10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarter ended March 31, 2002

of

ARRIS GROUP, INC.

A Delaware Corporation
IRS Employer Identification No. 58-2588724
SEC File Number 001-16631

11450 Technology Circle
Duluth, GA 30097
(678) 473-2000

         ARRIS Group, Inc. (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

         As of April 30, 2002, 81,761,685 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Third Supplemental Indenture
Second Amendment to Credit Agreement
Third Amendment to Credit Agreement
Form of Employment Agreement
Asset Purchase Agreement for Keptel

ARRIS GROUP, INC.
FORM 10-Q
For the Quarter Ended March 31, 2002

INDEX

			Page
Part I. Financial Information
	Item 1. Financial Statements
		a) Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001		1
		b) Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2001		2
		c) Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001		3
		d) Notes to the Consolidated Financial Statements		4
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
	Item 3. Quantitative and Qualitative Disclosures on Market Risk			28
Part II. Other Information
	Item 6. Exhibits and Reports on Form 8-K			29
Signatures				30

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PART I.   FINANCIAL INFORMATION
Item 1.   FINANCIAL STATEMENTS

ARRIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

			March 31,			December 31,
			2002			2001
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	27,357		$	5,337
	Accounts receivable (net of allowances for doubtful accounts of $11,032 in 2002 and $9,409 in 2001)			97,541			83,224
	Accounts receivable from AT&T			28,415			35,915
	Accounts receivable from Nortel Networks			8,299			18,857
	Other receivables			12,525			10,049
	Inventories			166,174			187,971
	Income taxes recoverable			12,853			5,066
	Investments held for resale			581			795
	Other current assets			23,857			22,110
		Total current assets		377,602			369,324
Property, plant and equipment (net of accumulated depreciation of $43,194 in 2002 and $39,057 in 2001)				52,516			52,694
Goodwill (net of accumulated amortization of $56,430 in 2002 and $56,430 in 2001)				287,261			259,062
Intangibles (net of accumulated amortization of $15,382 in 2002 and $7,012 in 2001)				91,734			44,488
Investments				14,079			14,037
Other assets				10,279			12,510
			$	833,471		$	752,115
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	41,806		$	18,620
	Accrued compensation, benefits and related taxes			28,272			32,747
	Accounts payable and accrued expenses — Nortel Networks			13,042			21,373
	Current portion of capital lease obligations			1,122			—
	Other accrued liabilities			45,219			45,722
		Total current liabilities		129,461			118,462
Capital lease obligations, net of current portion				899			—
Long-term debt				115,000			115,000
		Total liabilities		245,360			233,462
Membership interest — Nortel Networks				106,610			104,110
		Total liabilities & membership interest		351,970			337,572
Stockholders’ equity:
	Preferred stock, par value $1.00 per share, 5.0 million shares authorized; none issued and outstanding			—			—
	Common stock, par value $0.01 per share, 320.0 million shares authorized; 80.5 million and 75.2 million shares issued and outstanding in 2002 and 2001, respectively			807			755
	Capital in excess of par value			578,829			507,650
	Retained earnings (deficit)			(92,096	)		(90,162	)
	Unrealized holding loss on marketable securities			(3,170	)		(3,211	)
	Unearned compensation			(2,618	)		(577	)
	Cumulative translation adjustments			(251	)		88
		Total stockholders’ equity		481,501			414,543
			$	833,471		$	752,115

See accompanying notes to the consolidated financial statements.

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ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

			Three Months Ended
			March 31,
			2002			2001
Net sales (includes sales to AT&T of $52.1 million and $90.9 million for the periods ended March 31, 2002 and 2001, respectively; and includes sales to Nortel Networks of $1.5 million and $12 thousand for the periods ended March 31, 2002 and 2001, respectively)			$	191,567		$	212,788
Cost of sales				132,052			180,697
	Gross profit			59,515			32,091
Operating expenses:
	Selling, general, administrative and development			53,922			35,205
	Amortization of intangibles			8,370			—
	Amortization of goodwill			—			1,229
		Total operating expenses		62,292			36,434
Operating (loss)				(2,777	)		(4,343	)
Interest expense				1,667			2,746
Membership interest				2,500			—
Other (income) expense, net				1,576			2,972
Loss on marketable securities				214			359
(Loss) before income taxes				(8,734	)		(10,420	)
Income tax (benefit)				(6,800	)		(3,202	)
Net (loss)			$	(1,934	)	$	(7,218	)
Net (loss) per common share:
	Basic		$	(0.02	)	$	(0.19	)
	Diluted		$	(0.02	)	$	(0.19	)
Weighted average common shares:
	Basic			80,258			38,252
	Diluted			80,258			38,252

See accompanying notes to the consolidated financial statements.

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ARRIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

				Three Months Ended
				March 31,
				2002			2001
Operating activities:
	Net loss			$	(1,934	)	$	(7,218	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation			5,564			3,615
		Amortization of goodwill			—			1,229
		Amortization of intangibles			8,370			—
		Amortization of deferred financing fees			635			294
		Amortization of unearned compensation			491			449
		Loss from equity investment			—			2,718
		Provision for doubtful accounts			2,115			1,234
		Deferred income taxes			—			(155	)
		Loss on marketable securities			214			359
		Change in membership accrued interest			2,500			—
		Changes in operating assets and liabilities:
			Accounts receivable		1,774			4,511
			Other receivables		(2,476	)		—
			Inventory		21,797			(13,581	)
			Accounts payable and accrued liabilities		2,375			23,993
			Income taxes recoverable		(7,787	)		(2,830	)
			Other, net		(9,676	)		(2,199	)
Net cash provided by operating activities					23,962			12,419
Investing activities:
		Purchases of property, plant and equipment			(1,105	)		(2,797	)
		Cash paid for acquisition			(676	)		—
Net cash (used in) investing activities					(1,781	)		(2,797	)
Financing activities:
		Borrowings under credit facilities			—			44,500
		Reductions in borrowings under credit facilities			—			(54,500	)
		Payments on capital lease obligations			(238	)		—
		Deferred financing costs paid			—			(295	)
		Proceeds from issuance of common stock			77			949
Net cash (used in) financing activities					(161	)		(9,346	)
Net increase in cash and cash equivalents					22,020			276
Cash and cash equivalents at beginning of period					5,337			8,788
Cash and cash equivalents at end of period				$	27,357		$	9,064
Noncash investing and financing activities:
		Net tangible assets acquired, excluding cash		$	4,578		$	—
		Net liabilities assumed			(16,528	)		—
		Intangible assets acquired, including goodwill			81,199			—
		Noncash purchase price, including 5,250,000 shares of common stock and fair market value of stock options issued			(68,573	)		—
		Cash paid for acquisition, net of cash acquired		$	676		$	—
Supplemental cash flow information:
		Interest paid during the period		$	337		$	1,231
		Income taxes paid during the period		$	101		$	37

See accompanying notes to the consolidated financial statements.

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ARRIS GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.   Organization and Basis of Presentation

         ARRIS Group, Inc., the successor to ANTEC Corporation (together with its consolidated subsidiaries, except as the context otherwise indicates, “ARRIS” or the “Company”), is an international communications technology company, headquartered in Duluth, Georgia. ARRIS specializes in the design and engineering of hybrid fiber-coax architectures and the development and distribution of products for these broadband networks. The Company provides its customers with products and services that enable reliable, high-speed, two-way broadband transmission of video, telephony, and data.

         ARRIS operates in one business segment, Communications, providing a range of customers with network and system products and services, primarily hybrid fiber-coax networks and systems for the communications industry. This segment accounts for 100% of consolidated sales, operating profit and identifiable assets of the Company. ARRIS provides a broad range of products and services to cable system operators and telecommunication providers. ARRIS is a leading developer, manufacturer and supplier of telephony, optical transmission, construction, rebuild and maintenance equipment for the broadband communications industry. ARRIS supplies most of the products required in a broadband communication system, including headend, distribution, drop and in-home subscriber products.

         On August 3, 2001, the Company acquired Nortel Networks’ portion of Arris Interactive L.L.C., which was a joint venture formed by Nortel and the Company in 1995. Nortel exchanged its ownership interest in Arris Interactive L.L.C. for a subordinated redeemable preferred membership interest in Arris Interactive with a face amount of $100 million and 37 million shares of ARRIS Group, Inc. common stock (See Note 11 of the Notes to the Consolidated Financial Statements). As of March 31, 2002, Nortel Networks controlled approximately 46% of the outstanding ARRIS common stock. Following the Arris Interactive L.L.C. acquisition, Nortel designated two new members of ARRIS’ Board of Directors.

         On January 8, 2002, the Company completed its acquisition of substantially all of the assets of Cadant, Inc., a privately held designer and manufacturer of next generation cable modem termination systems (“CMTS”). Under the terms of the transaction, ARRIS issued 5.25 million shares of its common stock and assumed approximately $16.5 million in liabilities in exchange for the assets. The Company also agreed to issue up to 2.0 million additional shares of its common stock based upon future sales of the CMTS product.

         As of March 31, 2002, Liberty Media Corporation, which until August 2001 was owned by AT&T, effectively controlled approximately 9% of the outstanding ARRIS common stock. The effective ownership includes options to acquire an additional 854,341 shares. A significant portion of the Company’s revenue is derived from sales to AT&T, aggregating $52.1 million and $90.9 million for the periods ended March 31, 2002 and 2001, respectively.

         Certain prior year amounts have been reclassified to conform to the current year’s financial statement presentation.

Note 2.   Impact of Recently Issued Accounting Standards

         In October 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be “held and used.” The Statement is effective for year-ends beginning after December 15, 2001 (e.g. January 1, 2002 for a calendar-year company). The Company has adopted SFAS No. 144 and has determined that there is no significant impact on its financial position or results of operations.

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         In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually for impairment, or more frequently if impairment indicators arise. The review process will entail assessing the fair value of the net assets underlying the Company’s acquisition related goodwill on a business by business basis. If the fair value is deemed less than the related carrying value, the Company will be required to reduce the amount of the goodwill. These reductions will be made retroactive to January 1, 2002. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives.

         The transitional provisions of SFAS No. 142 apply to goodwill and intangible assets acquired only after June 30, 2001. The transitional provisions of SFAS No. 142 have been adopted for the goodwill and intangible assets acquired with the Arris Interactive L.L.C. transaction, as the acquisition occurred on August 3, 2001, and the Cadant, Inc. acquisition, which occurred on January 8, 2002. The Company has applied the new accounting rules to goodwill and intangible assets acquired prior to July 1, 2001 during the quarter ending March 31, 2002. As of March 31, 2002, the financial statements included acquisition related goodwill of $287.3 million, net of previous amortization. The process of implementing SFAS No. 142 has begun and will be completed during the first half of 2002. The Company expects a substantial reduction in goodwill as a result of this process. In addition, the Company no longer amortizes acquisition related goodwill. The table below shows the periods ended March 31, 2002 and 2001 on a comparative basis given the adoption of the amortization provisions of SFAS 142.

		Quarters Ended March 31,
		2002			2001
		(in thousands, except per share data)
Net loss as reported		$	(1,934	)	$	(7,218	)
Add: Goodwill amortization			—			1,229
Net loss as adjusted for SFAS No. 142		$	(1,934	)	$	(5,989	)
Net loss per diluted share:
	As reported	$	(0.02	)	$	(0.19	)
	As adjusted	$	(0.02	)	$	(0.16	)

Note 3.   Restructuring and Other Charges

         In the fourth quarter of 2001, ARRIS closed a research and development facility in Raleigh, North Carolina and recorded a $4.0 million charge related to severance and other costs associated with closing that facility. This charge included termination expenses of $2.2 million related to the involuntary dismissal of 48 employees, primarily engaged in engineering functions at that facility. Also included in the $4.0 million charge was $0.7 million related to lease commitments, $0.2 million related to the impairment of fixed assets, and $0.9 million related to other shutdown expenses. As of March 31, 2002, approximately $0.6 million related to severance, $0.6 million related to lease commitments, and $0.2 million of shutdown expenses remained in the restructuring accrual to be paid. The Company anticipates disposing of $0.2 million of fixed assets during the second quarter of 2002.

