement. By their
nature, forward-looking statements involve known and unknown risks and uncertainties because they relate to
events and depend on circumstances that will occur in the future. The factors described in the context of such
forward-looking statements in this Announcement could cause ARRIS’s plans with respect to Pace, ARRIS’s or
Pace’s actual results, performance or achievements, industry results and developments to differ materially from
those expressed in or implied by such forward-looking statements. Although it is believed that the expectations
reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations
will prove to have been correct and persons reading this Announcement are therefore cautioned not to place
undue reliance on these forward-looking statements which speak only as at the date of this Announcement.
ARRIS and Pace expressly disclaim any obligation to release publicly any revisions to forward-looking
statements as a result of subsequent events or developments, except as required by law.
Publication on website
Pursuant to Rule 26.1 of the Takeover Code, a copy of this Announcement and other documents in connection
with the Merger will, subject to certain restrictions, be available for inspection on ARRIS’s website at
www.arris.com and Pace’s website at www.pace.com no later than 12 noon (London time (BST)) on the day
following this Announcement. The contents of the websites referred to in this Announcement are not
incorporated into, and do not form part of, this Announcement.
B-22
TABLE OF CONTENTS
APPENDIX I
CONDITIONS AND CERTAIN FURTHER TERMS OF THE MERGER
Part 1: Conditions of the Scheme and the Merger
1.
The Merger will be conditional upon:
(a) the Court Meeting and General Meeting being held on or before the 22 nd day after the expected date
of the meetings to be set out in the Scheme Circular in due course or such later date (if any) as ARRIS
and Pace may agree;
(b) the Scheme Court Hearing being held on or before the 22 nd day after the expected date of the hearing
to be set out in the Scheme Circular in due course, or such later date (if any) as ARRIS and Pace may
agree; and
(c) the Scheme becoming unconditional and becoming Effective by no later than 22 April 2016 or such
later date (if any) as ARRIS and Pace may agree and (if required) the Court may allow.
2.
The Scheme will be conditional on:
(a) approval of the Scheme by a majority in number representing not less than three-fourths in value of the
Scheme Shareholders (or the relevant class or classes thereof, if applicable) present and voting, either
in person or by proxy, at the Court Meeting (or at any adjournment thereof) and at any separate class
meeting which may be required by the Court (or at any adjournment thereof);
(b) all resolutions required to approve and implement the Scheme (including, without limitation, to
amend Pace’s articles of association) being duly passed by the requisite majority or majorities of the
Pace Shareholders at the General Meeting, or at any adjournment thereof; and
(c) the sanction of the Scheme by the Court with or without modifications, on terms reasonably
acceptable to ARRIS and Pace and the delivery of a copy of the Scheme Court Order to the Registrar of
Companies in England and Wales.
3.
In addition, subject as stated in Part 2 below and to the requirements of the Panel, the Merger will be
conditional upon the following Conditions and, accordingly, the necessary actions to make the Scheme
Effective will not be taken unless such Conditions (as amended if appropriate) have been satisfied or, where
relevant, waived:
Approval of ARRIS Stockholders
(a) the US Merger Agreement being duly adopted by the affirmative vote of the holders of a majority of
the outstanding ARRIS Shares entitled to vote on such matter at an ARRIS Stockholders’ Meeting
duly called and held for such purpose in accordance with applicable law and the certificate of
incorporation and bylaws of ARRIS;
Joint Proxy Statement and Prospectus
(b) the Form S-4 having become effective under the Securities Act and not having been the subject of any
stop order suspending its effectiveness, and no proceedings seeking any such stop order having been
initiated or threatened by the SEC;
Admission of the New ARRIS Shares
(c) NASDAQ having authorised the listing of all of the New ARRIS Shares upon official notice of
issuance and not having withdrawn such authorisation;
Merger Control
United States
(d) all notifications and filings as may be required under the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations promulgated thereunder
B-23
TABLE OF CONTENTS
(the “HSR Act”), having been made in connection with the acquisition of Pace shares by ARRIS and
all applicable HSR Act waiting periods (including any extensions thereof) relating to the acquisition
of Pace shares by ARRIS having expired or been terminated;
Brazil
(e) insofar as the Merger triggers a mandatory filing requirement in Brazil, CADE having approved the
consummation of the Merger on terms reasonably satisfactory to ARRIS, pursuant to the Brazilian
competition law No 12529 of 30 November 2011, Title VII Chapter I;
South Africa
(f)
insofar as the Merger triggers a mandatory merger control filing requirement in South Africa, the South
African Competition Commission, Competition Tribunal or Competition Appeal Court having
approved the consummation of the Merger on terms reasonably satisfactory to ARRIS, or the Merger
being regarded as having been approved, pursuant to the South African Competition Act 89 of 1998,
as amended;
Germany
(g) insofar as the Merger triggers a mandatory merger control filing requirement in Germany, German
competition clearance having been obtained as follows:
(a) the German Competition Authority having decided that the Merger does not fall within the scope
of the German Act against Restraints of Competition (the “German Act”);
(b) expiry of the period of one month from the German Competition Authority’s receipt of the
complete filing without the German Competition Authority having informed ARRIS and Pace
(the “Parties”) within that period that it has initiated an examination of the Merger pursuant to
section 40(1) sentence 1 of the German Act;
(c) clearance of the Merger by the German Competition Authority pursuant to section 40(2) sentence
2 of the German Act by expiry of a period of four months from receipt of the complete filing or
any period extended pursuant to section 40(2) sentences 4 to 7 of the German Act, without the
Parties having received the decision that the Merger is prohibited;
(d) the German Competition Authority’s decision that it clears the Merger without conditions and
obligations; or
(e) the German Competition Authority’s decision that it clears the Merger with conditions and
obligations in terms reasonably satisfactory to ARRIS;
Colombia
(h) insofar as the Merger triggers a mandatory merger control filing requirement in Colombia, Colombian
competition clearance having been obtained as follows:
(a) the Superintendence of Industry and Commerce (the “SIC”), having issued the acknowledgement
of receipt of the notification of the Merger, in accordance with the provisions of article 9 of Law
1340/2009, and Section 3.3, Second Chapter, Title VII of the SIC Basic Regulation (the “Basic
Regulation”);
(b) the SIC having issued a decision clearing the Merger in accordance with the provisions of Article
9 and Article 10 of Law 1340/2009, during the preliminary review under Section 2.4, or during
the substantive review under Section 2.6, Second Chapter, Title VII of the Basic Regulation, in
terms reasonably satisfactory to ARRIS; or
(c) the Merger being tacitly approved by virtue of Article 10, numeral 5 of Law 1340/2009 once the
maximum period set forth to adopt and notify a final decision has elapsed, and in accordance
with the provisions of Section 2.8, Second Chapter, Title VII of the Basic Regulation;
B-24
TABLE OF CONTENTS
Portugal
(i)
insofar as the Merger triggers a mandatory merger control filing requirement in Portugal, Portuguese
competition clearance having been obtained as follows:
(a) the Board of the Directors of the Portuguese Competition Authority (the “PCA”) having issued a
decision that the Merger does not give rise to a concentration falling within the scope of Article
50(1)(a) of the Portuguese Competition Act (Law No. 19/2012 of 8 May) (the “Portuguese Act”);
(b) the PCA having issued a decision under Article 50(1)(b) of the Portuguese Act, not to oppose the
Merger, in terms reasonably satisfactory to ARRIS, or, following the expiry of the applicable
term, an implicit decision not to oppose the Merger, under Article 50(4), of the Portuguese Act; or
(c) the PCA having issued a decision under Article 53(1)(a) of the Portuguese Act, not to oppose the
Merger, in terms reasonably satisfactory to ARRIS, or, following the expiry of the applicable
term, an implicit decision not to oppose the Merger, under Article 53(5) of the Portuguese Act;
Regulatory
(j)
no Relevant Authority or any other person or body in any jurisdiction having decided to take,
instituted, implemented or threatened any action, proceedings, suit, investigation, enquiry or
reference, or made, proposed or enacted any statute, regulation, order or decision or taken any other
steps, and there not continuing to be outstanding any statute, regulation, order or decision, which
would or would reasonably be expected to:
(i)
make the acquisition of any Pace Shares or of control of Pace by ARRIS or New ARRIS void,
illegal or unenforceable or otherwise materially restrict, restrain, prohibit, delay or interfere with
the implementation thereof, or impose additional conditions or obligations with respect thereto,
or require material amendment thereof or otherwise challenge or interfere therewith;
(ii) require or prevent the divestiture by any member of the Pace Group or the Wider Pace Group or
by any member of the ARRIS Group or the Wider ARRIS Group of all or a portion of either of
their respective businesses, assets, intellectual property, equity holdings, or property or impose
any limitation on the ability of any of them to conduct their respective businesses or own any of
their assets, intellectual property, equity holdings, or property which is material in the context of
the Pace Group taken as a whole or material in the context of the Merger;
(iii) impose any limitation on or result in a delay in the ability of any member of the Wider Pace
Group or the Wider ARRIS Group to acquire or to hold or to exercise effectively any rights of
ownership of shares or loans or securities convertible into shares in any member of the Wider Pace
Group or of the Wider ARRIS Group held or owned by it or to exercise management control over
any member of the Wider Pace Group or of the Wider ARRIS Group to an extent which is material
in the context of the Pace Group taken as a whole or the ARRIS Group taken as a whole or
material in the context of the Merger; or
(iv) otherwise materially and adversely affect the assets, business, profits or prospects of any member
of the Wider ARRIS Group or of any member of the Wider Pace Group,
and all applicable waiting and other time periods during which any such Relevant Authority could
decide to take, institute, implement or threaten any such action, proceeding, suit, investigation,
enquiry or reference having expired, lapsed or been terminated;
Certain matters arising as a result of any arrangement, agreement, etc.
(k) except as publicly announced by Pace prior to the date hereof (by the delivery of an announcement to
a Regulatory Information Service), there being no provision of any arrangement, agreement, licence,
permit or other instrument to which any member of the Wider
B-25
TABLE OF CONTENTS
Pace Group is a party or by or to which any such member or any of their assets is or may be bound,
entitled or subject to and which, in consequence of the Transaction or the acquisition or proposed
acquisition of any Pace Shares, or control of Pace by New ARRIS or otherwise, would or would
reasonably be expected to result in:
(i)
any monies borrowed by, or other indebtedness actual or contingent of, any such member of
the Wider Pace Group being or becoming repayable or being capable of being declared
repayable immediately or prior to its or their stated maturity or the ability of any such
member to borrow monies or incur any indebtedness being inhibited or becoming capable
of being withdrawn;
(ii)
the creation or enforcement of any mortgage, charge or other security interest over the
whole or any part of the business, property or assets of any such member or any such
security (whenever arising or having arisen) being enforced or becoming enforceable;
(iii) any such arrangement, agreement, licence or instrument being terminated or adversely
modified or any action being taken of an adverse nature or any obligation or liability
arising thereunder;
(iv) any obligation to obtain or acquire any license, permission, approval, clearance, permit,
notice, consent, authorisation, waiver, grant, concession, agreement, certificate, exemption,
order or registration from any governmental authority or any other person;
(v)
any assets of any such member being disposed of or charged, or any right arising under
which any such asset could be required to be disposed of or charged, other than in the
ordinary course of business;
(vi) the interest or business of any such member of the Wider Pace Group in or with any firm or
body or person, or any agreements or arrangements relating to such interest or business,
being terminated or adversely modified or affected;
(vii) any such member ceasing to be able to carry on business under any name under which it
presently does so;
(viii) the creation of liabilities (actual or contingent) by any such member or for which any such
member may be responsible;
(ix) the creation or acceleration of any liability to taxation of any such member; or
(x)
the financial or trading position of any such member being prejudiced or adversely
affected,
which in each case is material in the context of the Pace Group taken as a whole or material in the
context of the Merger, and no event having occurred which, under any provision of any arrangement,
agreement, licence or other instrument to which any member of the Wider Pace Group is a party, or to
which any such member or any of its assets may be bound, entitled or subject, could result in any of
the events or circumstances as are referred to in paragraphs (i) to (x) of this condition (k);
Certain events occurring since 31 December 2014
(l)
except as publicly announced by Pace (by the delivery of an announcement to a Regulatory
Information Service), no member of the Wider Pace Group having, since 31 December 2014:
(i)
issued, agreed to issue or proposed the issue of additional shares or securities of any class,
or securities convertible into, or exchangeable for or rights, warrants or options to subscribe
for or acquire, any such shares, securities or convertible securities (save as between Pace
and wholly-owned subsidiaries of Pace and save for options granted, and for any Pace
Shares allotted upon exercise of options granted under and in accordance with the terms of
the Pace Share Schemes), or redeemed, purchased or reduced any part of its share capital;
B-26
TABLE OF CONTENTS
(ii)
sold or transferred or agreed to sell or transfer any Treasury Shares;
(iii) recommended, declared, paid or made or proposed to recommend, declare, pay or make any
bonus, dividend or other distribution other than to Pace or another member of the Pace
Group, save for the Permitted Dividend;
(iv) agreed, authorised, proposed or announced its intention to propose any merger or demerger
or acquisition or disposal of assets or shares which is material in the context of the Pace
Group taken as a whole or material in the context of the Merger (other than in the ordinary
course of trading) or to any material change in its share or loan capital (or equivalent
thereof);
(v)
issued, authorised or proposed the issue of any debentures or incurred any indebtedness or
contingent liability other than in the ordinary course of trading) which is material in the
context of the Pace Group taken as a whole or material in the context of the Merger;
(vi) acquired or disposed of or transferred, mortgaged or encumbered any asset or any right, title
or interest in any asset (other than in the ordinary course of trading) in a manner which is
material in the context of the Pace Group taken as a whole or material in the context of the
Merger;
(vii) entered into or varied or announced its intention to enter into or vary any contract,
arrangement or commitment (whether in respect of capital expenditure or otherwise) which
is of a long-term or unusual nature or is outside the ordinary course of business or involves
or could involve an obligation of a nature or magnitude and in either case which is material
in the context of the Pace Group taken as a whole or material in the context of the Merger;
(viii) entered into or proposed or announced its intention to enter into any reconstruction,
amalgamation, transaction or arrangement (otherwise than in the ordinary course of
business) which is material in the context of the Pace Group taken as a whole or material in
the context of the Merger;
(ix) taken any action nor having had any steps taken or legal proceedings started or threatened
against it for its winding-up or dissolution or for it to enter into any arrangement or
composition for the benefit of its creditors, or for the appointment of a receiver,
administrator, trustee or similar officer of it or any of its assets (or any analogous
proceedings or appointment in any overseas jurisdiction) (save in respect of a member of
the Wider Pace Group which is dormant and was solvent at the relevant time);
(x)
been unable, or admitted in writing that it is unable, to pay its debts or having stopped or
suspended (or threatened to stop or suspend) payment of its debts generally or ceased or
threatened to cease carrying on all or a substantial part of its business;
(xi) entered into or varied or made any offer to enter into or vary the terms of any service
agreement or arrangement with any of the directors or senior executives of Pace other than
in accordance with ordinary course annual reviews in line with past practice and consistent
with Pace’s approved remuneration policy;
(xii) proposed, agreed to provide or modified the terms of any share option scheme, incentive
scheme or other benefit relating to the employment or termination of employment of any
employee of the Wider Pace Group;
(xiii) made or agreed or consented to any change to the terms of the trust deeds and rules
constituting the pension scheme(s) established for its directors, employees or their
dependants or any change to the benefits which accrue, or to the pensions which are
payable, thereunder, or to the basis on which qualification for, or accrual or entitlement to,
such benefits or pensions are calculated or determined or to the basis upon which
B-27
TABLE OF CONTENTS
the liabilities (including pensions) of such pension schemes are funded or made or agreed or
consented to, in each case which is material in the context of the Pace Group taken as a
whole or material in the context of the Merger;
(xiv) taken any action which results in the creation or acceleration of any material tax liability
for any member of the Wider Pace Group;
(xv) waived, compromised or settled any claim which is material in the context of the Wider
Pace Group; or
(xvi) entered into or made an offer (which remains open for acceptance) to enter into any
agreement, arrangement or commitment or passed any resolution with respect to any of the
transactions or events referred to in this paragraph (l);
No adverse change, litigation, regulatory enquiry or similar
(m) since 31 December 2014, except as publicly announced by Pace prior to the date hereof (by the
delivery of an announcement to a Regulatory Information Service), or as disclosed in this
Announcement, or where not material in the context of the Pace Group taken as a whole:
(i)
there having been no adverse change in the business, assets, financial or trading position or
profits or prospects of any member of the Wider Pace Group;
(ii)
no litigation, arbitration proceedings, prosecution or other legal proceedings having been
instituted, announced or threatened by or against or remaining outstanding against any
member of the Wider Pace Group and no enquiry or investigation by or complaint or
reference to any Relevant Authority against or in respect of any member of the Wider Pace
Group having been threatened, announced or instituted or remaining outstanding; and
(iii) no contingent or other liability having arisen or been incurred which might reasonably be
expected to adversely affect any member of the Wider Pace Group;
No discovery of certain matters regarding information, liabilities and environmental issues
(n) New ARRIS not having discovered that, except as publicly announced by Pace (by the delivery of an
announcement to a Regulatory Information Service), in each case which is material in the context of
the Pace Group taken as a whole or material in the context of the Merger:
(i)
the financial, business or other information concerning the Wider Pace Group which has
been disclosed at any time by or on behalf of any member of the Wider Pace Group publicly
(by the delivery of an announcement to a Regulatory Information Service), either contains a
misrepresentation of fact or omits to state a fact necessary to make the information
contained therein not materially misleading;
(ii)
any member of the Wider Pace Group is subject to any liability, contingent or otherwise,
which is not disclosed in the annual report and accounts of Pace for the financial year
ended 31 December 2014;
(iii) any past or present member of the Wider Pace Group has not complied with all applicable
legislation or regulations of any jurisdiction or any notice or requirement of any Relevant
Authority with regard to the storage, disposal, discharge, spillage, leak or emission of any
waste or hazardous substance or any substance reasonably likely to impair the environment
or harm human health, which non-compliance would be likely to give rise to any liability
(whether actual or contingent) on the part of any member of the Wider Pace Group;
(iv) there has been a disposal, spillage, emission, discharge or leak of waste or hazardous
substance or any substance reasonably likely to impair the environment or harm human
health on, or from, any land or other asset now or previously owned, occupied or made
B-28
TABLE OF CONTENTS
use of by any past or present member of the Wider Pace Group, or in which any such
member may now or previously have had an interest, which would be reasonably likely to
give rise to any liability (whether actual or contingent) on the part of any member of the
Wider Pace Group;
(v)
there is or is reasonably likely to be any obligation or liability (whether actual or
contingent) to make good, repair, reinstate or clean up any property now or previously
owned, occupied or made use of by any past or present member of the Wider Pace Group or
in which any such member may now or previously have had an interest under any
environmental legislation or regulation or notice, circular or order of any Relevant
Authority in any jurisdiction; or
(vi) circumstances exist whereby any Relevant Authority or any person or class of persons
would be reasonably likely to have any claim or claims in respect of any product or process
of manufacture, or materials used therein, now or previously manufactured, sold, licensed or
carried out by any past or present member of the Wider Pace Group which claim or claims
would be reasonably likely to affect adversely any member of the Wider Pace Group.
Conditions 3(a) to (n) (other than Condition 3(c)) inclusive must be fulfilled, be determined by ARRIS or
New ARRIS to be satisfied or (if capable of waiver) be waived by ARRIS or New ARRIS prior to
commencement of the Scheme Court Hearing (or such later date as agreed between ARRIS and Pace and
with the approval of the Panel (if required)), failing which the Scheme shall lapse.
To the extent permitted by law and subject to the requirements of the Panel, ARRIS or New ARRIS reserves
the right to waive all or any of the Conditions (other than Conditions 1, 2, 3(a), 3(b) and 3(c)) inclusive, in
whole or in part. ARRIS shall be under no obligation to waive or treat as fulfilled any of the Conditions by
a date earlier than the date of the Scheme Court Hearing notwithstanding that the other Conditions may at
such earlier date have been waived or fulfilled and that there are at such earlier date no circumstances
indicating that any of such Conditions may not be capable of fulfilment.
Part 2: Certain further terms of the Merger
1.
ARRIS or New ARRIS reserves the right, subject to the prior consent of the Panel and Pace’s right of
consent set out in the Co-operating Agreement, to elect to implement the Merger by way of a takeover offer
(as defined in section 974 of the Companies Act). In such event, such Offer will be implemented on the
same terms and conditions subject to appropriate amendments to reflect the change in method of effecting
the Merger, which: (i) will include an acceptance condition set at 90 per cent. (or such lesser percentage,
being more than 50 per cent., as ARRIS or New ARRIS may decide) of the voting rights then exercisable at
a general meeting of Pace, including, for this purpose, any such voting rights attaching to Pace Shares that
are unconditionally allotted or issued, and to any Treasury Shares which are unconditionally transferred or
sold by Pace, before the Offer becomes or is declared unconditional as to acceptances, whether pursuant to
the exercise of any outstanding subscription or conversion rights or otherwise; and (ii) may include
changing the consideration structure under the terms of the Merger.
2.
If ARRIS is required by the Panel to make an offer for Pace Shares under the provisions of Rule 9 of the
Code, ARRIS or New ARRIS may make such alterations to any of the above conditions as are necessary to
comply with the provisions of that Rule.
3.
The Scheme and the Co-operation Agreement and any dispute or claim arising out of, or in connection
with, them (whether contractual or non-contractual in nature) will be governed by English law and will be
subject to the jurisdiction of the Courts of England.
4.
The terms of the Scheme will provide that the Scheme Shares will be acquired under the Scheme fully paid
and free from all liens, charges and encumbrances, rights of pre-emption and any other third party rights of
any nature whatsoever and together with all rights attaching thereto, including the right to receive and
retain all dividends and other distributions declared, paid or made after the date on which the Scheme
becomes Effective, other than the Permitted Dividend. If any dividend or other
B-29
TABLE OF CONTENTS
distribution or return of capital is proposed, declared, made, paid or becomes payable by Pace in respect of
a Scheme Share on or after the date of this Announcement and prior to the Scheme becoming Effective,
other than the Permitted Dividend, New ARRIS reserves the right to reduce the value of the consideration
payable for each Scheme Share under the Scheme by up to the amount per Scheme Share of such dividend,
distribution or return of capital except where the Scheme Share is or will be acquired pursuant to the
Scheme on a basis which entitles New ARRIS to receive the dividend, distribution or return of capital and
to retain it.
5.
If any such dividend or distribution is paid or made after the date of this Announcement, other than the
Permitted Dividend, and New ARRIS exercises its rights described above, any reference in this
Announcement to the consideration payable under the Scheme shall be deemed to be a reference to the
consideration as so reduced. Any exercise by ARRIS of its rights referred to in this paragraph shall be the
subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any
revision or variation of the terms of the Scheme.
6.
The New ARRIS Shares to be issued under the Scheme will be issued credited as fully paid and will rank
pari passu with all other New ARRIS Shares, including the right to receive in full all dividends and other
distributions, if any, declared, made or paid after the date hereof.
7.
Fractions of New ARRIS Shares will not be allotted or issued to Scheme Shareholders. Fractional
entitlements to New ARRIS Shares will be aggregated and sold in the market and the net proceeds of sale
distributed pro rata to the Scheme Shareholders entitled thereto.
8.
Under Rule 13.5 of the Code, New ARRIS may not invoke a condition to the Merger so as to cause the
Merger not to proceed, to lapse or to be withdrawn unless the circumstances which give rise to the right to
invoke the condition are of material significance to New ARRIS in the context of the Merger. The
determination of whether or not such a condition can be invoked would be determined by the Panel.
Conditions 1, 2, 3(a), 3(b) and 3(c) are not subject to this provision of the Code.
B-30
TABLE OF CONTENTS
APPENDIX II
SOURCES AND BASES
Unless otherwise stated in this Announcement:
1.
All references to Pace Shares are to Pace ordinary shares of 5 pence each and references to ARRIS
Shares are to ARRIS ordinary shares of US$0.01 each.
2.
The aggregate value of the cash component of the consideration of US$655.1 million (or £438.8
million) is calculated by multiplying the offered amount of 132.5 pence in cash per Pace Share by
Pace’s fully diluted share capital (as referred to in paragraph 7 below).
3.
The number of New ARRIS Shares issued under the Scheme to Pace shareholders of 48.2 million is
calculated by multiplying the exchange ratio of 0.1455 by the fully diluted share capital of Pace (as
referred to in paragraph 7 below).
4.
The aggregate value of the share component of the consideration of US$1,453.5 million (or £973.7
million) is calculated by multiplying the number of New ARRIS Shares to be issued under the terms of
the Scheme of 48.2 million by the price per ARRIS Share of US$30.16 (being the closing price on the
Latest Practicable Date).
5.
The value attributed to the entire existing issued and to be issued share capital of Pace under the terms
of the Merger of £1.4 billion is the sum of the aggregate value of the cash component and the
aggregate value of the share component of the consideration (as referred to in paragraphs 2 and 4
above respectively).
6.
The percentage of the share capital of the Combined Group that will be owned by Pace Shareholders of
24% is calculated by dividing the number of New ARRIS Shares to be issued under the terms of the
Scheme by the issued share capital of the Combined Group (as defined in paragraph 8 below) and
multiplying the resulting sum by 100 to produce a percentage.
7.
The fully diluted share capital of Pace of 331,180,277 Pace Shares is calculated on the basis of:
8.
9.
a.
Pace’s issued share capital as at the close of business on the Latest Practicable Date, of
316,644,229 Pace Shares; and
b.
14,536,048 Pace Shares which may be issued on or after the date of this Announcement in
connection with the exercise of options or vesting of awards (made or anticipated to be made)
under the Pace Share Schemes, as at the close of business on 21 April 2015, after having deducted
2,177,963 shares held in the Pace Employee Benefit Trust.
The share capital of the Combined Group (being 202,915,183) has been calculated on the basis of:
a.
a total number of 146,070,290 ARRIS Shares in issue on the Latest Practicable Date prior to the
date of this Announcement;
b.
8,652,101 ARRIS Shares which may be issued on or after the date of this Announcement in
connection with the exercise of options or vesting of awards (made or anticipated to be made)
under ARRIS’s stock incentive plans and employee stock purchase plan;
c.
an exchange ratio of one New ARRIS Share for each ARRIS Share under the US Merger
Agreement; and
d.
48,192,792 New ARRIS Shares which would be issued under the terms of the Merger (as referred
to in paragraph 3 above).
The enterprise value of Pace is defined as equity value on a fully diluted basis (as defined in paragraph
5 above) plus net debt of US$93.1 million as at 31 December 2014.
10. All prices for Pace Shares have been derived from Bloomberg and, unless otherwise stated, represent
closing prices on the relevant date(s).
11. All prices for ARRIS Shares have been derived from Bloomberg and, unless otherwise stated, represent
closing prices on the relevant date(s).
B-31
TABLE OF CONTENTS
12. Unless otherwise stated, where amounts are translated from US Dollars to British Pounds, an exchange
rate of US$1.4928:£1 has been used, as sourced from Bloomberg on 21 April 2015.
13. Unless otherwise stated, the financial information relating to ARRIS is extracted from the audited
consolidated financial statements of ARRIS for the relevant years, prepared in accordance with US
GAAP.
14. Unless otherwise stated, the financial information relating to Pace is extracted from the audited
consolidated financial statements of Pace for the relevant years, prepared in accordance with IFRS as
adopted by the EU.
15. Certain figures included in this Announcement have been subject to rounding adjustments.
B-32
TABLE OF CONTENTS
APPENDIX III
IRREVOCABLE UNDERTAKINGS
ARRIS has received irrevocable undertakings from the following members of the Pace Board to complete and
return, or procure the completion and return, of relevant forms of proxy to vote in favour of the resolutions to be
proposed at the General Meeting and the Court Meeting in connection with the Merger in respect of their own
beneficial holdings of Pace Shares, amounting, in aggregate, to 1,063,293 Pace Shares and representing, in
aggregate, approximately 0.34 per cent. of the existing issued share capital of Pace, comprised as follows:
Name
Number of Pace Shares
Mike Pulli
Allan Leighton
Pat Chapman-Pincher
John Grant
Mike Inglis
TOTAL
Percentage of Pace Shares in
issue (at 21 April 2015) ​
611,317
346,081
15,551
65,000
0.19 %
0.11 %
0.00 %
0.02 %
25,344
0.01 %
1,063,293
0.34 %
In addition to the Pace Shares set out above, the irrevocable undertakings described above relate to all Pace
Shares beneficially owned by the relevant member of the Pace Board following the exercise or vesting of options
and awards, subject to an ability to sell a sufficient number of such Pace Shares to satisfy tax liabilities arising as
a result of such exercise or vesting, as contemplated by the Co-operation Agreement. These irrevocable
undertakings will cease to be binding if:
(i)
this Announcement is not issued by 11:59 p.m. (UK time) on 23 April 2015, or such later time as may
be agreed in writing by ARRIS and Pace;
(ii) the Scheme Circular is not despatched to Pace Shareholders on or before 22 September 2015 or such
later time as may be agreed by the Panel;
(iii) the Scheme does not become effective on or before 22 April 2016; or
(iv) ARRIS announces that it does not intend to make or proceed with the Scheme and the Scheme is
withdrawn and no new replacement scheme of arrangement is announced by ARRIS within five
business days of such withdrawal.
B-33
TABLE OF CONTENTS
APPENDIX IV
DEFINITIONS
The following definitions apply throughout this document unless the context requires otherwise:
“2014 Adjusted EBITDA”
Pace operating profit before exceptional costs,
amortisation of other intangibles and depreciation for
the year ended 31 December 2014
“ARRIS”
ARRIS Group, Inc., of 3871 Lakefield Drive, Suwanee,
Georgia, USA
“ARRIS Board”
the board of directors of ARRIS
“ARRIS Group”
ARRIS and its subsidiaries
“ARRIS Merger”
the merger, immediately following the consummation
of the Merger, of US Merger Sub with and into ARRIS
“ARRIS Merger Effective Date”
the date on which the ARRIS Merger becomes
effective
“ARRIS Proxy Statement”
the proxy statement relating to the matters to be
submitted to the ARRIS Stockholders at the ARRIS
Stockholders Meeting
“ARRIS Shares”
the common shares of ARRIS
“ARRIS Stockholders”
the holders of the ARRIS Shares
“ARRIS Stockholders Meeting”
a special meeting of the ARRIS Stockholders for the
purpose of duly adopting the US Merger Agreement
“Business Day”
a day (other than a Saturday or Sunday) on which
banks are open for general business in London
“CADE”
Brazil’s Council for Economic Defence
“Code” or “Takeover Code”
the City Code on Takeovers and Mergers
“Combined Group”
the combined group following the Transaction,
consisting of the ARRIS Group, the New ARRIS Group
and the Pace Group
“Companies Act”
the UK Companies Act 2006, as amended
“Conditions”
the conditions to the implementation of the Merger
(including the Scheme) which are set out in Appendix
I to this Announcement and to be set out in the
Scheme Circular
“Co-operation Agreement”
the agreement dated 22 April 2015 between New
ARRIS, ARRIS and Pace and relating, among other
things, to the implementation of the Merger
“Court”
the High Court of Justice in England and Wales
“Court Meeting”
the meeting(s) of Scheme Shareholders to be convened
by an order of the Court under section 896 of the
Companies Act, notice of which will be set out in the
Scheme Circular, to consider and if
B-34
TABLE OF CONTENTS
thought fit approve the Scheme (with or without
amendment) including any adjournment thereof
“CREST”
the relevant system (as defined in the Uncertificated
Securities Regulations 2001 (SI 2001/3755)) in
respect of which Euroclear UK & Ireland Ltd is the
operator
“Dealing Disclosure”
an announcement pursuant to Rule 8 of the Code
containing details of dealings in interests in relevant
securities of a party to an offer
“Effective”
in the context of the Merger:
(i)
if the Merger is implemented by way of
Scheme, means the Scheme having become
effective pursuant to its terms; or
(ii)
if the Merger is implemented by way of an
Offer, such offer having become or been
declared unconditional in all respects in
accordance with its terms
“Effective Date”
the date on which the Merger becomes Effective
“Evercore”
Evercore Partners International LLP
“Existing ARRIS Facility”
the US$2,175,000,000 facility agreement entered into
between, among others, ARRIS and Bank of America,
N.A. and the lenders as described therein, dated 17
April 2013
“Form S-4”
a registration statement on Form S-4 (of which the
ARRIS Proxy Statement will form a part) with respect
to the issuance of New ARRIS Shares to be delivered
to ARRIS Stockholders in respect of the ARRIS
Merger
“General Meeting”
the general meeting of Pace Shareholders to be
convened in connection with the Merger, notice of
which will be set out in the Scheme Circular, to
consider and if thought fit approve various matters in
connection with the implementation of the Scheme,
including any adjournment thereof
“IFRS”
International Financial Reporting Standards
“Jefferies”
Jefferies International Limited
“J.P. Morgan Cazenove”
J.P. Morgan Limited (which conducts its UK
investment banking business as J.P. Morgan
Cazenove)
“Latest Practicable Date”
21 April 2015, being the latest practicable date prior
to the release of this Announcement
“London Stock Exchange”
London Stock Exchange plc
“Merger”
the direct or indirect acquisition of the entire issued
and to be issued share capital of Pace, excluding any
Treasury Shares, by New ARRIS to be implemented
B-35
TABLE OF CONTENTS
by way of the Scheme or (should New ARRIS so elect,
subject to the consent of the Panel (where necessary))
and subject to the provisions of the Co-Operation
Agreement by way of an Offer
“Merger Control Authority”
any national, supra-national or regional, government
or governmental, quasi-governmental, statutory,
regulatory or investigative body or court, in any
jurisdiction, responsible for the review and/or
approval of mergers, acquisitions, concentrations,
joint ventures, or any other similar matter
“NASDAQ”
The NASDAQ Stock Market
“New ARRIS”
Archie ACQ Limited of 22 Bedford Row, London
WC1R 4JS
“New ARRIS Board”
the board of directors of New ARRIS
“New ARRIS Facility”
the facility agreement entered into between, among
others, ARRIS, New ARRIS and Bank of America,
N.A., dated on or about 22 April 2015
“New ARRIS Group”
ARRIS, New ARRIS, and their respective subsidiary
undertakings
“New ARRIS Shares”
the new ordinary shares in New ARRIS, to be allotted
pursuant to the Scheme (or, if applicable, the Offer) or
the ARRIS Merger, as the context requires
“Offer”
the implementation of the Merger by means of a
takeover offer as defined in section 974 of the
Companies Act in circumstances described in this
Announcement, rather than by means of the Scheme
“Official List”
the official list maintained by the UK Listing
Authority pursuant to Part 6 of the Financial Services
and Markets Act 2000
“Opening Position Disclosure”
an announcement pursuant to Rule 8 of the Code
containing details of interests or short positions in, or
rights to subscribe for, any relevant securities of a
party to an offer
“Overseas Shareholders”
Pace Shareholders who are resident in, ordinarily
resident in, or citizens of, jurisdictions outside the
United Kingdom
“Pace”
Pace plc of Victoria Road, Saltaire, BD18 3LF, United
Kingdom
“Pace Board”
the board of directors of Pace
“Pace Directors”
the directors of Pace
“Pace Group”
Pace and its subsidiary undertakings
“Pace Shareholders”
holders of Pace Shares
B-36
TABLE OF CONTENTS
“Pace Shares”
ordinary shares of 5 pence each in the capital of Pace
“Pace Share Schemes”
the following share incentive plans operated by Pace:
(i)
Sharesave Plan (UK Plan);
(ii)
US Sharesave Plan;
(iii)
Approved Discretionary Share Option Plan
2005;
(iv)
Unapproved Share Option Plan 2005;
(v)
Performance Share Plan;
(vi)
International Performance Share Plan;
(vii) Deferred Share Plan; and
(viii) Chairman’s Appointment Share Award
“Panel” or “Takeover Panel”
the Panel on Takeovers and Mergers
“Permitted Dividend”
the proposed final dividend for 2014 of 4.75 cents,
payable by Pace on 3 July 2015 to Pace Shareholders
on the register on 5 June 2015
“Regulatory Conditions”
the Conditions set out in paragraphs (b) to (j) of
Appendix I
“Regulatory Information Service”
a primary information provider which has been
approved by the Financial Conduct Authority to
disseminate regulated information
“Relevant Authority”
any government or governmental, quasigovernmental, supranational, statutory, administrative
or regulatory body, authority, court, trade agency,
association, institution, environmental body or Merger
Control Authority
“Scheme” or “Scheme of Arrangement”
the scheme of arrangement proposed to be made under
Part 26 of the Companies Act between Pace and the
Scheme Shareholders, with or subject to any
modification, addition or condition approved or
imposed by the Court
“Scheme Circular”
the document to be sent to Pace Shareholders setting
out, amongst other things, the Scheme and notices
convening the Court Meeting and the General
Meeting, and including the particulars required by
section 897 of the Companies Act
“Scheme Court Hearing”
the hearing of the Court to sanction the Scheme
“Scheme Court Order”
the order of the Court sanctioning the Scheme under
section 899 of the Companies Act
“Scheme Record Time”
the time and date specified in the Scheme Circular by
reference to which the Scheme will be binding on
holders of Pace Shares at such time
B-37
TABLE OF CONTENTS
“Scheme Shareholders”
holders of Scheme Shares at the relevant time
“Scheme Shares”
the Pace Shares:
(i)
in issue at the date of the Scheme Circular
and which remain in issue at the Scheme
Record Time;
(ii)
(if any) issued after the date of the Scheme
Circular but before the Voting Record Time
and which remain in issue at the Scheme
Record Time; and
(iii)
(if any) issued at or after the Voting Record
Time but at or before the Scheme Record
Time on terms that the holder thereof shall be
bound by the Scheme or in respect of which
the original or any subsequent holders
thereof are, or have agreed in writing to be,
bound by the Scheme and, in each case,
which remain in issue at the Scheme Record
Time
excluding, in any case, any Pace Shares held by or on
behalf of New ARRIS or the New ARRIS Group at the
Scheme Record Time
“SEC”
the US Securities and Exchange Commission
“Securities Act”
the US Securities Act of 1933, as amended
“Transaction”
the proposed acquisition by New ARRIS of the entire
issued and to be issued share capital of each of ARRIS
and Pace to be implemented by:
(i)
in the case of ARRIS, the ARRIS Merger; and
(ii)
in the case of Pace, the Merger
“Treasury Shares”
shares held as treasury shares as defined in section
724(5) of the Companies Act
“UK” or “United Kingdom”
the United Kingdom of Great Britain and Northern
Ireland
“US Holdco”
ARCHIE U.S. Holdings LLC of Corporation Service
Company, 2711 Centerville Road, Suite 400, City of
Wilmington, County of Newcastle, Delaware 19808
“US Merger Agreement”
the agreement and plan of merger dated 22 April 2015
between US Holdco, US Merger Sub, New ARRIS and
ARRIS pursuant to which US Merger Sub shall merge
with and into ARRIS
“US Merger Sub”
ARCHIE U.S. Merger Sub, LLC of Corporation Service
Company, 2711 Centerville Road, Suite 400, City of
Wilmington, County of Newcastle, Delaware 19808
B-38
TABLE OF CONTENTS
“Voting Record Time”
the time and date specified in the Scheme Circular by
reference to which entitlement to vote at the Court
Meeting will be determined, expected to be 6.00pm
(London time (BST)) on the day which is two days
before the date of the Court Meeting or if the Court
Meeting is adjourned, 6.00pm (London time (BST))
on the day which is two days before such adjourned
meeting
“Wider ARRIS Group”
any member of the ARRIS Group or any associated
undertaking or any company of which 20 per cent. or
more of the voting capital is held by the New ARRIS
Group or any partnership, joint venture, firm or
company in which any member of the ARRIS Group
may be interested
“Wider New ARRIS Group”
any member of the New ARRIS Group or any
associated undertaking or any company of which 20
per cent. or more of the voting capital is held by the
New ARRIS Group or any partnership, joint venture,
firm or company in which any member of the New
ARRIS Group may be interested
“Wider Pace Group”
any member of the Pace Group or any associated
undertaking or any company of which 20 per cent. or
more of the voting capital is held by the Pace Group or
any partnership, joint venture, firm or company in
which any member of the Pace Group may be
interested
All times refer to London time (BST) unless otherwise stated.
All references to “GBP”, “pence”, “sterling” or “£” are to the lawful currency of the United Kingdom.
All references to “US dollar”, “USD”, “US$” or “cents”, are to the lawful currency of the United States.
All references to statutory provision or law or to any order or regulation shall be construed as a reference to that
provision, law, order or regulation as extended, modified, replaced or re-enacted from time to time and all
statutory instruments, regulations and orders from time to time made thereunder or deriving validity therefrom.
B-39
TABLE OF CONTENTS
ANNEX C
CO-OPERATION AGREEMENT
TABLE OF CONTENTS
Annex C​
DATED 22 April 2015
(1) ARRIS GROUP, INC.
(2) ARCHIE ACQ LIMITED
(3) PACE PLC
CO-OPERATION AGREEMENT
C-1
TABLE OF CONTENTS
CONTENTS
Page
1.
Interpretation
2.
Implementation of the Acquisition
C-9
3.
Undertakings to obtain Clearances
C-12
4.
Qualifications
C-14
5.
Conduct of Business
C-15
6.
Pace Share Plans
C-16
7.
Break Fees
C-16
8.
Announcements
C-17
9.
Arris Guarantee
C-17
10. Time of the Essence
C-18
11. Directors’ and Officers’ Liability Insurance
C-18
12. Termination
C-18
13. Representations and Warranties
C-19
14. Notices
C-19
15. General
C-20
16. Governing law and Jurisdiction
C-21
17. Agent for service
C-22
C-3
C-2
TABLE OF CONTENTS
 