         In the third quarter of 2001, the Company announced a restructuring plan to outsource the functions of most of its manufacturing facilities. This decision to reorganize was due in part to the ongoing weakness in industry spending patterns. The plan entailed the implementation of an expanded manufacturing outsourcing strategy and the related closure of the four factories located in El Paso, Texas and Juarez, Mexico. The closure of the factories is anticipated to be complete during the first half of 2002. As a result, the Company recorded restructuring and impairment charges of $66.2 million. Included in these charges was approximately $32.0 million related to the write-down of inventories and approximately $1.7 million related to remaining warranty and purchase order commitments, which have been reflected in cost of sales. Also included in the restructuring and impairment charge was approximately $5.7 million related to severance and associated personnel costs, $5.9 million related to the impairment of goodwill due to the pending sale of the power product lines, $14.8 million related to the impairment of fixed assets, and approximately $6.1 million related to lease termination and other shutdown expenses of factories and office space. The personnel-related costs included termination expenses for the involuntary dismissal of 807 employees, primarily engaged in production and assembly functions performed at the facilities. ARRIS offered terminated employees separation amounts in accordance with the Company’s severance policy and provided the employees with specific separation dates. The severance and associated personnel costs will be paid upon closure of the factories. As of March 31, 2002, approximately $1.9 million related to severance, $1.9 million related to lease commitments, $1.1 million related to purchase order commitments, $1.5 million related to the warranty reserve, and

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$1.2 million of other shutdown expenses relating to the restructuring and impairment charges remained in the accrual to be paid. The fixed assets will be disposed of in the first half of 2002.

Note 4.   Inventories

         Inventories are stated at the lower of average, approximating first-in, first-out, cost or market. The components of inventory are as follows (in thousands):

		March 31,		December 31,
		2002		2001
		(Unaudited)
Raw material		$	33,268	$	46,104
Work in process			21		1,797
Finished goods			132,885		140,070
	Total inventories	$	166,174	$	187,971

Note 5.   Property, Plant and Equipment Net

         Property, plant and equipment, at cost, consists of the following (in thousands):

		March 31,			December 31,
		2002			2001
		(Unaudited)
Land		$	1,964		$	1,964
Building and leasehold improvements			10,548			11,258
Machinery and equipment			83,198			78,529
			95,710			91,751
Less: Accumulated depreciation			(43,194	)		(39,057	)
	Total property, plant and equipment, net	$	52,516		$	52,694

Note 6.   Long Term Debt, Capital Lease Obligations and Membership Interest

         Long term debt, capital lease obligations and membership interest consist of the following (in thousands):

		March 31,			December 31,
		2002			2001
		(Unaudited)
Revolving credit facility		$	—		$	—
Capital lease obligations			2,021			—
Membership interest–Nortel Networks			106,610			104,110
4.5% Convertible Subordinated Notes			115,000			115,000
	Total debt, capital lease obligations and membership interest		223,631			219,110
	Less current portion		(1,122	)		—
	Total long term debt, capital lease obligations and membership interest	$	222,509		$	219,110

         In 1998, the Company issued $115.0 million of 4.5% Convertible Subordinated Notes (“Notes”) due May 15, 2003. The Notes are convertible, at the option of the holder, at any time prior to maturity, into the Company’s common stock (“Common Stock”) at a conversion price of $24.00 per share. The Notes became redeemable, in whole or in part, at the Company’s option, on May 15, 2001. As of March 31, 2002, there were $115.0 million of Notes outstanding. In April 2002, ARRIS exchanged 1,017,285 shares of its common stock for $9.75 million of Notes in private transactions. On May 10, 2002, as part of a public exchange offer, the Company exchanged approximately 577,000 shares of its common stock for approximately $5.65 million of Notes. See Note 12 of the Notes to the Consolidated Financial Statements.

         The Company’s bank indebtedness was refinanced on August 3, 2001, in connection with the Arris Interactive L.L.C. acquisition. See Note 11 of Notes to the Consolidated Financial Statements. The new facility is an asset-based revolving credit facility, which initially permitted the borrowers (including the Company and Arris

6

Interactive) to borrow up to $175.0 million (which can be increased under certain conditions by up to $25.0 million), based upon availability under a borrowing base calculation. In general, the borrowing base is limited to 85% of net eligible receivables (with special limitations in relation to foreign receivables) and 80% of the liquidation value of eligible inventory (not to exceed $80.0 million). The facility contains traditional financial covenants, including fixed charge coverage, senior debt leverage, minimum net worth, minimum inventory turns ratios, and a $10.0 million minimum borrowing base availability covenant. The facility is secured by substantially all of the Company’s assets. The credit facility has a maturity date of August 3, 2004. However, the maturity date of the credit facility will be December 31, 2002 in the event that the Company’s convertible subordinated notes due May 15, 2003 are not either fully refinanced or fully converted to ARRIS common stock prior to December 31, 2002 in a manner satisfactory to the lenders under the credit facility. Refinancing or converting the convertible subordinated notes could result in a significant charge to earnings. In connection with the sale of the Keptel product line the credit facility was amended in April 2002 to permit the sale of Keptel, to defer until May 31, 2002 a mandatory reduction of the credit facility of approximately $30.0 million as a result of the Keptel sale, and to permit certain other transactions incidental to the Keptel sale. The reduction in the facility size does not affect the actual current availability under the loan, which at March 31, 2002 was approximately $42.0 million. As of March 31, 2002, ARRIS had no borrowings outstanding. See Note 12 of the Notes to Consolidated Financial Statements.

         In conjunction with the acquisition of Arris Interactive L.L.C., the Company issued to Nortel Networks a subordinated redeemable preferred membership interest in Arris Interactive with a face amount of $100.0 million. This membership interest earns a return of 10% per annum, compounded annually. For the period ended March 31, 2002, the Company recorded membership interest expense of $2.5 million.

         In conjunction with the acquisition of Cadant, Inc., See Note 11 of the Notes to the Consolidated Financial Statements the Company assumed approximately $2.3 million in capital lease obligations, related to machinery and equipment. The leases require future rental payments until 2003.

         ARRIS has not paid dividends on its common stock since its inception. The Company’s primary loan agreement contains covenants that prohibit the Company from paying such dividends.

Note 7.   Comprehensive (Loss) Income

         Total comprehensive loss for the three-month periods ended March 31, 2002 and 2001 was $(2.2) million and $(7.3) million, respectively. The difference in the comprehensive loss as compared to the net loss was $(0.3) million and $(0.1) million for the periods ended March 31, 2002 and 2001, respectively. Such comprehensive loss, which is recorded as a separate component of stockholders’ equity is related to cumulative translation adjustments and unrealized holding losses on marketable securities.

Note 8.   Sales Information

         As of March 31, 2002, Liberty Media Corporation, which until August 2001 was owned by AT&T, effectively controlled approximately 9% of the outstanding ARRIS common stock. The effective ownership includes options to acquire an additional 854,341 shares. A significant portion of the Company’s revenue is derived from sales to AT&T aggregating $52.1 million and $90.9 million for the periods ended March 31, 2002 and 2001, respectively.

         ARRIS operates globally and offers products and services that are sold to cable system operators and telecommunications providers. ARRIS’ products and services are focused in three product categories: broadband (previously labeled cable telephony and internet access); transmission, optical, and outside plant; and supplies and services. All prior period revenues have been aggregated to conform to the new product categories. Consolidated revenues by principal products and services for the periods ended March 31, 2002, and 2001, respectively were as follows (in thousands):

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			Transmission,
			Optical, and		Supplies and
	Broadband		Outside Plant		Services		Total
Quarterly sales:
March 31, 2002	$	114,182	$	46,435	$	30,950	$	191,567
March 31, 2001	$	103,004	$	66,735	$	43,049	$	212,788

         The Company sells its products primarily in the United States with its international revenue being generated from Asia Pacific, Europe, Latin America and Canada. The Asia Pacific market includes Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Sampan, Singapore, Taiwan, and Thailand. The European market includes France, Ireland, Italy, Netherlands, Portugal, Spain and the United Kingdom. Sales to international customers were approximately 24.1%, and 4.8% of total sales for the periods ended March 31, 2002 and 2001, respectively. Sales for the periods ended March 31, 2002 and 2001 are as follows:

		Three Months Ended March 31,
		2002		2001*
International region		(Unaudited)		(Unaudited)
Asia Pacific		$	11,541	$	3,640
Europe			28,923		1,828
Latin America			3,673		4,241
Canada			2,115		469
	Total international sales		46,252		10,178
	Total domestic sales		145,315		202,610
	Total sales	$	191,567	$	212,788

* Under the previous joint venture agreement with Nortel, the Company was not able to sell the Arris Interactive L.L.C. Cornerstone products internationally. This agreement was terminated upon the Company’s acquisition of Nortel’s ownership interest in Arris Interactive L.L.C. on August 3, 2001.

         Total identifiable international assets were immaterial.

Note 9.   Earnings Per Share

         The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the periods indicated (in thousands except per share data):

			Three Months Ended
			March 31,
			2002			2001
			(Unaudited)			(Unaudited)
Basic:
	Net loss		$	(1,934	)	$	(7,218	)
	Weighted average shares outstanding			80,258			38,252
	Basic loss per share		$	(0.02	)	$	(0.19	)
Diluted:
	Net loss		$	(1,934	)	$	(7,218	)
	Weighted average shares outstanding			80,258			38,252
	Dilutive securities net of income tax benefit:
		Add options / warrants		—			—
		Add assumed conversion of 4.5% convertible subordinated notes		—			—
	Total			80,258			38,252
	Diluted loss per share		$	(0.02	)	$	(0.19	)

         The effects of the options, warrants and 4.5% Convertible Subordinated Notes were not presented for these periods as the Company incurred a net loss and inclusion of these securities would be antidilutive. In April 2002,

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ARRIS exchanged 1,017,285 shares of its common stock for $9.75 million of Notes in private transactions. On May 10, 2002, as part of a public exchange offer, the Company exchanged approximately 577,000 shares of its common stock for approximately $5.65 million of Notes. See Note 12 of the Notes to the Consolidated Financial Statements.

Note 10.   Summary Quarterly Consolidated Financial Information (Unaudited)

         The following table summarizes ARRIS’ quarterly consolidated financial information (in thousands, except share data).

		Quarters Ended March 31,
		2002			2001
Net sales		$	191,567		$	212,788
Gross profit (1)			59,515			32,091
Operating loss (1)			(2,777	)		(4,343	)
Loss before income taxes (1)(2)			(8,734	)		(10,420	)
Net loss (3)		$	(1,934	)	$	(7,218	)
Net loss per common share:
	Basic	$	(0.02	)	$	(0.19	)
	Diluted	$	(0.02	)	$	(0.19	)
Supplemental financial information (excluding unusual items)
Gross profit (1)		$	60,243		$	32,091
Operating income (loss) (1)		$	276		$	(4,343	)
Loss before income taxes (1)(2)		$	(5,467	)	$	(10,061	)
Net loss (3)		$	(5,467	)	$	(7,013	)
Net loss per common share:
	Diluted	$	(0.07	)	$	(0.18	)
	Weighted average diluted shares		80,258			38,252

(1)	During the first quarter of 2002, ARRIS had a workforce reduction of 90 people resulting in severance expense of $0.7 million impacting gross profit and $2.4 million affecting operating income.
(2)	During the first quarter of 2002 and 2001, ARRIS calculated the fair market value of its investments held for resale and recorded a pre-tax mark-to-market write down on its Lucent and Avaya investments of approximately $0.2 million, and $0.4 million, respectively.
(3)	During the first quarter of 2002, ARRIS recognized a $6.8 million income tax benefit as a result of a change in tax legislation, allowing ARRIS to carry back losses for five years versus the previous limit of two years.

Note 11.   Business Acquisitions

Acquisition of Arris Interactive L.L.C.

         On August 3, 2001, the Company completed the acquisition from Nortel Networks of the portion of Arris Interactive L.L.C. that it did not own. Arris Interactive L.L.C. was a joint venture formed by Nortel and the Company in 1995, that developed products for delivering voice and data services over hybrid fiber-coax networks. The Company decided to complete the transaction so that it would be able to expand its customer base and technology capabilities in the broadband access over cable market. Further, as a result of the acquisition, the Company will be able to evolve from a limited distributor of the Arris Interactive L.L.C. products to the developer and primary global channel to market for the products. Immediately prior to the acquisition the Company owned approximately 18.75% and Nortel owned the remainder. As part of this transaction:

• A new holding company, ARRIS, was formed

• ANTEC, its predecessor, merged with a subsidiary of ARRIS and the outstanding ANTEC common stock was converted, on a share-for-share basis, into common stock of ARRIS Group, Inc.

• Nortel and the Company contributed to Arris Interactive approximately $131.6 million in outstanding indebtedness and adjusted their ownership percentages in Arris Interactive to reflect these contributions

• Nortel exchanged its remaining ownership interest in Arris Interactive for 37 million shares of ARRIS common stock (approximately 49.2% of the total shares outstanding following the transaction) and a subordinated redeemable preferred membership interest in Arris Interactive with a face amount of $100 million

• ANTEC, now a wholly-owned subsidiary of ARRIS, changed its name to Arris International, Inc.

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• ARRIS issued approximately 2.1 million options and 95,000 shares of restricted stock to Arris Interactive employees

         Following the transactions, Nortel designated two new members to the Company’s Board of Directors. Nortel’s ownership interest in ARRIS is governed in part, by an Investor Rights Agreement.

         The preferred membership interest is redeemable in approximately four quarterly installments commencing February 3, 2002, provided that certain availability and other tests are met under the Company’s revolving credit facility as described in Note 6 of the Notes to the Consolidated Financial Statements. No amounts were redeemed during the quarter ended March 31, 2002. Those tests were not met as of February 3, 2002, and are not expected to be met in 2002.

         The following is a summary of the purchase price allocation to record the Company’s purchase of Nortel Networks’ ownership interest in Arris Interactive for 37,000,000 shares of ARRIS Group, Inc. common stock on August 3, 2001 at $6.14 per share as of April 9, 2001 (date of definitive agreement):

			(in thousands)
37,000,000 shares of ARRIS’ $0.01 par value common stock at $6.14 per share			$	227,180
Acquisition costs (banking fees, legal and accounting fees, printing costs)				7,616
Write-off of abandoned leases and related leasehold improvements				2,568
Fair value of stock options to Arris Interactive L.L.C. employees				12,531
Other				1,346
		Adjusted Purchase Price	$	251,241
Allocation of Purchase Price Net tangible assets acquired			$	56,048
	Existing technology (to be amortized over 3 years)			51,500
	In-process research and development			18,800
	Goodwill (not deductible for income tax purposes)			124,893
		Total Allocated Purchase Price	$	251,241

         The value assigned to in-process research and development, in accordance with accounting principles generally accepted in the United States, was written off at the time of acquisition. The $18.8 million of in-process research and development valued for the transaction related to two projects that were targeted at the carrier-grade telephone and high-speed data markets. The value of the in-process research and development was calculated separately from all other acquired assets. The projects included:

• Multi-service Access System (“MSAS”), a high-density multiple stream cable modem termination system providing carrier-grade availability and high-speed routing technology on the same headend targeted at the carrier-grade telephone and high-speed data market. There are specific risks associated with this in-process technology. As the MSAS has a unique capability to perform hardware sparing through its functionality via use of a radio frequency switching matrix, there is risk involved in being able to achieve the isolation specifications related to this type of technology. Subsequent to December 31, 2001 the MSAS project was discontinued because of a product overlap with Cadant, Inc.

• Packet Port II, an outside voice over internet protocol terminal targeted at the carrier-grade telephone market. There are specific risks associated with this in-process technology. Based on the key product objectives of the Packet Port II, from a hardware perspective, the product is required to achieve power supply performance capable of meeting a wide range of input power, operating conditions and loads. From a software perspective, the Company is dependent on a third party for reference design software critical to this product. Since development of this reference design software is currently in process, the ordinary risks associated with the completion and timely delivery of the software are inherent to this project. Additionally, there are sophisticated power management techniques required to meet the target power consumption of this product. There are technical/schedule risks associated with implementing processor power down that can simultaneously meet power consumption targets without affecting the voice or data functionality of this technology application. It is anticipated that the Packet Port II project will be in service in field trials during 2002 and is expected to begin contributing to consolidated revenues in 2002. First prototypes of the Packet

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Port II are currently being developed. This will allow testing on the functionality of the major subsystems of this product.

         The following table identifies specific assumptions for the projects, in millions:

	Fair Value at		Estimated			Expected
	Date of		Percentage of			Cost to		Expected Date	Discount
Project	Valuation		Completion			Complete		to Complete	Rate
MSAS	$	16.9		68.9	%	$	9.9	July 2002		32	%
Packet Port II	$	1.9		41.5	%	$	11.3	March 2002		32	%

Valuation of in-process research and development

         The fair values assigned to each developed technology as related to this transaction were valued using an income approach based upon the current stage of completion of each project in order to calculate the net present value of each in-process technology’s cash flows. The cash flows used in determining the fair value of these projects were based on projected revenues and estimated expenses for each project. Revenues were estimated based on relevant market size and growth factors, expected industry trends, individual product sales cycles, the estimated life of each product’s underlying technology, and historical pricing. Estimated expenses include cost of goods sold, selling, general and administrative and research and development expenses. The estimated research and development expenses include costs to maintain the products once they have been introduced into the market, and costs to complete the in-process research and development. It is anticipated that the acquired in-process technologies will yield similar prices and margins that have been historically recognized by Arris Interactive and expense levels consistent with historical expense levels for similar products.

         A risk-adjusted discount rate was applied to the cash flows related to each existing products’ projected income stream for the years 2002 through 2006. This discount rate assumes that the risk of revenue streams from new technology is higher than that of existing revenue streams. The discount rate used in the present value calculations was generally derived from a weighted average cost of capital, adjusted upward to reflect the additional risks inherent in the development life cycle, including the useful life of the technology, profitability levels of the technology, and the uncertainty of technology advances that are known at the assumed transaction date. Product-specific risk includes the stage of completion of each product, the complexity of the development work completed to date, the likelihood of achieving technological feasibility, and market acceptance.

Acquisition of Cadant, Inc.

         On January 8, 2002, ARRIS completed the acquisition of substantially all of the assets of Cadant, Inc., a privately held designer and manufacturer of next generation cable modem termination systems (“CMTS”). The Company decided to complete the transaction because it believed the acquisition would enhance the Company’s product portfolio and development capabilities in the broadband access over cable market. As part of this transaction:

• ARRIS issued 5.25 million shares of ARRIS common stock for the purchase of substantially all of Cadant’s assets and certain liabilities.

• ARRIS agreed to pay up to 2.0 million shares based upon future sales of the CMTS product through January 8, 2003.

• ARRIS assumed approximately $16.5 million in liabilities from Cadant, Inc.

• ARRIS issued 2,000,000 options and 250,000 shares of restricted stock to Cadant employees

         The following is a summary of the preliminary purchase price allocation to record ARRIS’ purchase price of the assets and certain liabilities of Cadant, Inc. for 5,250,000 shares of ARRIS Group, Inc. common stock based on the average closing price of ARRIS’ common stock for 5 days prior and 5 days after the date of the definitive agreement as quoted on the Nasdaq National Market System.

         The excess of the purchase price over the fair value of the net tangible and intangible assets acquired has been allocated to goodwill. Although the purchase price and its allocation are not final, it is anticipated that a portion of the purchase price will be allocated to existing technology. The final allocation of the purchase price will be

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determined after completion of thorough analyses to identify and determine the fair values of Cadant’s tangible and identifiable intangible assets and liabilities as of the date the transaction was completed. Any change in the fair value of the net assets of Cadant will change the amount of the purchase price allocable to goodwill.

		unaudited
		(in thousands)
5,250,000 shares of ARRIS Group, Inc.’s $0.01 par value common stock at $10.631 per common share		$	55,813
Acquisition costs (banking fees, legal and accounting fees, printing costs)			676
Fair value of stock options to Cadant, Inc. employees			12,760
Assumption of certain liabilities of Cadant, Inc.			16,528
	Adjusted preliminary purchase price	$	85,777
Allocation of Preliminary Purchase Price:
	Net tangible assets acquired	$	4,578
	Existing technology (to be amortized over 3 years)		53,000
	Goodwill (not deductible for income tax purposes)		28,199
	Total allocated preliminary purchase price	$	85,777

Supplemental Pro Forma Information

         Presented below is summary unaudited pro forma combined financial information for the Company, Arris Interactive L.L.C. and Cadant, Inc. to give effect to the transactions. This summary unaudited pro forma combined financial information is derived from the historical financial statements of the Company, Arris Interactive L.L.C. and Cadant, Inc. This information assumes the transaction was consummated at the beginning of the applicable period. This information is presented for illustrative purposes only and does not purport to represent what the financial position or results of operations of the Company, Arris Interactive L.L.C., Cadant, Inc., or the combined entity would actually have been had the transaction occurred at the applicable dates, or to project the Company’s, Arris Interactive L.L.C.’s, Cadant, Inc.’s or the combined entity’s results of operations for any future period or date. The actual results of Arris Interactive L.L.C. are included in the Company’s operations from August 4, 2001 to March 31, 2002. The actual results of Cadant, Inc. are included in the Company’s operations from January 8, 2002 to March 31, 2002.

		(unaudited)
		Three Months Ended
		March 31,
		2002			2001
		(in thousands,
		except per share data)
Net sales		$	191,567		$	237,201
Gross profit			59,515			50,437
Operating loss (1)(3)			(3,514	)		(27,741	)
Loss before income taxes			(9,471	)		(33,216	)
Net loss (2)			(2,671	)		(30,015	)
Net loss per common share:
	Basic	$	(0.03	)	$	(0.37	)
	Diluted	$	(0.03	)	$	(0.37	)
Weighted average common shares:
	Basic		80,725			80,502
	Diluted		80,725			80,502

(1) In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but reviewed annually for impairment. The provisions of Statement No. 142 state that goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not be amortized. The information presented above, therefore, does not include amortization expense on the goodwill acquired in these transactions.

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(2) In accordance with SFAS No. 109, Accounting for Income Taxes, a valuation reserve against deferred tax assets was recorded as a result of the restructuring and impairment charges during the third quarter 2001. Therefore, no additional adjustment for tax expense (benefit) was reflected in the information presented above.

         The following table represents the amount assigned to each major asset and liability caption of Arris Interactive as of August 3, 2001 and Cadant, Inc. as of January 8, 2002.

	As of Acquisition Date
	(in thousands)
	Arris
	Interactive
	L.L.C.		Cadant, Inc.
Total current assets	$	179,909	$	297
Property, plant and equipment, net	$	23,209	$	4,281
Goodwill	$	124,893	$	28,199
Intangible assets (existing technology)	$	51,500	$	53,000
Total assets	$	379,511	$	85,777
Total current and long-term liabilities	$	67,208	$	16,528
Total liabilities and membership interest	$	167,208	$	16,528
Total stockholders’ equity	$	212,303	$	—

Note 12.   Subsequent Events

         As of March 31, 2002, there were $115.0 million of the Company’s 4.5% Convertible Subordinated Notes (“Notes”) due 2003 outstanding. In April 2002, ARRIS exchanged 1,017,285 shares of its common stock for $9.75 million of Notes in private transactions. On May 10, 2002, as part of a public exchange offer, the Company exchanged approximately 577,000 shares of its common stock for approximately $5.65 million of Notes. The Company will be recording the exchanges in accordance with SFAS No. 84, Induced Conversions of Convertible Debt. The Statement requires the recognition of an expense equal to the fair value of additional shares of common stock issued in excess of the number of shares that would have been issued upon conversion under the original terms of the Notes. As a result, in connection with these exchanges, the Company will be recording a non-cash loss of approximately $8.7 million, based upon an assumed weighted average common stock value of $9.10 (as compared with a common stock value of $24.00 per share implied in the original conversion ratio for the Notes). The Company is continuing to talk with holders of a significant portion of the remaining Notes regarding future exchanges of their Note for common stock, which may be on terms different from the prior exchanges.