THIS AGREEMENT is made on 22 April 2015
BETWEEN:
(1)
ARRIS GROUP, INC., a company incorporated in the State of Delaware and whose head office is at
3871 Lakefield Drive, Suwanee GA 30024, United States of America (“Arris”);
(2)
ARCHIE ACQ LIMITED, a company incorporated in England and Wales with company number
09551763 and whose registered office is at 20-22 New Bedford Row, London, WC1R 4JS, United
Kingdom (“New Arris”); and
(3)
PACE PLC, a company incorporated in England and Wales with company number 01672847 and
whose registered office is at Victoria Road, Saltaire, BD18 3LF, United Kingdom (“Pace”),
together referred to as the “Parties” and each as a “Party” to this Agreement.
RECITALS:
(A)
Arris, through one of its wholly-owned Affiliates, New Arris, intends to announce a firm intention to
acquire the entire issued and to be issued share capital of Pace on the terms and subject to the
conditions referred to in this Agreement and set out in the 2.7 Announcement.
(B)
The Acquisition is intended to be effected by way of a scheme of arrangement (“Scheme”) under
sections 895 to 899 of the UK Companies Act provided that, as set out in the 2.7 Announcement, Arris
and New Arris reserve the right, with Pace’s prior consent, to elect to implement the Acquisition (as
defined below) by means of an Offer (as defined below).
(C)
Immediately subsequent to the completion of the Acquisition, a wholly-owned subsidiary of New Arris
will be merged with and into Arris, with Arris continuing as the surviving entity, in a transaction in
which the Arris Shareholders will receive ordinary shares of New Arris in exchange for their Arris
Shares (the “Merger”), and, as a result of the Merger, Arris will become a wholly-owned subsidiary of
New Arris.
(D)
The Parties have agreed to enter into this Agreement to record their respective obligations to regulate
the basis on which they are willing to implement the Acquisition and Merger.
IT IS AGREED as follows:
1.
Interpretation
1.1
in this Agreement (including Schedule 2 (Pace Share Plans) but not Schedule 1 (2.7 Announcement))
each of the following words and expressions shall have the following meanings:
“2.7 Announcement”
means the press announcement detailing the terms and conditions of
the Acquisition to be made pursuant to Rule 2.7 of the Code, in the
form set out in Schedule 1 (2.7 Announcement);
“Acquisition”
means the proposed acquisition by New Arris of the entire issued and
to be issued share capital of Pace not owned by Arris or an Affiliate
of Arris, to be implemented by means of the Scheme or, should New
Arris so elect with the consent of the Panel and Pace (in accordance
with the terms of this Agreement), by means of the Offer;
“Act”
means the Companies Act 2006, as amended;
“Advisers”
means in relation to Arris and New Arris, (i) Herbert Smith Freehills
LLP, (ii) Troutman Sanders LLP, (iii) Hogan Lovells LLP and (iv)
Evercore, and in relation to Pace, (i) Travers Smith LLP, (ii) Paul,
Weiss, Rifkind, Wharton & Garrisson LLP and (iii) J.P. Morgan
Limited;
C-3
TABLE OF CONTENTS
“Affiliate”
 