         On April 24, 2002 ARRIS Group, Inc. entered into a definitive agreement to sell Keptel, a product line of the Company, to an undisclosed buyer. Keptel designs and markets network interface systems and fiber optic cable management products primarily for traditional telco residential and commercial applications. The transaction, which closed on April 25, 2002, is valued at approximately $30.0 million plus an additional potential earnout for ARRIS over a twenty-four month period based on sales achievements. The transaction also includes a distribution agreement whereby ARRIS will continue to distribute Keptel products. The Keptel product line accounted for approximately $58.0 million or 7.8% of ARRIS revenues in 2001. As a result of the transaction, ARRIS will record a charge of $40.0 to $50.0 million, predominantly related to the write-off of Keptel related goodwill. Due to the Company’s adoption of SFAS No. 142, it is expected that a substantial portion of the write-off of goodwill will ultimately be reflected in ARRIS’ first quarter 2002 results as a cumulative effect adjustment of a change in accounting principle.

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Note 13.   Information in Form 10-K for the Year Ended December 31, 2001

         Five typographical errors occurred in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. The correct information is as follows:

• In the table under the heading “Calculation of Cash Earnings, Excluding Unusual Items” on page 17 of the Form 10-K, the footnote references for the following line items under the subheading “Unusual Items” should be corrected to read as follows:

• “Severance related to factory closure (7)(11)”

• “Lease commitments (7)(11)”

• “Facilities shutdown expenses (7)(11)”

• “Gain (loss) on marketable securities (13)”

• “Write-off of deferred financing costs (9)”

• “Third quarter valuation allowance adjustments for deferred taxes (10)”

• “Related tax effect on all items, as applicable (10)”

• In the section entitled Comparison of Operations for Years Ended December 31, 2001 and 2000 appearing on page 26 of the Form 10-K, the last line of the table should read as follows:

• “Net (loss) income, excluding unusual items”

• In the section entitled “Financing” appearing on page 31 of the Form 10-K, the following sentence should be corrected to read as follows:

• “The credit facility has a maturity date of August 3, 2004.”

• In the “Consolidated Balance Sheets” appearing on page 43 of the Form 10-K, the following line item under the subheading “Liabilities and Stockholders’ Equity” should be corrected to read as follows:

• “Common Stock, par value $0.01 per share, 320.0 million shares authorized; 75.2 million and 38.1 million shares issued and outstanding in 2001 and 2000, respectively”

• In the “Consolidated Statements of Cash Flows” appearing on page 45 of the Form 10-K, the amount reflected for the year ended December 31, 2001 for the line item “Net cash (used in) provided by financing activities” should be corrected to read “(95,667)”

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Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

         Our industry experienced a significant reduction in capital spending beginning at the end of 2000. Nortel Networks, our partner in Arris Interactive L.L.C., decided to exit that business, thereby providing us the opportunity to purchase its interest in the joint venture. In January 2002, we purchased substantially all the assets and certain liabilities of Cadant, Inc., a manufacturer of cable modem termination systems that had developed a leading design in the industry for the critical component in a voice over IP telephony system. We also refocused our business on our core skills by substantially exiting manufacturing. We now outsource most of our manufacturing to some of the leading contract manufacturers of electronic products. Further, we have reduced workforce and other operating expenses throughout our organization.

         Set forth below is a more detailed description of how our business performed during the first quarter of 2002 as compared to the first quarter of 2001. You should be aware, however, that as a result of our acquisition of Arris Interactive on August 3, 2001, and our acquisition of Cadant, Inc. on January 8, 2002, our business has changed significantly and our historical results of operations will not be as indicative of future results of operations as they otherwise might reflect. Some of these differences are discussed below.

Acquisition of Arris Interactive L.L.C.

         On August 3, 2001, we completed the acquisition from Nortel of the portion of Arris Interactive that we did not own. Arris Interactive was a joint venture formed by Nortel and us in 1995, and immediately prior to the acquisition we owned 18.75% and Nortel owned the remainder. As part of this transaction:

• A new holding company, ARRIS, was formed

• ANTEC, our predecessor, merged with a subsidiary of ARRIS and the outstanding ANTEC common stock was converted, on a share-for-share basis, into common stock of ARRIS.

• Nortel and the Company contributed to Arris Interactive approximately $131.6 million in outstanding indebtedness and adjusted their ownership percentages in Arris Interactive to reflect these contributions

• Nortel exchanged its remaining ownership interest in Arris Interactive for 37 million shares of ARRIS common stock (approximately 49.2% of the total shares outstanding following the transaction) and a subordinated redeemable preferred interest in Arris Interactive with a face amount of $100 million

• ANTEC, now a wholly-owned subsidiary of ARRIS, changed its name to Arris International, Inc.

• Nortel designated two new members to our board of directors

• ARRIS issued approximately 2.1 million options and 95,000 shares of restricted stock to Arris Interactive employees

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         In connection with this transaction, our bank indebtedness was refinanced on August 3, 2001. The new facility is an asset-based revolving credit facility, which permits us to borrow up to $175.0 million based upon availability under a borrowing base calculation.

Acquisition of Cadant, Inc.

         On January 8, 2002, we acquired substantially all of the assets of Cadant, Inc., a privately held designer and manufacturer of next generation cable modem termination systems (“CMTS”). Under the terms of the transaction, we issued 5.25 million shares of our common stock and assumed approximately $16.5 million in liabilities in exchange for the assets. We issued 2.0 million options to purchase our common stock and 250,000 shares of restricted stock to Cadant employees. We also agreed to issue up to 2.0 million additional shares of our common stock based upon future sales of the CMTS product.

Sale of Keptel Product Line

         Subsequent to the end of the quarter, on April 24, 2002 ARRIS Group, Inc. entered into a definitive agreement to sell Keptel, a product line of the Company, to an undisclosed buyer. Keptel designs and markets network interface systems and fiber optic cable management products primarily for traditional telco residential and commercial applications. The transaction, which closed on April 25, 2002, is valued at approximately $30.0 million plus an additional potential earnout for ARRIS over a twenty-four month period based on sales achievements. The transaction also includes a distribution agreement whereby ARRIS will continue to distribute Keptel products. The Keptel product line accounted for approximately $58.0 million or 7.8% of ARRIS revenues in 2001. ARRIS expects the effect of the transaction to be immaterial on 2002 cash earnings with a resultant reduction of approximately $12.0 million of revenue per quarter. As a result of the transaction, ARRIS will record a charge of $40.0 to $50.0 million, predominantly related to the write-off of Keptel related goodwill. Due to the Company's adoption of SFAS No. 142, it is expected that a substantial portion of the write-off of goodwill will ultimately be reflected in ARRIS' first quarter 2002 results as a cumulative effect adjustment of a change in accounting principle.

Industry Conditions

         ARRIS’ performance is largely dependent on capital spending for constructing, rebuilding, maintaining and upgrading broadband communications systems. After a period of intense consolidation and rapid stock-price acceleration within the industry during 1999, the fourth quarter of 2000 brought a sudden tightening of credit availability throughout the telecommunications industry and a broad-based and severe drop in market capitalization for the sector during the period. This caused broadband system operators to become more judicious in their capital spending, adversely affecting us and other equipment providers.

         In response to this downturn, we significantly reduced expense levels, through workforce reductions during 2001 and the more recent reductions implemented in the first quarter of 2002. The actions taken in the first quarter 2002 resulted in a pre-tax charge of approximately $3.1 million for severance and related separation costs, and we reduced overall employment levels by approximately 90 employees. Additionally, as part of our continuing review and evaluation of underperforming assets in assessing their long-term strategic role within ARRIS, as well as strategic opportunities we face, we restructured our manufacturing operations in 2001 and are in the process of implementing an outsourcing strategy. This manufacturing restructuring resulted in the closure of four factories in El Paso, Texas and Juarez, Mexico and the termination of 807 employees. The outsourcing is anticipated to be completed during the first half of 2002.

Significant Customers

         Our two largest customers are AT&T and Cox Communications.

	AT&T			Cox Communications
	(dollars in millions)
First quarter 2002 sales	$	52.1		$	32.9
2002 percentage of total sales		27.2	%		17.2	%
First quarter 2001 sales	$	90.9		$	28.2
2001 percentage of total sales		42.7	%		13.2	%

         Other than Cabovisao and Adelphia Communications Corporation, which accounted for approximately 9.4% and 8.9% of ARRIS’ total sales for the first quarter of 2002, respectively, no other customer provided more than 5% of ARRIS’ total sales for either quarter.

         As of March 31, 2002, Liberty Media Corporation, which until August 2001 was owned by AT&T, effectively controlled approximately 9% of the outstanding ARRIS common stock. The effective ownership includes options to acquire an additional 854,341 shares.

         On December 19, 2001, AT&T Broadband and Comcast Corporation announced a definitive agreement to combine AT&T Broadband with Comcast.

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Comparison of Operations for the Three Months Ended March 31, 2002 and 2001

         Net Sales. ARRIS’ sales for the first quarter 2002 decreased by 10.0% to $191.6 million as compared to the first quarter 2001 sales of $212.8 million. Our products and services are summarized in three new product categories instead of the previous four categories: broadband (previously cable telephony and internet access); transmission, optical, and outside plant; and supplies and services. All prior period amounts have been aggregated to conform to the new product categories.

• Broadband product revenues increased by approximately 10.9% to $114.2 million in the first quarter 2002 as compared to revenues of $103.0 million during the same quarter last year. Broadband product revenues accounted for approximately 59.6% of the first quarter 2002 sales, as compared to 48.4% during the same period in 2001. However, the first quarter of 2001 included approximately $30.0 million of sales to AT&T that were carried over from the fourth quarter of 2000. Excluding the sales to AT&T of $30.0 million, broadband product revenues increased approximately $41.2 million quarter over quarter. This significant increase in broadband revenue was primarily due to the inclusion of additional international revenues in the first quarter of 2002, as a result of the acquisition of Arris Interactive L.L.C during the third quarter of 2001. Under the previous joint venture agreement with Nortel, we were not able to sell the Cornerstone products internationally. This agreement terminated upon our acquisition of Nortel’s share of Arris Interactive L.L.C. on August 3, 2001.

• Transmission, optical and outside plant product revenues decreased by 30.4% to $46.4 million in the first quarter 2002 as compared to the same quarter of last year. The overall decrease was primarily a result of the elimination of the sales of the powering product line, and decreased sales of network interface devices, RF products, and repeaters. This revenue accounted for approximately 24.2% of the first quarter 2002 revenues, as compared to 31.4% for the same period in 2001.

• Supplies and services product revenue decreased by 28.1% to $31.0 million in the first quarter 2002 as compared to the same quarter last year. The overall decrease was primarily a result of the decreased sales of fiber optic cables. Supplies and services product revenues accounted for approximately 16.2% of the first quarter 2002 sales, as compared to 20.2% during the same period in 2001.

         International sales of $46.3 million for the three months ended March 31, 2002 marked a significant increase from the international sales of $10.2 million recorded during the first quarter 2001. This increase was primarily the result of the addition of international sales of the Cornerstone product line following our August 3, 2001 acquisition of Arris Interactive L.L.C. International revenue for the first quarter 2002 represented approximately 24.1% of ARRIS’ total revenue for the quarter. This compares to international revenue of 4.8% of our total revenue for the first quarter 2001.

         Gross Profit. Although revenue decreased $21.2 million from the first quarter 2001 to our first quarter 2002, the gross profit increased significantly from $32.1 million in 2001 to $59.5 million in 2002. The increase in margin is predominantly the result of the Arris Interactive L.L.C. acquisition, due to:

• ANTEC was a distributor of Arris Interactive L.L.C. products to major U.S. cable companies and earned approximately 15.0% margins. As the new ARRIS, we earn a much higher margin as the manufacturer of the product, and

• the broadband product line earns, on average, higher margins than the balance of the ARRIS portfolio.