in relation to a Party, means any person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is
under common control with, the party, and for these purposes a party
shall be deemed to control a person if such party possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of the person, whether through the
ownership of over fifty (50) per cent of the voting securities or the
right to appoint over fifty (50) per cent of the relevant Board by
contract or otherwise;
“Agreement”
means this agreement executed and delivered as a deed, as amended,
amended and restated or supplemented from time to time in
accordance with its terms including the Schedules hereto;
“Arris Adverse
Recommendation Change”
means any failure to include the Arris Recommendation in the Joint
Proxy Statement (including an announcement by Arris that it will
not convene the Arris Shareholders Meeting), or any withdrawal or
qualification without Pace’s consent of the Arris Recommendation, it
being understood that the following shall not constitute an Arris
Adverse Recommendation Change: any holding statement(s)
(including the mere issuance of a public communication that is
similar in nature to a “stop, look and listen” communication of the
type contemplated by Rule 14d-9(f) under the Exchange Act or
similar disclosure or communication) issued by the Arris Board to
Arris Shareholders following a change of circumstances so long as (i)
any such holding statement contains an express statement that such
recommendation is not withdrawn and does not contain a statement
that the Arris Board intends to withdraw such recommendation; and
(ii) if the Arris Board publicly clarifies that it maintains the Arris
Recommendation before the date falling five (5) Business Days prior
to the Arris Shareholders Meeting;
“Arris Directors”
means the directors of Arris from time to time;
“Arris Group”
means Arris and its subsidiaries and subsidiary undertakings from
time to time (which, for the avoidance of doubt, shall exclude Pace
or any other member of the Pace Group but include New Arris);
“Arris Recommendation”
means the unanimous and unconditional recommendation by the
Board of Arris to adopt the Merger Agreement;
“Arris Responsible
Officers”
means, collectively those officers of Arris and New Arris required by
the Panel to take responsibility for the Scheme Document;
“Arris Shares”
means the shares of common stock, par value $0.01 per share of
Arris;
“Arris Shareholders”
means holders of Arris Shares;
“Arris Shareholders
Approval”
the adoption by Arris Shareholders of the Merger Agreement by the
affirmative vote of the majority of the outstanding stock of Arris
entitled to vote thereon as required by Section 251 of the General
Corporation Law of the State of Delaware;
C-4
TABLE OF CONTENTS
“Arris Shareholders
Meeting”
 
the meeting of Arris Shareholders (such meeting, as adjourned or
postponed in accordance with the terms of this Agreement) called for
the purpose of obtaining the Arris Shareholders Approval;
“Business Day”
means a day (other than a Saturday or a Sunday) on which banks in
the City of London and New York are open for business generally;
“Clearances”
means all consents, approvals, clearances, permissions, waivers
and/or filings that are necessary or desirable as determined by Arris
(acting reasonably) in order to satisfy the Regulatory Conditions
including the SEC Clearance and also the expiry of all waiting
periods, the expiry of which will be required under the laws,
regulations or practices applied by any Relevant Authority in
connection with the implementation of the Acquisition in order to
satisfy the Regulatory Conditions, and any reference to Clearances
having been “satisfied” shall be construed as meaning that the
foregoing have been obtained or, where appropriate, made or expired
in accordance with the relevant Regulatory Condition;
“Code”
means the City Code on Takeovers and Mergers;
“Conditions”
means the conditions to completion of the Scheme and the
Acquisition set out in Appendix I to the 2.7 Announcement with
such consequential amendments as may be reasonably necessary as a
result of any election by New Arris to implement the Acquisition by
way of Offer;
“Confidentiality
Agreement”
means the confidentiality agreement as amended and restated
between Arris and Pace on 20 April 2015;
“Continuance Period”
means the period between the date of the 2.7 Announcement and the
earliest to occur of: (i) the Effective Date; and (ii) the date of
termination of this Agreement in accordance with clause 12;
“Court”
means the High Court of Justice in England and Wales;
“Court Meeting”
means the meeting or meetings of Scheme Shareholders to be
convened pursuant to an order of the Court under section 896 of the
Act for the purposes of considering and, if thought fit, approving the
Scheme (with or without any amendment approved or imposed by
the Court and agreed to by Pace and New Arris) notice of which shall
be contained in the Scheme Document, including any adjournment,
postponement or reconvention of any such meeting;
“Effective Date”
means the date upon which:
(a) the Scheme becomes effective in accordance with its terms; or
(b) if New Arris elects to implement the Acquisition by way of the
Offer, the Offer becomes or is declared unconditional in all
respects;
“Exchange Act”
means the U.S. Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder;
“Form S-4”
shall have the meaning given that term in Clause 2.9.1;
C-5
TABLE OF CONTENTS
“General Meeting”
 
means the meeting of shareholders of Pace to be convened for the
purpose of considering, and if thought fit, approving the shareholder
resolutions necessary to enable Pace to implement the Scheme,
including a resolution amending the articles of association of Pace;
“Group”
in relation to any person, means its subsidiaries, subsidiary
undertakings and holding companies and the subsidiaries and
subsidiary undertakings of any such holding company;
“Guarantee”
has the meaning given to it in clause 9.1;
“Joint Proxy Statement”
has the meaning set out in clause 2.9.1;
“Law”
means any applicable statutes, common laws, rules, ordinances,
regulations, codes, orders, judgments, injunctions, writs, decrees,
directives, governmental guidelines or interpretations having the
force of law or bylaws, in each case, of a Relevant Authority;
“Long Stop Date”
means 22 April 2016;
“Merger Agreement”
means the agreement in a form agreed between the Parties prior to the
date of this Agreement and initialled by the Parties, to be entered
into to implement the Merger between Arris, New Arris, Archie U.S.
Holdings LLC., and Archie U.S. Merger LLC;
“Nasdaq”
means the Nasdaq Global Market;
“New Arris Shares”
means the ordinary shares in New Arris, to be issued in the Merger
and allocated pursuant to the Scheme or the Offer (as the case may
be);
“Notice”
has the meaning given to that term in Clause 14.1 (Notices);
“Offer”
should New Arris elect to effect the Acquisition by way of a takeover
offer (as that term is defined in section 974 of the Act), means the
offer to be made by New Arris, for all of Pace Shares (not already
owned by New Arris or any associate (as that term is defined in
Section 988 of the Act) of New Arris) on the terms and subject to the
conditions to be set out in the related Offer Document and form of
acceptance including, where the context requires, any subsequent
revision, variation, extension or renewal thereof;
“Offer Document”
means the document which would be despatched to (amongst others)
holders of Pace Shares pursuant to which the Offer would be made if
New Arris elects to implement the Acquisition by means of an Offer
in accordance with the terms of this Agreement;
“Pace Board”
the board of directors of Pace from time to time;
“Pace Directors”
means the directors of Pace from time to time;
“Pace Group”
means Pace and its subsidiaries and subsidiary undertakings from
time to time;
“Pace Recommendation”
means the unanimous and unqualified recommendation by the Pace
Directors to (i) Scheme Shareholders to vote in favour of the Scheme
and the Scheme Resolutions (including any resolutions
C-6
TABLE OF CONTENTS
 
required to approve and implement the Acquisition) when presented
to such holders or (ii) Pace Shareholders to accept the Offer if Arris
elects to proceed with the Offer in accordance with the terms of this
Agreement;
“Pace Shareholders”
means the holders of Pace Shares from time to time;
“Pace Shares”
means the ordinary shares of 5 pence each in the capital of Pace;
“Panel”
means the UK Panel on Takeovers and Mergers;
“Permitted Customer
Activity”
means customer contracts entered into in the ordinary course of
business;
“Personnel”
in relation to any person, means its board of directors, members of
their immediate families, related trusts and persons acting in concert
with them, as such expressions are construed in accordance with the
Code;
“Proceedings”
has the meaning given to that term in clause 16.2 (Governing law
and jurisdiction);
“Regulatory Conditions”
means the conditions to the Scheme (or the Offer, as the case may be)
which are set out in paragraphs 3(b), 3(c), 3(d), 3(e), 3(f), 3(g), 3(h),
3(i) and 3(j) as set out in Appendix I to the 2.7 Announcement;
“Relevant Authority”
means any court, tribunal, government or governmental, quasigovernmental, supranational, statutory, regulatory, self-regulatory,
environmental or investigative body, person, court, trade or
regulatory agency, authority, association or institution or any
competition, antitrust or supervisory body, in each case in any
jurisdiction;
“Representative”
means, in relation to each Party, its Advisers, directors, officers,
employees, agents and consultants, and any individuals seconded to
work for such Party (including persons who, at the relevant time,
occupied such position);
“Sanction Date”
means the date the Court sanctions the Scheme, pursuant to Section
899 of the Act;
“Sanction Hearing”
means the Court hearing at which Pace will seek an order
sanctioning the Scheme, pursuant to Section 899 of the Act
including any adjournment thereof;
“Scheme”
means the scheme of arrangement proposed to be made under
Sections 895 to 899 of the Act between Pace and the Scheme
Shareholders to be contained in the Scheme Document, the principal
terms of which are set out in the 2.7 Announcement, with or subject
to any modification, amendment, revision, addition or condition
approved or imposed by the Court and agreed to by Pace and Arris;
“Scheme Document”
means, where the Acquisition is being implemented by way of the
Scheme, the document to be despatched to, among others, the Pace
Shareholders in connection with the Scheme which will contain,
among other things, the terms and conditions of the Scheme;
C-7
TABLE OF CONTENTS
1.2
“Scheme Meetings”
 
means the Court Meeting and the General Meeting;
“Scheme Record Time”
means the time and date to be specified in the Scheme Document;
“Scheme Resolutions”
means the resolutions to be proposed at the Scheme Meetings as set
out in the notices of those meetings;
“Scheme Shareholders”
means holders of Scheme Shares;
“Scheme Shares”
means Pace Shares in issue on the date of the Scheme Document
together with any further Pace Shares (if any) issued after the date of
dispatch of the Scheme Document and prior to the Voting Record
Time, other than any Pace Shares held by Arris or any Affiliate of
Arris;
“SEC”
means the U.S. Securities and Exchange Commission;
“SEC Clearance”
means the clearance by the SEC of the Joint Proxy Statement and the
declaration by the SEC of the effectiveness of the Form S-4;
“Securities Act”
means the U.S. Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder;
“Service Document”
means a claim form, application notice, order or judgment or other
document relating to any Proceedings;
“Shareholder Approval
Long Stop Date”
means the Business Day prior to the date on which the Scheme
Meetings are held (or the adjourned Scheme Meetings are held);
“US$” or “US dollars”
means the lawful currency of the United States;
“VAT”
means, within the European Union, such taxation levied in
accordance with (but subject to derogations from) Council Directive
2006/112/EC and elsewhere, any taxation levied by reference to
value added or sales; and
“Voting Record Time”
means 6.00 p.m. (London time) on the day prior to the day
immediately before the date of the Court Meeting or any
adjournment, postponement or reconvention thereof.
In this Agreement (including the Schedules other than Schedule 1 (2.7 Announcement)), except where
the context otherwise requires:
1.2.1
terms and expressions used but not expressly defined in this Agreement shall, unless the
context otherwise requires, have the meanings given in the 2.7 Announcement;
1.2.2
words in the singular shall include the plural and vice versa;
1.2.3
a reference to a “person” shall include a reference to an individual, an individual’s
executors or administrators, a partnership, a firm, a body corporate, an unincorporated
association, government, state or agency of a state, local or municipal authority or
government body, a joint venture or association (in any case, whether or not having separate
legal personality);
1.2.4
references to a “company” shall be construed so as to include any company, corporation or
other body corporate, wherever and however incorporated or established;
1.2.5
any reference to a “day” (including within the phrase “Business Day”) shall mean a period
of 24 hours running from midnight to midnight, London time;
1.2.6
the rule known as the ejusdem generis rule shall not apply and accordingly general words
introduced by the word “other” shall not be given a restrictive meaning by reason of the
C-8
TABLE OF CONTENTS
 