Gross profit margins for the quarter ended March 31, 2002 increased 16.0 percentage points to 31.1% as compared to 15.1% for the same period in 2001. During the first quarter of 2002, we continued to examine methods to decrease our cost structure and consequently reduced our workforce by approximately 90 people. As a result, severance costs of approximately $0.7 million were incurred in connection with severed employees at the factory level and negatively impacted the gross margin during the first quarter of 2002. Excluding these severance charges, the gross profit margins for the period ended March 31, 2002 would have been approximately 31.4%.

         Selling, General, Administrative and Development (“SGA&D”) Expenses. SGA&D expenses increased to $53.9 million during the first quarter 2002 from $35.2 million during the first quarter 2001. SGA&D expenses for 2002

17

included approximately $2.4 million of severance costs related to workforce reductions. Excluding the effects of these charges, the expenses for 2002 would have been $51.5 million. This quarter-over-quarter increase is a direct result of the inclusion in the first quarter 2002 of additional expenses due to the acquisitions of Arris Interactive L.L.C. and Cadant, Inc.

         Restructuring and Impairment Charges. In the fourth quarter of 2001, ARRIS closed a research and development facility in Raleigh, North Carolina and recorded a $4.0 million charge related to severance and other costs associated with closing that facility. This charge included termination expenses of $2.2 million related to the involuntary dismissal of 48 employees, primarily engaged in engineering functions at that facility. Also included in the $4.0 million charge was $0.7 million related to lease commitments, $0.2 million related to the impairment of fixed assets, and $0.9 million related to other shutdown expenses. As of March 31, 2002, approximately $0.6 million related to severance, $0.6 million related to lease commitments, and $0.2 million of shutdown expenses remained in the restructuring accrual to be paid. We anticipate disposing of $0.2 million of fixed assets during the second quarter of 2002.

         In the third quarter of 2001, we announced a restructuring plan to outsource the functions of most of its manufacturing facilities. This decision to reorganize was due in part to the ongoing weakness in industry spending patterns. The plan entails the implementation of an expanded manufacturing outsourcing strategy and the related closure of the four factories located in El Paso, Texas and Juarez, Mexico. The closure of the factories is anticipated to be complete during the first half of 2002. As a result, we recorded restructuring and impairment charges of $66.2 million. Included in these charges was approximately $32.0 million related to the write-down of inventories and approximately $1.7 million related to remaining warranty and purchase order commitments, which have been reflected in cost of sales. Also included in the restructuring and impairment charge was approximately $5.7 million related to severance and associated personnel costs, $5.9 million related to the impairment of goodwill due to the pending sale of the power product lines, $14.8 million related to the impairment of fixed assets, and approximately $6.1 million related to lease termination and other shutdown expenses of factories and office space. The personnel-related costs included termination expenses for the involuntary dismissal of 807 employees, primarily engaged in production and assembly functions performed at the facilities. We offered terminated employees separation amounts in accordance with our severance policy and provided the employees with specific separation dates. The severance and associated personnel costs will be paid upon closure of the factories. As of March 31, 2002, approximately $1.9 million related to severance, $1.9 million related to lease commitments, $1.1 million related to purchase order commitments, $1.5 million related to the warranty reserve, and $1.2 million of other shutdown expenses relating to the restructuring and impairment charges remained in the accrual to be paid. The fixed assets are expected to be disposed of in the first half of 2002.

         Loss on Marketable Securities. In 2000, we made a $1.0 million strategic investment in Chromatis Networks, Inc., receiving shares of their preferred stock. On June 28, 2000, Lucent Technologies acquired Chromatis. As a result of this acquisition, our shares of Chromatis stock were converted into shares of Lucent stock. Subsequently, as a result of Lucent’s spin off of Avaya, Inc. during the third quarter of 2000, we were issued shares of Avaya stock. Since our investments in Lucent and Avaya stock are considered trading securities held for resale, they are required to be carried at their fair market value with any gains or losses being included in earnings. In calculating the fair market value of the Lucent and Avaya investments, we recognized pre-tax losses of $0.2 million and $0.4 million, as of March 31, 2002 and 2001, respectively. As of March 31, 2002, the carrying value of the Lucent and Avaya stock was $0.6 million.

         Interest Expense. Interest expense for the quarters ended March 31, 2002 and 2001 was $1.7 million and $2.7 million, respectively. Interest expense for both periods reflects the cost of borrowings on our revolving credit facility including commitment fees and the interest paid on the 4.5% Convertible Subordinated Notes due 2003. As of March 31, 2002, we did not have a balance outstanding under our credit facility, as compared to $79.0 million outstanding at March 31, 2001. For the quarter ended March 31, 2002 we had no borrowings under our credit facility, however our average interest rate on our outstanding line of credit borrowings would have been 6.8%. For the quarter ended March 31, 2001, the average interest rate on our outstanding line of credit borrowings was 7.3%, with an overall blended rate of approximately 5.6% including the subordinated notes.

         Membership Interest Expense. In conjunction with the acquisition of Arris Interactive L.L.C., we issued to Nortel Networks a subordinated redeemable preferred interest in Arris Interactive with a face amount of $100.0

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million. This membership interest earns a return of 10% per annum, compounded annually. For the three months ended March 31, 2002, we recorded membership interest expense of $2.5 million.

         Income Tax (Benefit) Expense. During the third quarter of 2001, we established a valuation allowance in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. We continually reviews the adequacy of the valuation allowance and recognizes the benefits of deferred tax assets only as reassessment indicates that it is more likely than not that the deferred tax assets will be realized. During the quarter ended March 31, 2002, we recorded an income tax benefit of $6.8 million as a result of a change in tax legislation, allowing us to carry back losses for five years versus the previous limit of two years. As of March 31, 2002, we will be able to realize approximately $12.9 million of net operating loss carrybacks.

         The income tax calculation for the quarter ended March 31, 2001 generated a benefit of approximately $(3.2) million. The Company reported a pre-tax loss during the first quarter 2001 and recognized the related tax benefit.

         Net (Loss) Income. A net loss of $(1.9) million or $(0.02) per diluted share was recorded for the first three months of 2002, as compared to a net loss of $(7.2) million or $(0.19) for the first three months of 2001. First quarter results for 2002 included severance charges of approximately $3.1 million, an income tax benefit as a result of a change in tax legislation of $6.8 million, and a loss on our investments in Lucent and Avaya of $0.2 million. First quarter results for 2001 also included a pre-tax market adjustment on our investment of $0.4 million. Exclusive of the above transactions, the net loss for the three months ended March 31, 2002 was $(5.5) million or $(0.07) per diluted share, as compared to a net loss for the same period in 2001 of $(7.0) million or $(0.18) per diluted share.

Material Commitments

         In the ordinary course of our business we enter into contracts with landlords, suppliers and others that involve multi-year commitments on our part. Of those the most significant is the lease for our headquarters in Duluth, Georgia. That lease requires annual payments of $1.4 million, subject to adjustment, through 2009.

         We also are party to various multi-year contracts with vendors. These contracts generally do not require minimum purchases by us. The two most significant of these are with Solectron and Mitsumi for contract manufacturing and are filed as exhibits to our reports filed with the Securities and Exchange Commission.

         Lastly, we have several multi-year commitments that are not related to the ordinary operation of our business. These include registration rights agreements with Nortel and Liberty Media as well as registration rights obligations with Cadant, Inc.

Financial Liquidity and Capital Resources

Financing

         In connection with the Arris Interactive acquisition in 2001, all of our existing bank indebtedness was refinanced. The new facility is an asset-based revolving credit facility initially permitting us to borrow up to $175 million (which can be increased under certain conditions by up to $25 million), based upon availability under a borrowing base calculation. In general, the borrowing base is limited to 85% of net eligible receivables (with special limitations in relation to foreign receivables) plus 80% of the orderly liquidation value of eligible inventory (not to exceed $80 million). The facility contains traditional financial covenants, including fixed charge coverage, senior debt leverage, minimum net worth, minimum inventory turns ratios, and a $10 million minimum borrowing base availability covenant. The facility is secured by substantially all of our assets. The credit facility has a maturity date of August 3, 2004. However, the maturity date of the credit facility will be December 31, 2002 in the event that the convertible subordinated notes due May 15, 2003 are not either fully refinanced or fully converted to our common stock prior to December 31, 2002 in a manner satisfactory to the lenders under the credit facility. The commitment fee on unused borrowings is approximately 0.75%. The average annual interest rate on these outstanding borrowings was approximately 6.8% at March 31, 2002 as compared to 6.2% at March 31, 2001 under our prior credit facility. In connection with the sale of the Keptel product line the credit facility was amended in April 2002 to permit the

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sale of Keptel, to defer until May 31, 2002 a mandatory reduction of the credit facility of approximately $30.0 million as a result of the Keptel sale, and to permit certain other transactions incidental to the Keptel sale.

         As of March 31, 2002, there were $115.0 million of the Company’s 4.5% Convertible Subordinated Notes (“Notes”) due 2003 outstanding. In April 2002, ARRIS exchanged 1,017,285 shares of its common stock for $9.75 million of Notes in private transactions and announced an additional public exchange offer for $70.0 million of its Notes. The public exchange offer expired May 10, 2002 with approximately $5.65 million of Notes being tendered for exchange for approximately 577,000 shares. The Company will be recording the exchanges in accordance with SFAS No. 84, Induced Conversions of Convertible Debt. The Statement requires the recognition of an expense equal to the fair value of additional shares of common stock issued in excess of the number of shares that would have been issued upon conversion under the original terms of the Notes. With respect to the $9.75 million and $5.65 million of exchanges completed in early April and May 2002, the Company will record a non-cash loss of approximately $8.7 million, based upon an assumed weighted average common stock value of $9.10.

         As of March 31, 2002, we had no borrowings outstanding under our credit facility and approximately $42.0 million of available capacity. We were in compliance with all covenants contained in the credit facility.

Interest Rates

         As of March 31, 2002, we did not have any floating rate indebtedness. The average interest rate on our Notes was 4.5% during the quarter. At March 31, 2002, we did not have any outstanding interest rate swap agreements.

Contractual Obligations and Commercial Commitments as of March 31, 2002

	Payments due by period
Contractual Obligations	1-3 years			3-5 years			After 5 years		Total
	(in millions)
Long term debt	$	115.0		$	—		$	—	$	115.0
Operating leases		23.6			9.2			4.6		37.4
Capital leases		2.0			—			—		2.0
Sublease income		(2.8	)		(0.5	)		—		(3.3	)
Membership interest		—			106.6			—		106.6
Total contractual cash obligations	$	137.8		$	115.3		$	4.6	$	257.7

Foreign Currency

         A significant portion of our products are manufactured or assembled in Mexico, the Philippines, and other countries outside the United States. Our sales of its equipment into international markets have been and are expected in the future to be an important part of our business. These foreign operations are subject to the usual risks inherent in conducting business abroad, including risks with respect to currency exchange rates, economic and political destabilization, restrictive actions and taxation by foreign governments, nationalization, the laws and policies of the United States affecting trade, foreign investment and loans, and foreign tax laws. Even though most of our international sales have been denominated in U.S. dollars, our business could be adversely affected if relevant currencies fluctuate relative to the United States dollar.

Financial Instruments

         In the ordinary course of business, we from time to time, will enter into financing arrangements with customers. These financial instruments include letters of credit, commitments to extend credit and guarantees of debt. These agreements could include the granting of extended payment terms that result in longer collection periods for accounts receivable and slower cash inflows from operations and/or could result in the deferral of revenue. As of March 31, 2002, we had approximately $2.0 million outstanding under letters of credit with our banks.