fact that they are preceded by words indicating a particular class of acts, matters or things;
1.2.7
the headings in this Agreement are for convenience only and shall not affect its
interpretation;
1.2.8
a reference to any other document referred to in this Agreement is a reference to that other
document as amended, varied, novated or supplemented from time to time;
1.2.9
terms defined in the Act and not expressly defined in this Agreement, including the
expressions, “holding company”, “subsidiary” and “subsidiary undertaking” shall, unless
the context otherwise requires, have the meaning ascribed to it by the Act; and
1.2.10
except where this Agreement provides otherwise, obligations, covenants, warranties,
representations and undertakings expressed to be assumed or given by two or more persons
shall in each case be construed as if expressed to be given jointly and severally.
1.3
The Schedules form part of this Agreement and shall have the same force and effect as if set out in the
body of this Agreement and any reference to this Agreement shall include the Schedules.
2.
Implementation of the Acquisition
General
2.1
During the Continuance Period, each of Arris and New Arris undertakes to Pace to keep Pace
reasonably informed of the progress towards satisfaction (or otherwise) of any Condition and if it is
aware, or becomes aware, of any matter which it believes to be material in the context of the
satisfaction of any of the Conditions such that Arris determines (acting reasonably) that the relevant
Condition becomes or is reasonably likely to become incapable of satisfaction or Arris intends to
invoke the Condition in accordance with the terms of the Scheme or the Offer, Arris shall give Pace
written notice of such matter and, prior to New Arris exercising any right it may have under clause
12.1.2(1), provide Pace with reasonable opportunity to remedy such matter (to the extent the matter is
capable of being remedied).
2.2
Where the Acquisition is being implemented by way of the Scheme, each of Arris and New Arris
undertakes that before the Sanction Hearing, they shall deliver a notice in writing to Pace either:
2.2.1
confirming the satisfaction or waiver of all Conditions (other than the Condition set forth in
1(c) and 2(c)of Appendix I to the 2.7 Announcement (Scheme Approval)); or
2.2.2
if applicable, confirming New Arris’s intention to invoke a Condition,
and, if clause 2.2.2 applies, it shall also provide to Pace at the same time in writing reasonable details
of the event which has occurred, or circumstance which has arisen, which it considers as being
sufficiently material for the Panel to permit New Arris to invoke any of the Conditions.
2.3
To the extent that the Acquisition is being implemented by means of the Scheme, subject to the
provisions of this Agreement, each of Arris and New Arris will instruct counsel to appear on its behalf
at the Sanction Hearing and will undertake to the Court to be bound by the terms of the Scheme
insofar as it relates to them. If the Acquisition is implemented by way of an Offer the obligations of the
Parties pursuant to this clause 2 relating to the Scheme or Scheme Document shall be of no force and
effect.
2.4
If the Acquisition is being implemented by means of the Scheme, to the extent that Pace provides Arris
with drafts and revised drafts of the Scheme Document for review and comment and, where comments
have been provided to Pace, to the extent Pace takes into account Arris’s reasonable comments in
respect of such drafts and revised drafts, Arris undertakes:
2.4.1
to provide to Pace for the purposes of inclusion in the Scheme Document all such
information about Arris, New Arris, the other members of the Arris Group and their
C-9
TABLE OF CONTENTS
 
respective Personnel as may reasonably be required by Pace (having regard to the Code and
applicable regulations) for inclusion in the Scheme Document (including all information
that would be required under the Code or applicable regulations); and
2.4.2
to procure that the Arris Responsible Officers accept responsibility for all information
included in the Scheme Document (and any variation or amendment to the Scheme
Document) with the approval of Arris and New Arris other than information which they are
not required to accept responsibility for under the Code.
2.5
If any supplemental circular or document is required to be published in connection with the Scheme
or, subject to the prior written consent of Arris, any variation or amendment to the Scheme, Arris shall
promptly provide such co-operation and information necessary to comply with Law and all regulatory
provisions) as Pace may reasonably request in order to finalise such document.
2.6
Each of Arris and New Arris undertakes to Pace:
2.6.1
subject to the Joint Proxy Statement having been cleared by the SEC, to use reasonable
endeavours to duly call, give notice of, convene and hold the Arris Shareholders Meeting for
the purpose of obtaining the Arris Shareholders Approval by no later than the Shareholder
Approval Long Stop Date, save as permitted in clause 2.6.2, it being understood that the
obligations of Arris pursuant to this clause 2.6 shall be extinguished by the making of any
Arris Adverse Recommendation Change or any Condition becoming incapable of
satisfaction by the Long Stop Date or being invoked (and the Panel having agreed that such
Condition is incapable of satisfaction or invocation (as the case may be) and is not required
to be waived) in accordance with the Scheme Document or the Offer Document (as
applicable);
2.6.2
that it shall be entitled to adjourn or postpone the Arris Shareholders’ Meeting:
(a)
(b)
up to on or before the Shareholder Approval Long Stop Date, only:
(1)
with the prior written consent of Pace (such consent not to be
unreasonably withheld, conditioned or delayed, it being acknowledged
that it would be unreasonable to withhold or delay such consent in the
case of an adjournment of Scheme Meetings); or
(2)
if at the time for which the Arris Shareholders Meeting is originally
scheduled (as set forth in the Joint Proxy Statement) there are insufficient
Arris Shares represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of the Arris Shareholders’
Meeting, in which case the meeting shall be adjourned for a reasonable
period of time; or
(3)
for a reasonable period of time, to allow additional time for solicitation
of proxies if necessary to obtain the Arris Shareholders Approval; or
(4)
to allow reasonable additional time for the filing and distribution to
Arris Shareholders prior to the Arris Shareholders Meeting of any
supplemental or amended disclosure which the Arris Board has
determined in good faith, is required;
after the Shareholder Approval Long Stop Date, only with the prior written consent
of Pace.
C-10
TABLE OF CONTENTS
 
Preparation of Arris Shareholder Communications
2.7
Each of Arris and New Arris undertakes to Pace to provide Pace with drafts and revised drafts of any
written communication or other documentation to be issued by Arris or New Arris to Arris or Pace
Shareholders in connection with the Acquisition (including for the avoidance of doubt the Form S-4
and in the case the Acquisition is implemented by way of Offer, any Offer Document, UK Prospectus or
registration requirement on the Form S-4 that may be required and any amendments or supplements
thereto but excluding announcements by Arris in connection with the Acquisition which will be dealt
with in accordance with clause 8) (the “Arris Shareholder Communication”) for review and
comment at such time as will allow Pace a reasonable opportunity for such review and comment and
Arris and New Arris shall take into account Pace’s reasonable comments in respect of such drafts and
revised drafts.
Switching to an Offer and Scheme Process
2.8
Arris and New Arris shall be entitled, with the consent of the Panel, to implement the Acquisition by
way of the Offer rather than the Scheme (such an election being a “Switch”) but only where Pace
provides its prior written consent (such consent not to be unreasonably withheld or delayed, it being
acknowledged by the Parties that objecting to any conditions to an Offer which are identical to the
Conditions in the 2.7 Announcement (other than Conditions 1 and 2) shall not be reasonable).
Preparation of Joint Proxy Statement/Prospectus.
2.9
Each of Arris and New Arris undertakes to Pace to:
2.9.1
as promptly as reasonably practicable, to the extent that Pace provides all co-operation
reasonably requested by Arris and New Arris in connection therewith and subject to Pace
providing the information required for the Form S-4 (as defined below) in accordance with
clause 3.4, prepare and cause to be filed with the SEC (a) preliminary proxy materials, which
shall comprise (i) a Scheme Document and (ii) a proxy statement relating to the matters to be
submitted to Arris Shareholders (such proxy statement, and any amendments or supplements
thereto, the “Joint Proxy Statement”) and (b) a registration statement on Form S-4 (of
which the Joint Proxy Statement is a part) with respect of the New Arris Shares to be issued
in the Acquisition and the Scheme (the “Form S-4”) unless Arris determines (acting
reasonably) that a registration statement is not required; and
2.9.2
promptly notify Pace (and/or its nominated Advisers) of any oral comments and provide
copies of any written communications (including written comments or requests for
additional information received from the SEC) sent to or received from the SEC in relation
to the Form S-4;
2.9.3
without prejudice to clause 2.6, use reasonable endeavours (a) to have the Joint Proxy
Statement cleared by the SEC and the Form S-4 declared effective as soon as reasonably
practicable after the date of this Agreement, (b) to keep the Form S-4 effective as long as is
necessary to consummate the Acquisition and the Merger and (c) to mail the Joint Proxy
Statement to Arris Shareholders as promptly as possible after the Form S-4 is declared
effective, after having established as expeditiously as possible a record date for the Arris
Shareholders Meeting and commenced a broker search pursuant to Section 14a-13 of the
Exchange Act in connection therewith and to the extent that Pace provides all co-operation
reasonably requested by Arris in connection therewith;
2.9.4
use reasonable endeavours to take any action required to be taken by it under any applicable
U.S. state securities Laws in connection with the Acquisition or the Merger,
C-11
TABLE OF CONTENTS
 
and furnish all information concerning it and the holders of its capital stock as may be
reasonably requested in connection with any such action; and
2.9.5
2.10
advise Pace, promptly after it receives notice thereof, of the time when the Form S-4 has
become effective, the issuance of any stop order, the suspension of the qualification of the
New Arris Shares issuable in connection with the Acquisition and the Merger for offering or
sale in any jurisdiction, or any request by the SEC for amendment of the Joint Proxy
Statement or the Form S-4.
If, at any time prior to the Effective Time, any information relating to any of the Parties, or their
respective Affiliates, officers or directors, should be discovered by either Party, and such information
should be set forth in an amendment or supplement to the Joint Proxy Statement or the Form S-4 so
that such documents, when taken as a whole, would not include any misstatement of a material fact or
omit to state any material fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the Party that discovers such information shall promptly
notify the other Party and, to the extent required by Law, an appropriate amendment or supplement
describing such information shall be promptly filed by Arris or New Arris with the SEC and, to the
extent required by Law, disseminated to Arris Shareholders and Pace Shareholders and Pace shall
provide all assistance reasonably requested by Arris or New Arris for the purposes of enabling Archie
to comply with its obligations under this clause 2.10.
Merger Agreement
2.11
Arris and New Arris undertake to, and shall procure that Archie U.S. Holdings LLC and Archie U.S.
Merger LLC shall, promptly enter the Merger Agreement after the execution and delivery of this
Agreement. Without the prior written consent of Pace (which shall not be unreasonably withheld,
conditioned or delayed), Arris and New Arris shall procure that (a) no amendments shall be made to the
Merger Agreement that are adverse to the holders of Pace Shares or which are otherwise material, (b),
the Merger Agreement shall not be terminated by any party to the Merger Agreement; and (c) the
parties to the Merger Agreement shall comply with their respective obligations thereunder.
3.
Undertakings to obtain Clearances
3.1
Without prejudice to Arris’s obligations to consult and cooperate with Pace set forth in this clause 3,
Arris shall, subject to clause 3.2, be responsible for:
3.1.1
obtaining the Clearances; and
3.1.2
contacting and corresponding with the Relevant Authorities in relation to the Clearances.
3.2
For the avoidance of doubt, Arris shall be responsible for making with Pace’s assistance, all antitrust or
regulatory filings that are necessary or that Arris deems (acting reasonably) to be necessary or
advisable in jurisdictions which require one filing, and each Party will be responsible for making its
own filing, or causing its Affiliates as necessary to make their own filings, in those jurisdictions which
require each Party to file a separate form and in which Arris deems (acting reasonably) the filings to be
necessary or advisable in connection with the Transactions (such as the U.S.).
3.3
Subject to any provision of this Agreement to the contrary, Arris shall have the right to determine the
strategy to obtain the Clearances.
3.4
Pursuant to clause 2.9.1 above, Pace undertakes to (i) assist Arris in relation to satisfying the
Regulatory Conditions and in communicating with any Relevant Authority in relation to the
Clearances including by providing as promptly as reasonably practicable such information and
C-12
TABLE OF CONTENTS
 
assistance to Arris as Arris may reasonably require for the purposes of obtaining any Clearance and
making a submission, filing or notification to any Relevant Authority (including but not limited to
producing all documents and information requested by a Relevant Authority in connection with the
Transaction as promptly as practicable); and (ii) as promptly as practicable, Pace undertakes, with the
assistance of its external accountants, to provide Arris with consolidated audited annual financial
statements and unaudited interim financial statements for Pace and its Subsidiaries fulfilling the
requirements of Regulation S-X, Item 3-05 under the Securities Act for an acquired business, prepared
in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, and thereafter will provide Arris such subsequent financial statements as
may be required by said Item 3-05.
3.5
Notwithstanding any other provision of this Agreement to the contrary, during the Continuance
Period:
3.5.1
Arris and New Arris shall use reasonable endeavours to obtain the Clearances as soon as
reasonably practicable;
3.5.2
neither Arris nor New Arris shall, without the prior written consent of Pace, effect or commit
to effect any transaction other than any Permitted Customer Activity, which would be
reasonably likely to preclude, impede, or prejudice to a material extent obtaining any of the
Clearances as described in clause 3.5.1;
3.6
Each Party undertakes to keep the other Parties fully informed of any developments which are material
or potentially material to the obtaining of the Clearances, including (without limitation) all material
dealings with any Relevant Authority.
3.7
Each Party undertakes to the other Parties, except to the extent that to do so is prohibited by the
Relevant Authority or by Law:
3.7.1
to provide the other Parties, as promptly as reasonably practicable and in any event before
any applicable deadline or due date, all such information as may reasonably be required by
the other Parties to assist in determining in which jurisdictions any merger control, financial
regulatory or other filing with a Relevant Authority may be necessary or desirable for the
purpose of obtaining the Clearances and to provide all such other assistance as may
reasonably be required in connection with obtaining the Clearances, including assistance in
connection with such pre-notification contacts with Relevant Authorities as Arris considers
desirable or appropriate in the circumstances;
3.7.2
where it considers that it may be necessary or appropriate to make a notification or
submission to a Relevant Authority for a regulatory clearance that does not relate to a
Clearance (other than the reference to Condition 3(j) in Appendix I to the 2.7
Announcement) but which relates to any regulatory clearance which is the subject matter of
Condition 3(j) in Appendix I to the 2.7 Announcement, to provide to the other Parties, as
promptly as reasonably practicable and in any event before any applicable deadline or due
date and for the avoidance of doubt before any such notification or submission to the
Relevant Authority has been made, all such information as may reasonably be required by
the other Party to assist its understanding of the reason for the notification or submission in
respect of the regulatory clearance;
3.7.3
(a) to provide, or procure the provision of, to the other Party draft copies of all filings,
notifications, submissions, responses and significant communications to be made to any
Relevant Authority in relation to obtaining any Clearance (but excluding the provision to
the other Party of copies of proposed large document productions to the Relevant Authority
unless specifically requested by the other Party), at such time as will allow the other Party
(and its Advisers) a reasonable opportunity to provide comments on such filings,
notifications, submissions, responses and communications before they are
C-13
TABLE OF CONTENTS
 