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Investments

         In the ordinary course of business, we may make strategic investments in the equity securities of various companies, both public and private. We hold investments in the common stock of Lucent Technologies and Avaya, Inc. totaling approximately $0.6 million at March 31, 2002. These investments are considered trading securities, and accounted for approximately 4% of our total investments at March 31, 2002. Changes in the market value of these securities are recognized in income and resulted in pre-tax losses of approximately $0.2 million and $0.4 million for the quarters ended March 31, 2002 and 2001, respectively. Our remaining investments in marketable securities, totaling $2.1 million, are classified as available-for-sale and accounted for approximately 15% of our total investments at March 31, 2002. The remaining 81% of the Company’s investments at March 31, 2002 consist of securities that are not traded actively in a liquid market.

Capital Expenditures

         Our capital expenditures were $1.1 million and $2.8 million in the three months ended March 31, 2002 and 2001, respectively. We had no significant commitments for capital expenditures at March 31, 2002. Management expects to invest approximately $12.0 million in capital expenditures for the year 2002.

Cash Flow

         Cash levels increased by approximately $22.0 million during the first quarter of 2002 as compared to an increase of approximately $0.3 million during the same period of the prior year. Operating activities in the first quarter of 2002 provided approximately $24.0 million in positive cash flow, while financing activities and investing activities used approximately $0.2 million and $1.8 million in cash flow.

         Operating activities provided cash of $24.0 million during the first quarter of 2002. A net loss used $1.9 million in cash flow during this period. Other non-cash items such as depreciation, amortization, provisions for doubtful accounts, membership interest and losses on marketable securities accounted for positive adjustments of approximately $19.9 million during the first quarter 2002. Additionally, decreases in accounts receivable and inventory; and increases in accounts payable and accrued liabilities provided positive cash flows of $1.8 million, $21.8 million, and $2.4 million, respectively. These net cash inflows were offset by an increase in other receivables of $2.5 million, an increase in income taxes recoverable of $7.8 million, and an increase in various other assets and liabilities netted together of $9.7 million through March 31, 2002.

         Operating activities provided cash of $12.4 million during the first quarter of 2001. A net loss used $4.5 million in cash flow during this period. Other non-cash items such as depreciation, amortization, provisions for doubtful accounts, a loss on an equity investment and losses on marketable securities accounted for positive adjustments of approximately $9.7 million during the first quarter 2001. Additionally, a decrease in accounts receivable and increases in accounts payable and accrued liabilities provided positive cash flow of $4.5 million and $23.4 million, respectively. These net cash inflows were offset by an increase in inventories of $13.6 million, an increase in income taxes recoverable of $2.8 million, and an increase in various other assets and liabilities netted together of $2.2 million through March 31, 2001.

         Days sales outstanding (“DSO”) was approximately 65 days at March 31, 2002 as compared to 68 days outstanding at the close of the first quarter 2001. The first quarter of 2002 experienced a drop in receivable levels greater than the drop in sales, which decreased the 2002 DSO slightly below the range of 2001.

         Current inventory levels decreased by $21.8 million during the quarter ended March 31, 2002. This decrease in inventory is comprised of reductions of approximately $12.8 million in raw material, $1.8 million in work in process, and $7.2 million in finished goods. As a result of the decreased inventory levels, inventory turns during the first quarter 2002 were recorded at 3.0 times as compared to 2.7 times recorded in the first quarter 2001 and compared to 2.4 turns during the fourth quarter of 2001.

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         An increase in accounts payable and accrued liabilities provided $2.4 million in cash during the first quarter 2002. This increase in the level of payables and accrued expenses is related to the timing of the processing and payment of vendor invoices.

         Cash flows used by investing activities were approximately $1.8 million for the three months ended March 31, 2002 as compared to $2.8 million during the same period in 2001. The investments made during 2002 included approximately $1.1 million to purchase capital assets and $0.7 million in funds paid for the Cadant, Inc. acquisition, net of the cash acquired in the transaction. The investments during the first quarter of 2001 included $2.8 million spent on capital assets.

         Cash flows used in financing activities were $0.2 million for the first quarter 2002, resulting from the proceeds from issuance of common stock offset by capital lease payments. This compared to cash used of $9.3 million during the first quarter 2001. During the quarter ended March 31, 2001 we paid down approximately $10.0 million on our credit facility and paid approximately $0.3 million on deferred financing fees. These cash outflows were partially offset by the proceeds from the issuance of common stock, which provided a positive cash flow of $0.9 million.

         Based upon current levels of operations, we expect that sufficient cash flow will be generated from operations so that, combined with cash on hand and other financing alternatives available, including bank credit facilities, we will be able to meet all of our current debt service, capital expenditure and working capital requirements.

Critical Accounting Policies and Estimates

         Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses ARRIS’ Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customer incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, financing operations, warranty obligations, restructuring costs, retirement benefits, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

         Our critical accounting policies are disclosed extensively in our Form 10-K for the year ended December 31, 2001. That discussion is incorporated herein by reference.

Forward-Looking Statements

         Various information and statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report, including our expectations regarding outsourcing and fulfilling our cash needs and other statements using terms such as “may,” “expect,” “anticipate,” “intend,” “estimate,” “believe,” “plan,” “continue,” “could be,” or similar variations or the negative thereof constitute forward-looking statements with respect to the financial condition, results of operations, and business of ARRIS, including statements that are based on current expectations, estimates, forecasts, and projections about the markets in which the Company operates and management’s beliefs and assumptions regarding these markets. These and any other statements in this document that are not statements about historical facts are “forward-looking statements.” The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. Important factors that could cause results or events to differ from current expectations are described in the risk factors below. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the operations, performance, development and results of the Company’s business. In providing forward-looking statements, ARRIS expressly disclaims any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise, except as required by law.

Risk Factors

ARRIS’ business is dependent on customers’ capital spending on broadband communication systems, and reductions by customers in capital spending could adversely affect ARRIS’ business.

         ARRIS’ performance has been largely dependent on customers’ capital spending for constructing, rebuilding, maintaining or upgrading broadband communications systems. Capital spending in the telecommunications industry is cyclical. A variety of factors will affect the amount of capital spending, and therefore, ARRIS’ sales and profits, including:

• general economic conditions,

• availability and cost of capital,

• other demands and opportunities for capital,

• regulations,

• demands for network services,

• competition and technology, and

• real or perceived trends or uncertainties in these factors.

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The markets in which ARRIS operates are intensely competitive, and competitive pressures may adversely affect ARRIS’ results of operations.

         The markets for broadband communication systems are extremely competitive and dynamic, requiring the companies that compete in these markets to react quickly and capitalize on change. This will require ARRIS to retain skilled and experienced personnel as well as deploy substantial resources toward meeting the ever-changing demands of the industry. ARRIS competes with national and international manufacturers, distributors and wholesalers, including many companies larger than ARRIS. ARRIS’ major competitors include:

• ADC Telecommunications, Inc.

• C-COR.net Corporation

• Cisco Systems

• Harmonic Inc.

• Juniper Networks

• Motorola, Inc.

• Phillips

• Riverstone Networks, Inc.

• Scientific-Atlanta

• Tellabs Inc.

• Terayon Communication Systems

         The rapid technological changes occurring in the broadband markets may lead to the entry of new competitors, including those with substantially greater resources than ARRIS. Since the markets in which the Company competes are characterized by rapid growth and, in some cases, low barriers to entry, smaller niche market companies and start-up ventures also may become principal competitors in the future. Actions by existing competitors and the entry of new competitors may have an adverse effect on ARRIS’ sales and profitability. The broadband communications industry is further characterized by rapid technological change. In the future, technological advances could lead to the obsolescence of some of ARRIS’ current products, which could have a material adverse effect on ARRIS’ business.

         Further, many of ARRIS’ larger competitors are in a better position to withstand any significant reduction in capital spending by customers in these markets. They often have broader product lines and market focus and therefore will not be as susceptible to downturns in a particular market. In addition, several of ARRIS’ competitors have been in operation longer than ARRIS and therefore have more long-standing and established relationships with domestic and foreign broadband service users. ARRIS may not be able to compete successfully in the future, and competition may harm ARRIS’ business.

ARRIS’ business has primarily come from a limited number of key customers. The loss of one of these customers or a significant reduction in services to one of these customers would have a material adverse effect on ARRIS’ business.

         ARRIS’ two largest customers are AT&T and Cox Communications. For the three months ended March 31, 2002, sales to AT&T accounted for approximately 27.2% of ARRIS’ total sales, while Cox Communications accounted for approximately 17.2%. ARRIS currently is the exclusive provider of telephony products for both AT&T and Cox Communications in eight metro areas. In addition, Cabovisao and Adelphia Communications Corporation accounted for approximately 9.4% and 8.9% of ARRIS’ total sales for the first quarter of 2002, respectively. The loss of either AT&T, Cox Communications or one of our other large customers, or a significant reduction in the services provided to any of them would have a material adverse impact on ARRIS.

         Adelphia Communications Corporation, which accounted for 8.9% of the Company’s sales in the first quarter of 2002 and 8.1% of the Company’s total sales for 2001, announced that it intended to restate its 1999, 2000 and 2001 financial statements subject to completion of its annual audit work with its independent auditors. As a result, Adelphia has been delayed in filing its annual report on Form 10-K. This delay has caused Adelphia to receive notices of default under certain public debentures and it is in potential default under Adelphia’s subsidiary’s principal credit agreements, which may prohibit further borrowings unless the potential defaults are cured or waived. Adelphia has indicated that the restatements will tentatively reflect borrowings and related interest expense under

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certain co-borrowing arrangements of approximately $1.6 billion as of December 31, 2001. The Company cannot predict what effects these events will have on our business. Accounts receivable from Adelphia at March 31, 2002 was approximately $13.9 million.

         On December 19, 2001, AT&T Broadband and Comcast Corporation announced a definitive agreement to combine AT&T Broadband with Comcast.

An inability to fully develop a sales, distribution, and support infrastructure in international markets and the costs associated with developing this infrastructure may adversely affect our results of operations.

         Historically, Arris Interactive L.L.C. relied upon Nortel Networks exclusively for sales, distribution and support of its products in the international markets and for certain customers in the North American market. We entered into a non-exclusive sales representation agreement with Nortel Networks to market our products. This agreement terminated on December 31, 2001 with respect to North American markets and this agreement will terminate on December 31, 2003 with respect to international markets. In June 2001, Nortel Networks announced that it was realigning its business, which will include the discontinuance of Nortel Networks’ access solutions operations (which includes its ARRIS related operations). To avoid reliance on Nortel Networks and other third parties, we have attempted to develop our own sales, marketing, distribution, and support infrastructure, particularly to support and enhance our international sales. However, these efforts may not be successful, or if successful, might not be sufficient to offset sales lost from the discontinuance of our relationship with Nortel Networks.

Our credit facility imposes financial covenants that may adversely affect the realization of our strategic objectives.

         ARRIS and certain of its subsidiaries have entered into a revolving credit facility providing for borrowing up to a committed amount of $175.0 million, with borrowing also limited by a borrowing base determined by reference to eligible accounts receivable and eligible inventory. As of March 31, 2002, the borrowing base was $42.0 million. In connection with the sale of the Keptel product line the credit facility was amended in April 2002 to permit the sale of Keptel, to defer until May 31, 2002 a mandatory reduction of the credit facility of approximately $30.0 million as a result of the Keptel sale, and to permit certain other transactions incidental to the Keptel sale. The committed amount under this revolving credit facility may be increased by up to $25.0 million, under certain conditions at a later date upon the agreement of the lenders thereunder. This credit facility imposes, among other things, covenants limiting the incurrence of additional debt and liens and requires us to meet certain financial objectives.

         The credit facility has a maturity date of August 3, 2004. However, the maturity date of the credit facility will be December 31, 2002 in the event that the Company’s convertible subordinated notes due May 15, 2003 are not either fully refinanced or fully converted to ARRIS common stock prior to December 31, 2002 in a manner satisfactory to the lenders under the credit facility. In April 2002, ARRIS exchanged 1,017,285 shares of its common stock for $9.75 million of Notes in private transactions and announced an additional public exchange offer for $70.0 million of its Notes. The public exchange offer expired May 10, 2002 with approximately $5.65 million of Notes being tendered for exchange for approximately 577,000 shares. The acceleration of the maturity date of the credit facility could have a material adverse effect on our business.