submitted or sent and (b) only Arris may make or offer any remedy provision to a Relevant
Authority in order to obtain Clearances and to the extent practicable Arris will provide any
remedy and substantially new proposal in draft form to Pace at least two (2) full Business
Days in advance of the submission of such proposal to any Relevant Authority);
3.7.4
to have regard in good faith to and to take due consideration of comments made by the other
Party (and its Advisers) on the filings, notifications, submissions, responses and
communications provided pursuant to clause 3.7.3;
3.7.5
to promptly notify the other Party (or its Advisers) of and provide copies of all filings,
notifications, submissions, responses and communications in the form submitted or sent to
any Relevant Authority in relation to obtaining any Clearances but excluding the provision
to the other Party or its Advisers of any large document productions to the Relevant
Authority unless specifically requested by the other Party, and, in the case of non-written
material communications to a Relevant Authority, to promptly provide the other Party (or its
Advisers) with reasonable details of such material communications without delay; and
3.7.6
to promptly notify the other Party (or its Advisors) of and provide copies of any material
communications (or in the case of non-written material communications, reasonable details
of the contents of any such material communications) from any Relevant Authority in
relation to obtaining any Clearances.
3.8
There shall be no suspension of, termination of, or other impact on the Acquisition as a result of any
merger control or merger control regulatory engagement process that does not relate to a Regulatory
Condition save that in the case of Condition 3(j) in Appendix I to the 2.7 Announcement, there shall
only be any such suspension of, termination of, or other impact on the Acquisition if such merger
control or merger control regulatory engagement process shall otherwise result in the implementation
of the Acquisition being void, illegal or unenforceable.
4.
Qualifications
4.1
Nothing in clauses 2 and 3 (inclusive) shall require any Party to provide or disclose to the other Parties
or any of their respective Advisers, any information or document:
4.2
4.1.1
that is commercially or competitively sensitive or confidential or which constitutes a trade
secret and, in each case, has not previously been disclosed to the other parties;
4.1.2
that a Party would be prohibited from providing or disclosing to the other Parties by any
Regulatory Authority;
4.1.3
in circumstances that would result in the loss or waiver of any privilege that subsists in
relation to such information (including legal privilege); or
4.1.4
in circumstances that would result in that Party being in breach of a material contractual
obligation.
Where any of the circumstances referred to in clause 4.1 applies, the Parties shall co-operate and
consult with each other and use reasonable endeavours to agree proposals for the disclosure of the
relevant information in such manner (including, without limitation, disclosure on an “external counsel
only” basis or directly to a Relevant Authority) as will not result in the disclosure:
4.2.1
to another Party of personally identifiable information of a director, officer or employee of
the disclosing party or any member of its Group;
4.2.2
to another Party of information which the disclosing party considers to be commercially
sensitive;
C-14
TABLE OF CONTENTS
4.2.3
 
of any information in breach of Law or the terms of an existing contract; or
4.2.4
of any information in circumstances that would result in the loss of privilege.
5.
Conduct of Business
5.1
Subject to clauses 5.2 and 5.3, except as expressly contemplated by this Agreement, as consented to in
writing by Pace (which consent shall not be unreasonably withheld, conditioned or delayed) or as
required by applicable Law, during the Continuance Period, neither Arris nor New Arris shall (and
shall procure that no member of the Arris Group shall):
5.2
5.1.1
authorise or pay any dividends on or make any distribution in cash or in otherwise with
respect to its shares, except that it may pay dividends and other distributions with reference
to a record date after the Effective Date (so, that if the Acquisition is completed, the New
Arris Shares rank for participation in such dividends and other distributions rateably and
equally with all other New Arris Shares then in issue);
5.1.2
other than in the ordinary course of trading and consistent with past practice, allot or issue
any shares or any securities convertible into or exchangeable for any shares, or grant any
rights, warrants or options to acquire any such shares or any such securities, in each case,
that are issued or granted at less than the fair market value of the relevant security on the
date of issuance or grant;
5.1.3
consolidate, subdivide or reclassify any of its shares;
5.1.4
other than on arms’ length terms, directly or indirectly, repurchase, redeem or otherwise
acquire, cancel or reduce, any of its shares or any rights, warrants or options to acquire such
shares;
5.1.5
adopt a plan of complete or partial liquidation or dissolution of Arris, New Arris or any
material member of the Arris Group, other than with respect to any reorganisation of the Arris
Group which does not provide for or result in any material transfer of assets, rights or
liabilities by any member of the Arris Group to an entity which is not a member of the Arris
Group; or
5.1.6
agree, resolve or commit to do any of the foregoing.
Notwithstanding the restrictions in clause 5.1, Arris and New Arris may:
5.2.1
grant options or awards in respect of shares or sell shares to directors, officers and employees,
in the normal and ordinary course in accordance with Arris’s employee incentive plans or
employee stock purchase plans and consistent with past practice during the previous three
years;
5.2.2
issue any shares to the extent necessary to satisfy any such options or awards vesting or due
to be settled; and
5.2.3
do anything reasonably required for the purposes of implementing the Merger.
5.3
The restrictions contained in clauses 5.1.1 to 5.1.4 (inclusive) shall not apply to any transaction or
arrangement between one member of the Arris Group and another member of the Arris Group in each
case including Arris or New Arris.
5.4
Arris agrees that the following matters shall be permitted and shall not contravene Rule 21 of the
Code:
5.4.1
the declaration and approval of the Permitted Dividend (as defined in the 2.7
Announcement);
5.4.2
the proposing and passing of any resolutions at the 2015 Annual General Meeting of Pace
set out in the notice thereto;
C-15
TABLE OF CONTENTS
5.4.3
5.4.4
6.
 
the grant of options and awards as contemplated by Schedule 2;
the issue of any shares or the funding of the Pace plc Employee Benefits Trust to purchase or
subscribe for shares, to the extent necessary to satisfy any options or awards as summarised
in Schedule 2.
Pace Share Plans
The Parties undertake to comply with the relevant provisions set out in Schedule 2 (Pace Share
Plans).
7.
Break Fees
7.1
By way of compensation for any loss suffered by Pace in connection with the preparation and
negotiation of the Acquisition, this Agreement and any other document relating to the Acquisition,
Arris undertakes that on the occurrence of any of the events listed below (each, a “Break Payment
Event”), Arris shall pay or shall procure the payment by a member of the Arris Group (provided that
such member is not required by Law to make any deductions or withholdings on account of tax from a
Break Payment) to Pace an amount (the “Break Payment”) in cash, in US dollars, equal to
US$20,000,000 in the event that on or prior to the Long Stop Date:
(a)
on the Long Stop Date, any Regulatory Condition shall not have been satisfied or waived by
Arris or New Arris;
(b)
Arris or New Arris invoke any Regulatory Condition; or
(c)
(subject to clause 7.6) an Arris Adverse Recommendation Change has occurred and either (i)
the Arris Shareholders Approval has not been obtained at the Arris Shareholders Meeting,
(ii) the Arris Shareholders Meeting has not occurred; (iii) the Agreement has been terminated
in accordance with clause 12 or (iv) the Acquisition does not complete by the Long Stop
Date,
but provided that Arris shall have no obligation to pay the Break Payment to Pace: (i) pursuant to
clause 7.1(a) or (b) above where the failure to satisfy the Regulatory Condition or the invoking of a
Regulatory Condition on or prior to the Long Stop Date is due to a material breach of clause 3 of this
Agreement by Pace; or (ii) if Pace withdraws or qualifies its unanimous and unconditional
recommendation that Pace shareholders vote in favour of the Scheme (or in the event of a switch to an
Offer, they fail to provide or withdraw or qualify their recommendation of an Offer) before a Break
Payment Event in clause 7.1 (b) or 7.1(c) occurs. For the avoidance of doubt, in no event shall Arris be
obliged to pay or procure the payment of more than one Break Payment and any Break Payment shall
be reduced by any amount paid or by any amount payable pursuant to clause 7.5 to Pace.
7.2
Arris shall pay or procure the payment of the relevant Break Payment or Expense Reimbursement
Payment by electronic bank transfer to a bank account designated by Pace within seven (7) days of the
occurrence of the Break Payment Event (other than in relation to clause 7.1(c)) or the circumstances
triggering the Expense Reimbursement Payment or in the event the Break Fee Event relates to clause
7.1(c) the earliest of: (i) the date that the Arris Shareholders vote against the adoption of the Merger
Agreement; (ii) any Party terminating the Agreement pursuant to clause 12; or (iii) the Acquisition not
completing by the Long Stop Date.
7.3
The Parties acknowledge and agree that, at the date of this Agreement, it is not possible to ascertain
the amount of the overall loss that Pace would incur as a result of a Break Payment Event and the
Break Payment represents a genuine pre-estimate by the parties of the amount of the overall loss that
Pace would incur as a result of such Break Payment Event. The Parties agree that the Break Payment or
Expense Reimbursement Payment (as the case may be) shall be Pace’s sole and exclusive remedy in
connection with any claim it may have in respect of any or all Break
C-16
TABLE OF CONTENTS
 
Payment Events or the circumstances giving rise to the Expense Reimbursement Payment and Pace
waives the right to bring any other claim in respect of such matter.
7.4
The Parties intend and shall use all reasonable endeavours to secure that the Break Payment or
Expense Reimbursement Payment is not treated for VAT purposes as consideration for a taxable
supply. If, however, the Break Payment or Expense Reimbursement Payment is treated by H. M.
Revenue & Customs or any other tax authority, in whole or in part, as consideration for a taxable
supply, then the amount of the Break Payment shall be regarded as inclusive of VAT.
7.5
In the event that the Arris Shareholders Approval is not obtained at the meeting of the Arris
Shareholders at a time when no Arris Adverse Recommendation Change has occurred Arris shall
indemnify Pace for all costs and expenses (including irrecoverable VAT) reasonably incurred by Pace
in connection with the Acquisition up to an aggregate amount not to exceed US$12 million (the
“Expense Reimbursement Payment”).
8.
Announcements
Prior to satisfaction or waiver (as the case may be) of the Conditions, and unless the Pace
Recommendation is not given or is withdrawn or qualified or (in relation to any response made by
Arris) where a Pace announcement has been made relating to competing offer for Pace without prior
consultation with Arris, in each case except as may be agreed by the Parties, Arris, New Arris or any
other member of the Arris Group will provide any public announcement to be made by them in
connection with the Acquisition to Pace for review and comment at such time as will allow Pace a
reasonable opportunity for such review and comment and Arris and New Arris shall take into account
Pace’s reasonable comments in respect of such drafts except where such announcement is required by
Law, the Panel, Nasdaq or the rules of any other relevant stock exchange where Arris and New Arris
shall only be required to comply with the foregoing to the extent practicable in the time available.
9.
Arris Guarantee
9.1
Arris irrevocably and unconditionally guarantees to Pace the performance and observance by New
Arris of all its obligations under this Agreement (the “Guarantee”).
9.2
The Guarantee is to be a continuing security which shall remain in full force and effect until the
obligations of New Arris under this Agreement have been fulfilled or shall have expired in accordance
with the terms of this Agreement and the Guarantee is to be, in addition, and without prejudice to, and
shall not merge with, any other right, remedy, guarantee or security which Pace may now or hereafter
hold in respect of all or any of the obligations of New Arris under this Agreement, provided that in no
circumstances shall the Guarantee entitle Pace to recover more than once with respect to the same loss.
9.3
The liability of Arris under the Guarantee shall not be affected, impaired or discharged by reason of
any act, omission, matter or thing which, but for this provision, might operate to release or otherwise
exonerate New Arris from its obligations hereunder including, without limitation:
9.3.1
any amendment, variation or modification to, or replacement of this Agreement;
9.3.2
the taking, variation, compromise, renewal, release, refusal or neglect to perfect or enforce
any rights, remedies or securities against New Arris or any other person;
9.3.3
any time or indulgence or waiver given to, or composition made with, New Arris or any other
person; or
9.3.4
New Arris becoming insolvent, going into receivership or liquidation or having an
administrator appointed.
C-17
TABLE OF CONTENTS
9.4
 
The Guarantee shall constitute primary obligations of Arris and Pace shall not be obliged to make any
demand on New Arris or any other person before enforcing its rights against Arris under the Guarantee.
9.5
If at any time any one or more of the provisions of the Guarantee is or becomes invalid, illegal or
unenforceable in any respect under any law, the validity, legality and enforceability of the remaining
provisions hereof shall not be in any way affected if impaired thereby.
10.
Time of the Essence
Any time, date or period referred to in any provision of this Agreement may be extended (subject to
the terms of this Agreement) by mutual agreement between Pace and Arris but as regards any time, date
or period originally fixed or any time, date or period so extended, time shall be of the essence.
11.
Directors’ and Officers’ Liability Insurance
11.1
For six years after the Effective Date, Arris undertakes in favour of Pace and in favour of each of the
directors and officers of Pace and each of its subsidiary undertakings as at and prior to the date of this
Agreement that Arris shall honour and fulfil provisions in Pace’s and its subsidiary undertakings’
certificates of incorporation, articles of association or similar governing documents (and any
indemnity in favour of officers and directors) existing as of the date hereof regarding elimination of
liability of directors, indemnification of officers and directors and advancement of expenses with
respect to matters existing or occurring at or prior to the Effective Date.
11.2
Arris acknowledges that Pace may purchase at reasonable cost customary directors’ and officers’
liability insurance cover “tail” policies, for both current and former directors and officers of Pace and
any of its subsidiary undertakings, including directors or officers who retire or whose employment is
terminated as a result of the Acquisition, for acts or omissions up to and including the Effective Date,
in the form of run-off cover for a period of six years following the Effective Date. Such “tail” policies
shall be with reputable insurer(s) and provide cover, in terms of amount and breadth, substantially
similar cover to that provided under the Pace’s directors’ and officers’ liability insurance as at the date
of this Agreement.
12.
Termination
12.1
This Agreement may be terminated as follows:
12.1.1
upon agreement in writing by Arris and Pace at any time prior to completion of the
Acquisition;
12.1.2
(1)
by Arris or Pace if any Condition is invoked in accordance with the terms of the
Scheme or the Offer so as to cause the Acquisition not to proceed (but only in
circumstances which constitute “material significance” to Arris for the purposes of
Rule 13.5 of the Code, except Conditions 1 or 2 in the 2.7 Announcement or in the
case of an Offer, the acceptance condition);
(2)
by either Arris or Pace if an Arris Adverse Recommendation Change has occurred;
12.1.3
by either Arris or Pace, by written notice to the other Party, if:
(1)
the Pace Board notifies Arris or publicly states that it no longer recommends (or
intends to recommend) that Pace Shareholders vote in favour of the Scheme or
Pace fails to include in its Scheme Document a recommendation that Pace
Shareholders vote in favour of the Scheme the Pace Directors withdraw or qualify
their unanimous and unconditional recommendation that Pace Shareholders vote
in favour of the Scheme (or in the event of a switch to
C-18
TABLE OF CONTENTS
 
an Offer, they fail to provide, withdraw or qualify their recommendation of an
Offer);
(2)
12.1.4
there is an announcement by a third party announcing a firm intention to make an
offer for Pace which is recommended by the Pace Board; or
by either Arris or Pace, by written notice to the other Party, if the Effective Date has not
occurred by the Long Stop Date.
12.2
Subject to clause 7.3, termination of this Agreement shall be without prejudice to the rights of any of
the Parties which have arisen prior to termination.
12.3
Clauses 1, 7 , 12 and 13 to 17 (inclusive) shall survive termination of this Agreement.
13.
Representations and Warranties
13.1
Each of Arris, New Arris and Pace represents and warrants to the other Parties that:
13.1.1
it is a company duly organised and validly existing under the laws of its jurisdiction of
incorporation;
13.1.2
it has the requisite power and authority to enter into and perform its obligations under this
Agreement in accordance with the terms thereof;
13.1.3
this Agreement constitutes its binding obligations in accordance with the terms thereof;
13.1.4
the execution and delivery of, and performance of its obligations under, this Agreement will
not:
(1)
result in a breach of any provision of its or its subsidiaries’ constitutional
documents;
(2)
result in a breach of, or constitute a default under, any instrument to which it is a
party or by which it is bound;
(3)
result in a breach of any order, judgment or decree of any court or government
authority to which it is a party or by which it is bound; or
(4)
require the approval of its shareholders (other than a shareholder approval referred
to in this Agreement).
13.2
Each of the representations and warranties in this Clause 13 (Representations and Warranties) shall be
construed as separate and shall not be limited by the others.
14.
Notices
14.1
A notice under or in connection with this Agreement (a “Notice”) shall be in writing and shall be
delivered personally or recorded delivery mail (or air mail if overseas) or by electronic mail with
confirmation, to the Party due to receive the Notice to the relevant address specified in Clause 14.2
(Notices) or to another person or address specified by that Party by written notice to Arris (in the case
of Pace) and Pace (in the case of Arris or New Arris) received before the Notice was despatched.
14.2
The address referred to in Clause 14.1 (Notices) is:
14.2.1
in the case of Arris or New Arris:
Address:
3871 Lakefield Drive
SUWANEE
GA
30024
USA
C-19
TABLE OF CONTENTS
14.2.2
14.3
Marked for the attention of:
 
General Counsel
Email address:
[email protected]
With a copy to:
Gavin Davies
Address:
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
Email address:
[email protected]
and
Brink Dickerson
Address:
Troutman Sanders LLP
600 Peachtree Street,
N.E.Suite 5200
Atlanta, Georgia 30308-2216
USA
Email address:
[email protected]
in the case of Pace:
Address:
Victoria Road, Saltaire BD18 3LF
Marked for the attention of:
Mike Pulli
Email address:
[email protected]
With a copy to:
Anthony Dixon
Address:
Pace plc, Victoria Road, Saltaire BD18 3LF
Email address:
[email protected]
and
Spencer Summerfield
Address:
Travers Smith LLP 10 Snow Hill, London EC1A 2AL
Email address:
[email protected]
A Notice given under Clause 14 (Notices) shall conclusively be deemed to have been received:
14.3.1
at the time of delivery if delivered personally or by electronic mail with confirmation;
14.3.2
one Business Day after posting if sent by recorded delivery mail; and
14.3.3
five Business Days after posting if sent by air mail,
15.
General
15.1
The provisions of this Agreement may be modified or amended only by written agreement of the
Parties.
15.2
Each Party acknowledges and agrees that damages may not be an adequate remedy for any breach or
threatened breach by it of this Agreement and that any Party who is not in breach shall be entitled
without proof of special damage to seek injunctive relief and other equitable remedy (including
specific performance),
15.3
No Party may assign (whether absolutely or by way of security and whether in whole or in part),
transfer, mortgage, charge, declare itself a trustee for a third party of, or otherwise dispose of (in any
manner whatsoever) the benefit of this Agreement or sub-contract or delegate in any manner
C-20
TABLE OF CONTENTS
 
whatsoever its performance under this Agreement (each of the above a “dealing”) and any such
purported dealing in contravention of this clause 15.3 (General) shall be ineffective.
15.4
With the exception of the persons in whose favour the undertaking by Arris in clause 11 (Directors’
and Officers’ Liability Insurance) is made, a person who is not a Party shall have no right under the
Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.
15.5
The provisions of this Agreement are supplemental to, and shall not prejudice, the terms of the
Confidentiality Agreement which shall remain in full force and effect. This Agreement, together with
the Confidentiality Agreement, represents the entire understanding, and constitutes the whole
agreement, in relation to its subject matter and supersedes any previous agreement between the Parties
with respect thereto.
15.6
Each of the provisions of this Agreement are severable. If any provision of this Agreement shall be
held to be illegal, void, invalid or unenforceable under the Laws of any jurisdiction, the legality,
validity and enforceability of the remainder of this Agreement in that jurisdiction shall not be affected,
and the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction
shall not be affected. If any provision of this Agreement shall be held to be illegal, void, invalid or
unenforceable under the Laws of any jurisdiction but would be valid, binding and enforceable if some
part of the provision were deleted or amended, then the provision shall apply with the minimum
modifications necessary to make it valid, binding and enforceable in that instance under the Law of
that jurisdiction without affecting the validity or enforceability of the remaining provisions of the
Agreement under the Laws of that jurisdiction or of that provision under the Laws of any other
jurisdiction.
15.7
This Agreement may be executed in any number of counterparts and by the Parties to it on separate
counterparts, each of which is an original but all of which together constitute one and the same
instrument.
15.8
No delay or omission by either Party in exercising any right, power or remedy provided by Law or
under this Agreement shall affect that right, power or remedy or operate as a waiver of it. The single or
partial exercise of any right, power or remedy provided by Law of under this Agreement shall not
preclude any other or further exercise of it or the exercise of any other right, power or remedy,
15.9
Subject to clause 7, each Party shall pay its own costs and expenses in relation to the preparation,
execution and carrying into effect of this Agreement (including the costs of preparation and/or
submission of any filings and/or notifications) provided that the shareholders of Pace shall in no way
be liable for any such costs and expenses (whether or not the Acquisition proceeds),
16.
Governing Law and Jurisdiction
16.1
This Agreement, and any matter, claim or dispute arising out of or in connection with this Agreement,
whether contractual or non-contractual, shall be governed by and construed in accordance with
English law.
16.2
The courts of England are to have exclusive jurisdiction to settle any dispute, whether contractual or
non-contractual, arising out of or in connection with this Agreement. Any proceeding, suit or action
arising out of or in connection with this agreement or the negotiation, existence, validity or
enforceability of this agreement (“Proceedings”) shall be brought only in the courts of England.
16.3
Each Party waives (and agrees not to raise) any objection, on the ground of forum non conveniens or
on any other ground, to the taking of Proceedings in the courts of England,
16.4
Each Party irrevocably submits and agrees to submit to the jurisdiction of the courts of England.
C-21
TABLE OF CONTENTS
 
17.
Agent for service
17.1
Arris irrevocably appoints New Arris to be its agent for the receipt of Service Documents. Arris agrees
that any Service Document may be effectively served on it in connection with Proceedings in England
and Wales by service on its agent effected in any manner permitted by the Civil Procedure Rules.
17.2
if the agent at any time ceases for any reason to act as such, Arris shall appoint a replacement agent
having an address for service in England or Wales and shall notify Pace of the name and address of the
replacement agent. Failing such appointment and notification, Pace shall be entitled by notice to Arris
to appoint a replacement agent to act on behalf of Arris. The provisions of this clause 17 (Agent for
service) applying to service on an agent apply equally to service on a replacement agent.
17.3
A copy of any Service Document served on an agent shall be sent by post to Arris. Failure or delay in
so doing shall not prejudice the effectiveness of service of the Service Document.
IN WITNESS WHEREOF the Parties have executed this Agreement on the date first set out above.
EXECUTED by Lawrence A. Margolis
acting for and on behalf of ARRIS GROUP, INC.
) /s/ Lawrence A. Margolis
)
EXECUTED by Lawrence A. Margolis
acting for and on behalf of ARCHIE ACQ LIMITED
) /s/ Lawrence A. Margolis
)
EXECUTED by Michael V. Pulli
acting for and on behalf of PACE PLC
) /s/ Michael V. Pulli
)
C-22
TABLE OF CONTENTS
 
Schedule 1
2.7 Announcement
C-23
TABLE OF CONTENTS
 
Schedule 2
PACE SHARE PLANS
PART 1
SHARE PLANS PROPOSALS
Introduction
1.
The Parties agree that the options and awards held by, and those to be granted under, the Perry Share
Plans will be dealt with in accordance with the terms set out in this Schedule. For the avoidance of
doubt, should the Acquisition proceed by way of an Offer (rather than by way of Scheme), the
provisions of this Schedule shall apply as far as possible on the same terms and conditions to such
Offer (as applicable).
2.
In this Schedule 2:
2.1
“Share Plans” means:
2.1.1
the Perry plc Deferred Share Plan (the “Deferred Share Plan”);
2.1.2
the Perry Performance Share Plan (the “PSP”);
2.1.3
the Perry International Performance Share Plan (the “IPSP”);
2.1.4
the Perry Unapproved Discretionary Share Option Plan 2005 (the “Unapproved
Option Plan”);
2.1.5
the Perry Approved Discretionary Share Option Plan 2005 (the “Approved Option
Plan”);
2.1.6
the Perry Sharesave Plan (the “UK Sharesave Plan”); and
2.1.7
the Perry Americas US Sharesave Plan (the “US Sharesave Plan”);
2.2
“Trust” means The Perry plc Employee Benefits Trust;
2.3
“Trustee” means Computershare Trustee (Jersey) Limited in its capacity as the current
trustee of the Trust;
2.4
“Appointment Share Award” means the right to acquire 600,000 Perry Shares on
31 May 2015 in accordance with the terms of the historic award made to the Chairman of
Perry in 2011;
2.5
“UK Optionholders” shall mean holders of options under the UK Sharesave Plan and/or the
Approved Option Plan;
2.6
“US Optionholders” shall mean holders of options under the US Sharesave Plan; and
2.7
“Israeli Awardholders” shall mean holders of options or awards under the Share Plans who
are resident in Israel.
3.1
The table set out in Section A of Part 2 of this Schedule details all subsisting options and
rights to acquire Perry Shares as at the date of this Agreement (“Existing Awards”),
including those that would have vested following the announcement of Perry’s results for
2014, had Perry not then been in a prohibited period (“Deferred Vesting Awards”). It is
currently anticipated that all options and awards, except those granted under the Deferred
Share Plan, will be satisfied through newly issued Perry Shares;
3.
C-24
TABLE OF CONTENTS
3.2
4.
 
The table set out in Section B of Part 2 of this Schedule details the options and rights to
acquire Perry Shares that Archie, Perry and the Panel have agreed can be granted shortly
following the 2.7 Announcement (“Delayed Awards”), including those under the Deferred
Share Plan, that are intended to be satisfied by the Trust using existing Shares (“Delayed
Trust Awards”);
3.3
The table set out in Section C of Part 2 of this Schedule contains the most up to date
indicative information regarding the options due to be granted on 22 April 2015 under the
UK Sharesave Plan and the US Sharesave Plan (“Sharesave Grants”). The Sharesave Grants,
once made, shall also be considered to be Existing Awards;
3.4
Perry Shares are due to be issued on or shortly after 31 May 2015 to satisfy the Appointment
Share Award;
3.5
Shares are due to be issued in June 2015 to satisfy options over up to 1,529,836 Perry Shares
following maturity of the options under the UK Sharesave Plan and the US Sharesave Plan.
Archie hereby acknowledges and agrees that:
4.1
Perry shall be entitled to make the Sharesave Grants (if it has not already done so).
4.2
Perry shall be entitled to make such arrangements as are reasonable in order to effect the
grant of the Delayed Awards as soon as possible after the 2.7 Announcement (including,
without limitation, recommendations to and arrangements with the Trustee for the funding
of the Trust to enable it to satisfy the Delayed Trust Awards through purchased shares and to
subscribe at par to satisfy awards under the PSP and IPSP, to the extent called upon to do so).
4.3
The Deferred Vesting Awards will vest upon the 2.7 Announcement being made and, unless
otherwise prohibited by law, the Awardholders concerned will not be restricted from selling
Perry Shares in order to meet their tax obligations or, save for any person who has given an
irrevocable undertaking to vote in favour of the Merger, otherwise.
4.4
The vesting and exercise of rights under the Perry Share Plans are governed by and shall
occur in accordance with the rules of the relevant Perry Share Plan, and accordingly are
subject in certain respects to the exercise of discretions conferred on the Remuneration
Committee of the Board of Perry. There shall be no fetter on the Remuneration Committee’s
discretion and accordingly it shall be entitled (but not required) to exercise its discretion to
allow the Existing Awards and Delayed Awards to vest in full without pro-rating if in due
course it considers this to be appropriate.
4.5
The Perry Shares remaining subject to the Appointment Share Award will vest in full on 31
May 2015, will be issued as soon as practicable thereafter and, unless otherwise prohibited
by law, the Chairman will not be restricted from selling Perry Shares in order to meet his tax
obligations in accordance with the terms of the Appointment Share Award.
4.6
Perry shall be entitled to issue shares (to the Trustee or to participants as appropriate), and to
provide funding to the Trustee to the extent required, in order to give effect to the vesting
and/or exercise of the Existing Awards, the Delayed Awards and the Sharesave Grants.
4.7
For the avoidance of doubt, Awardholders are not restricted from exercising options under
the Share Plans.
C-25
TABLE OF CONTENTS
 
Making the Proposals
5.
Perry undertakes to Archie to co-operate with Archie and use its reasonable endeavours to provide
such details to Archie in relation to the Share Plans and agree any amendments required to be made to
the Share Plans as Archie reasonably requires in order to formulate and agree with Perry the proposals
to be made to the participants in the Share Plans in accordance with Rule 15 of the Takeover Code (the
“Proposals”).
6.
The Proposals to optionholders under the UK Sharesave Plan and the US Sharesave Plan will include
the ability to either exercise their options on or following the change of control of Perry in accordance
with the Sharesave rules or to exchange their Sharesave options for replacement options over shares in
New Archie.
7.
Perry and Archie shall use their reasonable endeavours to ensure that:
7.1
7.2
8.
where permitted by the rules of the relevant Perry Share Plans:
7.1.1
holders of subsisting options under the Share Plans who are UK Optionholders
shall be permitted to exercise their subsisting options at such time as would enable
UK Optionholders who hold tax-favoured options to qualify, where possible, for
beneficial income tax and National Insurance contributions treatment on exercise
of such options;
7.1.2
holders of subsisting options under the Share Plans who are US Optionholders
shall be permitted to exercise their subsisting options at such time as would enable
US Optionholders who hold tax-favoured options to qualify, where possible, for
beneficial income tax and social contributions treatment on exercise of such
options;
7.1.3
holders of subsisting options under the Share Plans who are Israeli Optionholders
shall be permitted to exercise their subsisting options at such time and in such a
manner as would enable Israeli Optionholders who hold tax-favoured options to
qualify, where possible, for beneficial tax treatment on exercise of such options;
holders of Options under the Perry Share Plans who agree to exercise their options
conditionally on approval being given at the Sanction Hearing shall be offered a “cashless
exercise facility” (structured as an undertaking to pay) whereby any exercise price payable
on the exercise of an option (along with any tax and National Insurance contributions or
their equivalents in any jurisdiction required to be withheld, see below) will be deducted
from the cash consideration due to the option holder under the Scheme and remitted to, or at
the direction of Perry to, the relevant tax authority as appropriate.
Perry agrees to recommend to the Trustee that the Trustee will, in priority to the issue of Perry Shares,
use the Perry Shares currently comprised in the Trust to satisfy the vesting and/or exercise of options
and/or awards under any of the Share Plans which occurs following the date of this agreement.
Documentation and Communications
9.
The Parties shall jointly write to participants in the Perry Share Plans outlining the anticipated effect
of the Scheme on their contractual rights and setting out the Proposals. The Parties shall co-operate
with each other in preparing this communication.
10.
Perry and Archie agree that the board of directors of Perry shall propose (at the General Meeting) an
amendment to the articles of association of Perry by the adoption and inclusion of a new article under
which, with effect from the Scheme becoming effective, Perry Shares which are issued after the record
date in respect of the Scheme as a result of the exercise or vesting of rights under the Perry Share Plans
will, to the extent not otherwise acquired under the Scheme, be transferred to New Archie for the same
consideration as is payable to shareholders under the Scheme.
C-26
TABLE OF CONTENTS
 