We have substantial stockholders that may not act consistent with the interests of the other stockholders.

         As of March 31, 2002, Nortel Networks owns approximately 46% of our common stock and Liberty Media Corporation beneficially owns approximately 9% of our common stock. These respective ownership interests result in both Nortel Networks and Liberty Media having a substantial influence over ARRIS. Nortel Networks and Liberty Media may not exert their respective influences in a manner that is consistent with the interests of other stockholders. Nortel Networks is, in its capacity as a stockholder, able to block stockholder action, including, for instance, stockholder approval of a merger or large acquisition.

The two largest stockholders have the power to sell a large portion of ARRIS stock in the future, which could cause the price of our stock to decline.

         Any sales of substantial amounts of our common stock in the public market, or the perception that such sales might occur, could lower the price of our common stock. We have entered into a registration rights agreement with Nortel Networks. Under this agreement, Nortel Networks has the power to cause us to initiate a public offering for

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all or part of Nortel Networks’ shares of ARRIS common stock. Pursuant to this right, we are in the process of preparing a shelf registration for Nortel Networks’ benefit. Liberty Media currently has similar registration rights. Through the exercise of their registration rights, either Nortel Networks or Liberty Media or both could sell a large number of shares to the public.

         Nortel Networks also owns a redeemable membership interest in Arris Interactive. The terms of the membership interest may under certain circumstances allow Nortel Networks to exchange the membership interest for common stock, preferred stock (which may be convertible), or notes (which may be convertible, upon the happening of certain circumstances). Those tests were not met as of February 3, 2002, and are not expected to be met in 2002. The exchange for, and conversion into, our common stock would occur at the then prevailing market price of the common stock. Since some of the circumstances under which exchange and/or conversion is permitted may occur in the event that we are in significant financial distress, it is possible that the market price of the common stock would be quite low and the Nortel Networks would be able to convert its new membership interest into significant, but presently undeterminable, portion of ARRIS common stock which could dilute our other stockholders.

ARRIS may dispose of existing product lines or acquire new product lines in transactions that may adversely impact our future results.

         On an ongoing basis, we evaluate our various product offerings in order to determine whether any should be sold or closed and whether there are businesses that we should pursue acquiring. Future acquisitions and divestitures entail various risks, including:

• the risk that we will not be able to find a buyer for a product line, while product line sales and employee morale will have been damaged because of general awareness that the product line is for sale;

• the risk that the purchase price obtained will not be equal to the book value of the assets for the product line that it sells; and

• the risk that acquisitions will not be integrated or otherwise perform as expected.

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 ARRIS’ products. The technology applications currently under development by ARRIS may not be successfully developed. Even if the developmental products are successfully developed, they may not be widely used or ARRIS may not be able to successfully exploit these technology applications. To compete successfully, ARRIS must quickly design, develop, manufacture and sell new or enhanced products that provide increasingly higher levels of performance and reliability. However, ARRIS may not be able to successfully develop or introduce these products if our 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, ARRIS’ competitors may develop similar or alternative new technology solutions and applications that, if successful, could have a material adverse effect on ARRIS. 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. The loss of a strategic partner could have a material adverse effect on the progress of new products under development with that partner.

Consolidations in the telecommunications industry could result in delays or reductions in purchases of products, which could have a material adverse effect on ARRIS’ business.

         The telecommunications industry has experienced the consolidation of many industry participants and this trend is expected to continue. ARRIS and one or more of its competitors may each supply products to businesses that have merged or will merge in the future. Consolidations could result in delays in purchasing decisions by merged businesses, with ARRIS playing a greater or lesser role in supplying the communications products to the merged

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entity. These purchasing decisions of the merged companies could have a material adverse effect on ARRIS’ business.

         Mergers among the supplier base also have increased, and this trend may continue. The larger combined companies with pooled capital resources may be able to provide solution alternatives with which ARRIS would be put at a disadvantage to compete. The larger breadth of product offerings by these consolidated suppliers could result in customers electing to trim their supplier base for the advantages of one-stop shopping solutions for all of their product needs. These consolidated supplier companies could have a material adverse effect on ARRIS’ business.

ARRIS’ success depends in large part on our ability to attract and retain qualified personnel in all facets of our operations.

         Competition for qualified personnel is intense, and ARRIS may not be successful in attracting and retaining key executives, marketing, engineering and sales personnel, which could impact our ability to maintain and grow our operations. ARRIS’ future success will depend, to a significant extent, on the ability of our management to operate effectively. In the past, competitors and others have attempted to recruit ARRIS employees and in the future, these attempts may continue. The loss of services of any key personnel, the inability to attract and retain qualified personnel in the future or delays in hiring required personnel, particularly engineers and other technical professionals could negatively affect ARRIS’ business.

We are substantially dependent on contract manufacturers, and an inability to obtain adequate and timely delivery of supplies could adversely affect our 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, including Nortel Networks. Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on subcontractors involves several risks including a potential inability to obtain an adequate supply of required components, subassemblies or modules and reduced control over pricing, quality and timely delivery of components, subassemblies or modules. Historically, we have not generally maintained long-term agreements with any of our suppliers or subcontractors. An inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply could affect our ability to ship products on a timely basis. Any inability to reliably ship our products on time could damage relationships with current and prospective customers and harm our business.

ARRIS’ international operations may be adversely affected by any decline in the demand for broadband systems designs and equipment in international markets.

         Sales of broadband communications equipment into international markets are an important part of our business. The entire line of ARRIS products is marketed and made available to existing and potential international customers. In addition, United States broadband system designs and equipment are increasingly being employed in international markets, where market penetration is relatively lower than in the United States. While international operations are expected to comprise an integral part of our future business, international markets may no longer continue to develop at the current rate, or at all. We may fail to receive additional contracts to supply equipment in these markets.

Our international operations may be adversely affected by changes in the foreign laws in the countries in which we have manufacturing or assembly plants.

         A significant portion of our products are manufactured or assembled in Mexico and the Philippines and other countries outside of the United States. The governments of the foreign countries in which we have plants may pass laws that impair our operations, such as laws that impose exorbitant tax obligations on the business.

We may face difficulties in converting earnings from international operations to U.S. dollars.

         We may encounter difficulties in converting our earnings from international operations to U.S. dollars for use in the United States. These obstacles may include problems moving funds out of the countries in which the funds were

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earned and difficulties in collecting accounts receivable in foreign countries where the usual accounts receivable payment cycle is longer.

ARRIS’ profitability has been, and may continue to be, volatile, which could adversely affect the price of ARRIS’ stock.

         The Company has experienced years with significant operating losses. Although we have been profitable in the past, we may not be profitable or meet the level of expectations of the investment community in the future, which could have a material adverse impact on ARRIS’ stock price. In addition, ARRIS’ operations may be adversely affected by timing of sales or a shift in our product mix, which may add to the volatility of our results.

We may face higher costs associated with protecting our intellectual property.

         ARRIS’ future success depends in part upon our proprietary technology, product development, technological expertise and distribution channels. We cannot predict whether we can protect our technology, or whether competitors can develop similar technology independently. We have received and may continue to receive from third parties, including some of our competitors, notices claiming that ARRIS accompanies have infringed upon third-party patents or other proprietary rights. Any of these claims, whether with or without merit, could result in costly litigation, divert the time, attention and resources of our management, delay our product shipments, or require us to enter into royalty or licensing agreements. If a claim of product infringement against ARRIS is successful and we fail to obtain a license or develop a license non-infringing technology, our business and operating results could be adversely affected.

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Item 3.   Quantitative and Qualitative Disclosures About Market Risk

         The following discussion of ARRIS’ risk-management activities includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.

         ARRIS is exposed to various market risks, including interest rates and foreign currency rates. Changes in these rates may adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, ARRIS may enter into various derivative transactions, when appropriate. ARRIS does not hold or issue derivative instruments for trading or other speculative purposes. Interest rate changes did not impact the Company’s revolving credit facility, as there were no amounts outstanding under our credit facility during the quarter ended March 31, 2002. As of March 31, 2002, the Company had no material contracts denominated in foreign currencies.

         In the past, ARRIS has used interest rate swap agreements, with large creditworthy financial institutions, to manage its exposure to interest rate changes. These swaps would involve the exchange of fixed and variable interest rate payments without exchanging the notional principal amount. During the quarter ended March 31, 2002, ARRIS did not have any outstanding interest rate swap agreements.

         The Company is exposed to foreign currency exchange rate risk as a result of sales of our products in various foreign countries. In order to minimize the risks associated with foreign currency fluctuations, most sales contracts are issued in U.S. dollars. The Company has previously used foreign currency contracts to hedge the risks associated from foreign currency fluctuations for significant sales contracts, however, no significant contracts were in place during the quarter ended March 31, 2002. ARRIS constantly monitors the exchange rate between the U.S. dollar and Mexican peso to determine if any adverse exposure exists relative to its costs of manufacturing. The Company does not maintain Mexican peso denominated currency. Instead, U.S. dollars are exchanged for pesos at the time of payment.

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PART II.   OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K

(a) Exhibits

		Incorporated by
		Reference from
		ARRIS' SEC filings
Exhibit		unless otherwise
Number	Description of Exhibit	indicated:
4.2(b)	Third Supplemental Indenture between Arris International Inc., ARRIS Group, Inc, and The Bank of New York	Filed herewith
10.1 (b)	Second Amendment to Credit Agreement dated April 19, 2002	Filed herewith
10.1 (c)	Third Amendment to Credit Agreement dated April 19, 2002	Filed herewith
10.9 (b)	Form of Employment Agreement with Gordon E. Halverson	Filed herewith
10.18	Asset Purchase Agreement for Keptel	Filed herewith

(b)	Reports on Form 8-K
	On January 23, 2002, ARRIS filed a report on Form 8-K relating to Item 2, Acquisition or Disposition of Assets, to describe the Company’s acquisition of Cadant, Inc.
	On February 13, 2002, ARRIS filed a report on Form 8-K/A relating to Item 7, Financial Statements and Exhibits, to disclose the financial statements and pro forma financial information in relation to the Company’s acquisition of Cadant, Inc.

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SIGNATURES

         Pursuant to the requirements the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ARRIS GROUP, INC.
	/s/ LAWRENCE A. MARGOLIS
Dated: May 15, 2002	Lawrence A. Margolis Executive Vice President, Chief Financial Officer