PART 2
AWARD DETAILS
Section A — Existing Awards
Plan
​
​ ​ Approved ​ ​ Unapproved ​ ​
Total
Existing
Awards
55,832
PSP
​​
IPSP
​​
DSB
AL
UK
US
Appointment
​ ​ Sharesave ​ ​ Sharesave ​ ​ Award ​ ​
2,465,689 2,704,162 3,576,887 1,577,798 1,496,731
419,813
600,000
Total
Award
Shares
12,896,912
​
Section B — Delayed Awards
Plan
​
​ T otal 2015 Share Awards
*
PSP
IPSP*
DSB
Total Award
Shares
​
701,325
1,657,500
769,085
3,127,910
​
35,000 Phantom share awards to be made to employees based in Brazil which will be settled in cash. Not
included in the above number
Section C — Sharesave Grants
UK Sharesave
US Sharesave
*
275 pence
284.07 pence*
$4.24
C-27
446,025
243,164
TABLE OF CONTENTS
ANNEX D
FORM OF ARTICLES OF ASSOCIATION OF NEW ARRIS
TABLE OF CONTENTS
Annex D​
​
Company No: 09551763​
ARRIS INTERNATIONAL PLC
ARTICLES OF ASSOCIATION
(Adopted by Special Resolution passed on [•] 2015)
Note: as described in the Scheme Document and the Form S-4, the board of ARRIS has reserved the right to make
(i) minor non-material changes to these draft articles prior to their adoption by New ARRIS and (ii) such
amendments as the Court may require. These draft articles are therefore subject to further amendment.
Herbert Smith Freehills LLP
TABLE OF CONTENTS
TABLE OF CONTENTS
Article
Headings
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
DEFINITIONS AND INTERPRETATION
EXCLUSION OF OTHER REGULATIONS
LIABILITY OF MEMBERS
FURTHER ISSUES AND RIGHTS ATTACHING TO SHARES ON ISSUE
RIGHTS PLAN
REDEEMABLE SHARES
PAYMENT OF COMMISSIONS
TRUSTS NOT RECOGNISED
UNCERTIFICATED SHARES
SEPARATE HOLDINGS OF SHARES IN CERTIFICATED AND
UNCERTIFICATED FORM
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
VARIATION OF RIGHTS
RIGHTS DEEMED NOT VARIED
RIGHTS TO SHARE CERTIFICATES
COMPANY’S LIEN ON SHARES NOT FULLY PAID
ENFORCING LIEN BY SALE
GIVING EFFECT TO A SALE
APPLICATION OF PROCEEDS OF SALE
CALLS
JOINT AND SEVERAL LIABILITY IN RESPECT OF CALLS
INTEREST
SUMS TREATED AS CALLS
POWER TO DIFFERENTIATE
PAYMENT OF CALLS IN ADVANCE
NOTICE IF CALL NOT PAID AND FORFEITURE
SALE OF FORFEITED SHARES
CESSATION OF MEMBERSHIP AND CONTINUING LIABILITY
STATUTORY DECLARATION AS TO FORFEITURE
TRANSFER OF SHARES IN CERTIFICATED FORM
TRANSFER OF SHARES IN UNCERTIFICATED FORM
REFUSAL TO REGISTER TRANSFERS
NOTICE OF AND REASONS FOR REFUSAL
NO FEE FOR REGISTRATION
RETENTION OR RETURN OF INSTRUMENT OF TRANSFER
RECOGNITION OF RENUNCIATION
TRANSMISSION ON DEATH
ELECTION OF PERSON ENTITLED BY TRANSMISSION
RIGHTS OF PERSON ENTITLED BY TRANSMISSION
DISCLOSURE OF INTERESTS
UNTRACED MEMBERS
CONSOLIDATION AND SUB-DIVISION
CALLING GENERAL MEETINGS
Page
D-1
D-2
D-2
D-2
D-4
D-5
D-6
D-6
D-6
D-6
D-6
D-7
D-7
D-8
D-8
D-8
D-8
D-8
D-9
D-9
D-9
D-9
D-9
D-9
D-9
D-10
D-10
D-10
D-10
D-10
D-11
D-11
D-11
D-11
D-11
D-11
D-12
D-12
D-14
D-15
D-15
TABLE OF CONTENTS
Article
Headings
Page
42.
NOTICE OF ANNUAL GENERAL MEETINGS AND OTHER GENERAL
MEETINGS
D-15
43.
44.
45.
46.
47.
48.
49.
OMISSION OR FAILURE TO GIVE NOTICE AND NON-RECEIPT OF NOTICE
QUORUM
PROCEDURE IF QUORUM NOT PRESENT
CHAIRING GENERAL MEETINGS
SECURITY ARRANGEMENTS AND ORDERLY CONDUCT
DIRECTORS ENTITLED TO ATTEND AND SPEAK
ATTENDANCE AND PARTICIPATION AT DIFFERENT PLACES AND BY
ELECTRONIC MEANS
D-16
D-16
D-16
D-16
D-16
D-17
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
ADJOURNMENTS
AMENDMENTS TO SPECIAL AND ORDINARY RESOLUTIONS
WITHDRAWAL AND RULING AMENDMENTS OUT OF ORDER
VOTING BY POLL
CHAIRMAN’S DECLARATION
POLLS TO BE TAKEN AS CHAIRMAN DIRECTS
VOTING RIGHTS
VOTING RECORD DATE
VOTES OF JOINT HOLDERS
VOTES ON BEHALF OF AN INCAPABLE MEMBER
NO RIGHT TO VOTE WHERE SUMS OVERDUE
OBJECTIONS AND VALIDITY OF VOTES
APPOINTMENT OF PROXIES
FORM OF PROXY APPOINTMENT
PROXIES SENT OR SUPPLIED IN ELECTRONIC FORM
RECEIPT OF APPOINTMENTS OF PROXY
TERMINATION OF APPOINTMENTS OF PROXY
AVAILABILITY OF APPOINTMENTS OF PROXY
CORPORATIONS ACTING BY REPRESENTATIVES
NUMBER OF DIRECTORS
POWER OF COMPANY TO APPOINT A DIRECTOR
PROCEDURE FOR APPOINTMENT OR REAPPOINTMENT AT GENERAL
MEETING
D-17
D-18
D-18
D-18
D-19
D-19
D-19
D-19
D-19
D-19
D-19
D-20
D-20
D-20
D-20
D-21
D-21
D-21
D-21
D-22
D-22
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
ELECTION OF TWO OR MORE DIRECTORS
POWER OF DIRECTORS TO APPOINT A DIRECTOR
ANNUAL RETIREMENT OF DIRECTORS
FILLING OF VACANCY
DIRECTOR NOT REAPPOINTED AT ANNUAL GENERAL MEETING
REMOVAL OF DIRECTOR
TERMINATION OF A DIRECTOR’S APPOINTMENT
GENERAL POWERS OF THE COMPANY VESTED IN THE DIRECTORS
PROVISION FOR EMPLOYEES ON CESSATION OR TRANSFER OF BUSINESS
DELEGATION TO PERSONS OR COMMITTEES
D-22
D-22
D-22
D-23
D-23
D-23
D-23
D-23
D-23
D-24
D-17
D-22
TABLE OF CONTENTS
Article
Headings
Page
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
DIRECTORS’ REMUNERATION
EXPENSES
DIRECTORS’ GRATUITIES AND BENEFITS
OTHER INTERESTS AND OFFICES
PROCEDURES REGARDING BOARD MEETINGS
NUMBER OF DIRECTORS BELOW MINIMUM
ELECTION AND REMOVAL OF CHAIRMAN AND LEAD DIRECTOR
RESOLUTIONS IN WRITING
QUORUM
PERMITTED INTERESTS AND VOTING
SUSPENSION OR RELAXATION OF PROHIBITION ON VOTING
QUESTIONS REGARDING DIRECTOR’S RIGHTS TO VOTE
OFFICERS
EXECUTIVE SESSIONS
DECLARATION OF DIVIDENDS BY COMPANY
PAYMENT OF INTERIM DIVIDENDS
PAYMENT ACCORDING TO AMOUNT PAID UP
NON-CASH DISTRIBUTION
DIVIDEND PAYMENT PROCEDURE
RIGHT TO CEASE SENDING PAYMENT AND UNCLAIMED PAYMENTS
NO INTEREST ON DIVIDENDS
FORFEITURE OF UNCLAIMED DIVIDENDS
SCRIP DIVIDENDS
CAPITALISATION OF PROFITS
COMPANY OR DIRECTORS MAY FIX RECORD DATES FOR PAYMENTS AND
ISSUE
D-24
D-24
D-24
D-25
D-26
D-27
D-27
D-27
D-27
D-28
D-28
D-29
D-29
D-29
D-29
D-30
D-30
D-30
D-30
D-32
D-32
D-32
D-32
D-34
107.
108.
109.
110.
111.
112.
REQUIREMENTS FOR WRITING
METHODS OF SENDING OR SUPPLYING
DEEMED RECEIPT OF NOTICE
COMPANY OR DIRECTORS MAY FIX RECORD DATES FOR NOTICES
NOTICE WHEN POST NOT AVAILABLE
OTHER NOTICES AND COMMUNICATIONS ADVERTISED IN NATIONAL
NEWSPAPER
WHEN NOTICE OR OTHER COMMUNICATION DEEMED TO HAVE BEEN
RECEIVED
COMMUNICATIONS SENT OR SUPPLIED TO PERSONS ENTITLED BY
TRANSMISSION
D-36
D-36
D-37
D-37
D-37
POWER TO STOP SENDING COMMUNICATIONS TO UNTRACED MEMBERS
VALIDATION OF DOCUMENTS IN ELECTRONIC FORM
OVERSEAS BRANCH REGISTERS
MAKING AND RETENTION OF MINUTES
INSPECTION OF ACCOUNTS
APPOINTMENT OF SECRETARY
D-39
D-39
D-39
D-39
D-40
D-40
113.
114.
115.
116.
117.
118.
119.
120.
D-36
D-38
D-38
D-39
TABLE OF CONTENTS
Article
Headings
Page
121.
122.
123.
124.
125.
USE OF THE SEAL
OFFICIAL SEAL FOR USE ABROAD
CHANGE OF NAME
WINDING UP
POWER TO INDEMNIFY DIRECTORS
D-40
D-40
D-40
D-40
D-41
TABLE OF CONTENTS
ARTICLES OF ASSOCIATION
of
ARRIS INTERNATIONAL PLC
(the “Company”)
(adopted by special resolution passed on [•] 2015)
1.
DEFINITIONS AND INTERPRETATION
1.1
Definitions
In these articles the following words bear the following meanings:
“Acts” means the Companies Acts (as defined in section 2 of the Companies Act 2006), in so far as
they apply to the Company;
“acting in concert” has the meaning given to it in the Takeover Code;
“articles” means the articles of association of the Company;
“board” or “board of directors” means the directors or any of them duly acting as the board of the
Company;
“clear days” means in relation to the period of a notice, that period excluding the day when the
notice is given or deemed to be given and the day for which it is given or on which it is to take effect;
“Depositary” means any depositary, clearing agency, custodian, nominee or similar entity appointed
under arrangements entered into by the Company or otherwise approved by the board that holds, or is
interested directly or indirectly, including through a nominee, in, shares, or rights or interests in
respect thereof, and which issues certificates, instruments, securities or other documents of title, or
maintains accounts, evidencing or recording the entitlement of the holders thereof, or account holders,
to or to receive such shares, rights or interests (and shall include, where so approved by the board, the
trustees (acting in their capacity as such) of any employees’ share scheme established by the
Company);
“director” means a director of the Company;
“electronic address” means any number or address used for the purposes of sending or receiving
notices, documents or information by electronic means;
“electronic form” has the same meaning as in the Acts;
“electronic means” has the same meaning as in the Acts;
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time;
“executed” means any mode of execution;
“holder” means in relation to shares, the member whose name is entered in the register of members as
the holder of the shares;
“Office” means the registered office of the Company;
“seal” means the common seal (if any) of the Company and an official seal (if any) kept by the
Company by virtue of section 50 of the Companies Act 2006, or either of them as the case may
require;
“secretary” means the secretary of the Company or any other person appointed to perform the duties
of the secretary of the Company, including a joint, assistant or deputy secretary;
“share” means a share in the capital of the Company;
“Takeover Code” means the City Code on Takeover and Mergers;
D-1
TABLE OF CONTENTS
“Uncertificated Securities Regulations” means the Uncertificated Securities Regulations 2001; and
“US$” means the lawful currency of the United States.
1.2
In these articles, references to a share being in uncertificated form are references to that share being an
uncertificated unit of a security and references to a share being in certificated form are references to
that share being a certificated unit of a security, provided that any reference to a share in uncertificated
form applies only to a share of a class which is, for the time being, a participating security, and only for
so long as it remains a participating security.
1.3
Save as aforesaid and unless the context otherwise requires, words or expressions contained in these
articles have the same meaning as in the Acts or the Uncertificated Securities Regulations (as the case
may be).
1.4
Except where otherwise expressly stated, a reference in these articles to any primary or delegated
legislation or legislative provision includes a reference to any modification or re-enactment of it for
the time being in force.
1.5
In these articles, unless the context otherwise requires:
1.6
1.5.1
words in the singular include the plural, and vice versa;
1.5.2
words importing any gender include all genders; and
1.5.3
a reference to a person includes a reference to a body corporate and to an unincorporated
body of persons.
In these articles:
1.6.1
references to writing include references to typewriting, printing, lithography, photography
and any other modes of representing or reproducing words in a legible and non-transitory
fo