30 EX-4.2(B) 3 g76211ex4-2b.txt THIRD SUPPLEMENTAL INDENTURE EXHIBIT 4.2(b) ================================================================================ ARRIS INTERNATIONAL, INC., ISSUER, ARRIS GROUP, INC. GUARANTOR AND THE BANK OF NEW YORK, TRUSTEE THIRD SUPPLEMENTAL INDENTURE, DATED AS OF MARCH 20, 2002 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2003 ================================================================================ EXHIBIT 4.2(b) THIRD SUPPLEMENTAL INDENTURE (this "Third Supplemental Indenture"), dated as of March 20, 2002, among Arris Group, Inc., a Delaware corporation ("Parent" or "Guarantor"), Arris International, Inc. f/k/a ANTEC Corporation, a Delaware corporation (the "Company"), and The Bank of New York, a New York banking corporation, as Trustee (the "Trustee"), to the Indenture between the Company and the Trustee, dated as of May 8, 1998, as amended or supplemented from time to time (the "Indenture"). WITNESSETH: WHEREAS, pursuant to the Indenture $115,000,000 of the Company's 4 1/2% Convertible Subordinated Notes due 2003 (the "Securities") were issued; WHEREAS, Section 9.1 of the Indenture provides that, without the consent of any Holder, the Company, when authorized by Board Resolutions, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental thereto, in form satisfactory to the Trustee, to provide for collateral for or guarantors of the Securities; WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated as of October 18, 2000, as amended, among Parent, the Company, Broadband Transition Corporation, a Delaware corporation, Nortel Networks Inc., a Delaware corporation, Nortel Networks LLC, a Delaware limited liability company, and Arris Interactive L.L.C., a Delaware limited liability company, the Company became a wholly owned subsidiary of Parent on August 3, 2001; WHEREAS, Parent desires to unconditionally and irrevocably guarantee, on a subordinated basis, the full and prompt payment of principal of and interest and premium, if any, on, and Liquidated Damages, if any, with respect to, the Securities when due, subject to any applicable grace periods, whether at maturity, redemption, by acceleration, or otherwise, and all other obligations of the Company to the Holders and the Trustee under the Indenture and the Securities, (the "Guarantee") and to extend to the Holders certain rights and privileges in connection with the Guarantee; and WHEREAS, the Company and Parent have requested that the Trustee execute and deliver this Third Supplemental Indenture and all requirements necessary to make this Third Supplemental Indenture a valid instrument in accordance with its terms and to make the Guarantee the valid obligation of Parent, and the execution and delivery of this Third Supplemental Indenture has been duly authorized in all respects. NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. Capitalized terms used in this Third Supplemental Indenture, but not defined herein, shall have the meaning subscribed to them in the Indenture. The following terms, as used herein, shall have the following respective meanings: "Administrative Agent" shall mean (i) so long as the Senior Credit Agreement is in effect, The CIT Group/Business Credit, Inc., in its capacity as administrative agent for the Lenders party to the Senior Credit Agreement or any successor or other Administrative Agent appointed pursuant to the Senior Credit Agreement and (ii) if there is no Senior Credit Agreement in effect, thereafter any agent designated as representative of holders of all other Guarantor Senior Debt. "Bankruptcy Proceeding" shall mean (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to Guarantor or the Company or to Guarantor's assets or the Company's assets, or (ii) any liquidation, dissolution or other winding up of Guarantor or the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of Guarantor or the Company. "Borrower" shall mean each of the Company, Arris Interactive L.L.C. and the other subsidiaries of the Company party to the Senior Credit Agreement and "Borrowers" shall mean all such persons collectively. "Company" shall have the meaning set forth in the introductory paragraph hereof. "Guarantor" shall have the meaning set forth in the introductory paragraph hereof. "Guarantor Disqualified Capital Stock" shall mean, with respect to Guarantor, Capital Stock of Guarantor that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of an event or the passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by Guarantor, in whole or in part, on or prior to the Stated Maturity of the Securities, provided that only the portion of such Capital Stock which is so convertible, exercisable, exchangeable or redeemable or subject to repurchase prior to such Stated Maturity shall be deemed to be Guarantor Disqualified Capital Stock. "Guarantor Junior Securities" shall mean any Guarantor Qualified Capital Stock of Guarantor and any Indebtedness of Guarantor, in each case that is fully subordinated to all Guarantor Senior Debt (and any debt securities issued in exchange for Guarantor Senior Debt) to 2 substantially the same extent as, or to a greater extent than, the Securities are subordinated to Guarantor Senior Debt pursuant to this Third Supplemental Indenture. "Guarantor Non-Payment Default" shall have the meaning set forth in Section 4.2(b) hereof. "Guarantor Payment Blockage Period" shall have the meaning set forth in Section 4.2(b) hereof. "Guarantor Payment Default" shall have the meaning set forth in Section 4.2(a) hereof. "Guarantor Payment Notice" shall have the meaning set forth in Section 4.2(b) hereof. "Guarantor Qualified Capital Stock" shall mean any Capital Stock of Guarantor that is not Guarantor Disqualified Capital Stock. "Guarantor Senior Debt" shall mean (i) all indebtedness, obligations and other liabilities of Guarantor, whether outstanding as of the date hereof or hereafter created, incurred or assumed by Guarantor, arising under or in respect of the Senior Credit Agreement and the Loan Documents including, without limitation the principal of, the premium and interest on, all loans, letters of credit, guaranties, including but not limited to the Parent Guaranty, and other extensions of credit under the Senior Credit Agreement and the Loan Documents and all commitment, facility, agency and other fees payable under or in connection therewith and all expenses, reimbursements, indemnities and other amounts and liabilities payable or owing by Guarantor thereunder and further including, without limitation, any of the foregoing obligations and amounts which would become due or accrue or arise but for the commencement of any applicable Bankruptcy Proceeding, whether or not a claim is allowed for the same in any such proceeding and (ii) any amendments, restatements, renewals extensions or modifications of any of the foregoing. "Guarantor Subordinated Obligations" shall have the meaning set forth in Section 4.2(a) hereof. "Indenture" shall have the meaning set forth in the introductory paragraph hereof. "Lender" shall mean each bank or other financial institution now or hereafter party to the Senior Credit Agreement, and "Lenders" shall mean all such banks and financial institutions, collectively. "Loan Documents" shall mean the Senior Credit Agreement and the Notes, any Letter of Credit Guaranty, the Guaranties and the Collateral Documents (as those terms are defined in the Senior Credit Agreement). "Loan Party" shall mean each of Parent, the Company, Arris Interactive L.L.C., the other Borrowers and any Subsidiary (as defined in the Senior Credit Agreement) of any Borrower, 3 respectively, from time to time executing a Loan Document and "Loan Parties" shall mean all such persons, respectively. "Obligations" shall mean all obligations of every nature of each Loan Party from time to time owed to Administrative Agent, Lenders or any of them under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit (as defined in the Senior Credit Agreement), fees, expenses, indemnification or otherwise. "Parent" shall have the meaning set forth in the introductory paragraph hereof. "Parent Guaranty" shall mean that guarantee dated as of August 3, 2001, by Parent for the benefit of, The CIT Group/Business Credit, Inc., as agent for and representatives of the Lenders. "Securities" shall have the meaning set forth in the recitals hereof. "Senior Creditor" shall mean any Person now or hereafter holding Guarantor Senior Debt, including, without limitation, any Lender, and "Senior Creditors" shall mean all such persons, collectively. "Senior Credit Agreement" shall mean the Credit Agreement dated as of August 3, 2001, by and among the Company, Arris Interactive L.L.C., certain subsidiaries of the Company, the several Lenders from time to time parties thereto, the Administrative Agent, and Credit Suisse First Boston as syndication agent, lead arranger and book running manager, as such agreement may be amended, supplemented, restated, refinanced, restructured or otherwise modified from time to time (in whole or in part without limitation as to terms, extensions of maturities, increasing the maximum amount of indebtedness or borrowings thereunder or other conditions or covenants), and all related notes, collateral documents, guarantees, Hedge Agreements (as defined in the Senior Credit Agreement), instruments and agreements entered into in connection therewith, as the same may be amended, supplemented, restated or modified from time to time. "Trustee" shall have the meaning set forth in the introductory paragraph hereof. Section 1.2. Incorporation by Reference. The provisions of Section 1.2 and 1.3 of the Indenture shall apply as set forth herein. ARTICLE II OBLIGATIONS UNDER SENIOR CREDIT AGREEMENT Section 2.1. The Company hereby confirms the designation of the Obligations under the Senior Credit Agreement as Designated Senior Debt. 4 ARTICLE III PARENT GUARANTEE Section 3.1. Absolute and Unconditional Guarantee. (a) Guarantor fully, absolutely, irrevocably, unconditionally, and jointly and severally, guarantees, on a subordinated basis, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, subject to the limitations set forth in Section 3.3 and Article IV hereof, that: the principal of and interest and premium, if any, on, and Liquidated Damages, if any, with respect to, the Securities shall be promptly paid in full when due, subject to any applicable grace period, whether at maturity, redemption, by acceleration or otherwise, and interest on the overdue principal, if any, and interest on any interest or Liquated Damages, to the extent lawful, of the Securities and all other obligations of the Company to the Holders or the Trustee under the Indenture and the Securities will be promptly paid in full, all in accordance with the terms thereof. (b) Guarantor agrees that its obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of the validity, regularity or enforceability of the Securities, or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Securities with respect to any provisions thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of Guarantor, and each such legal or equitable discharge is hereby irrevocably and forever waived. Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that (except as otherwise set forth in this Article III) this Guarantee shall not be discharged except by complete payment of the obligations contained in the Securities, the Indenture, and in this Third Supplemental Indenture. (c) The obligation of Guarantor to make any payment hereunder may be satisfied by causing the Company to make such payment. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor, or any custodian acting in relation to the Company or the Guarantor, any amount paid by the Company or the Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect as to such amount only. Section 3.2. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.3. Limitation of Guarantor's Liability. Guarantor and, by its acceptance of any benefits hereof, each Holder hereby confirms that it is the intention of all such parties that the guarantee by Guarantor pursuant hereto shall not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, each Holder who accepts the benefits hereof hereby irrevocably agrees that the 5 obligations under this Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of Guarantor (including, without limitation, any obligations under any bank credit agreement), result in the obligations of such Guarantor under this Guarantee not constituting such fraudulent transfer or conveyance. Section 3.4. No Personal Liability. No stockholder, officer, director, employee or incorporator, past, present or future, of Guarantor, as such, shall have any personal liability under this Guarantee. ARTICLE IV SUBORDINATION OF GUARANTEE Section 4.1. Guarantee Subordinate to Guarantor Senior Debt. The Company covenants and agrees, and each Holder of a Security, by his acceptance of the benefits of the Guarantee, likewise covenants and agrees, that, to the extent and in the manner set forth in Article XII of the Indenture and Article IV hereof, the payment of Guarantor's obligations in respect of its Guarantee is hereby expressly made subordinate and subject in right of payment to the prior payment in full of all the obligations of Guarantor under all Guarantor Senior Debt on the same basis as the Securities are junior and subordinated to the Senior Indebtedness of the Company as set forth in Article XII of the Indenture. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by Guarantor only at such times as they may receive and/or retain payments in respect of the Securities pursuant to the Indenture. This Section 4.1 and Article XII of the Indenture shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Guarantor Senior Debt, and such provisions are made for the benefit of the holders of Guarantor Senior Debt, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. In addition, the payment of cash, property or securities (other than Guarantor Junior Securities) upon conversion of a Security pursuant to Article XIII will constitute payment on a Security and therefore will be subject to the subordination provisions contained in this Article IV and in the Indenture. Section 4.2. No Payment on Securities in Certain Circumstances. (a) No payment may be made by Guarantor on account of the principal of, premium, if any, interest on, or Liquidated Damages or any other obligations under or with respect to, the Securities, or to acquire any of the Securities (including repurchases of Securities at the option of the Holder) for cash or property (other than Guarantor Junior Securities), or on account of the redemption provisions of the Securities (collectively, the "Guarantor Subordinated Obligations"), (i) upon the maturity of any Guarantor Senior Debt by lapse of time, acceleration (unless waived) or otherwise, unless and until all principal of, premium, if any, and interest on, and fees, charges, expenses, indemnifications and all other amounts payable 6 in respect of Guarantor Senior Debt are first paid in full, or (ii) in the event of default in the payment of any principal of, premium, if any, or interest in respect of Guarantor Senior Debt when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise (collectively, a "Guarantor Payment Default"), unless and until such Guarantor Payment Default has been cured or waived or otherwise has ceased to exist. (b) Upon (i) the happening of an event of default (other than a Guarantor Payment Default) that permits, or would permit, with (w) the passage of time, (x) the giving of notice, (y) the making of any payment of the Securities then required to be made, or (z) any combination thereof (collectively, a "Guarantor Non-Payment Default"), the holders of Guarantor Senior Debt or their representative immediately to accelerate its maturity and (ii) written notice of such Guarantor Non-Payment Default given to Guarantor and the Trustee by the holders of Guarantor Senior Debt or their representative (a "Guarantor Payment Notice"), then, unless and until such Guarantor Non-Payment Default has been cured or waived or otherwise has ceased to exist, no payment (by set-off or otherwise) may be made by or on behalf of Guarantor directly or through any Subsidiary on account of the Guarantor Subordinated Obligations, in any such case other than payments made with Guarantor Junior Securities. Notwithstanding the foregoing, unless (i) the Guarantor Senior Debt in respect of which such Guarantor Non-Payment Default exists has been declared due and payable in its entirety within 179 days after the Guarantor Payment Notice is delivered as set forth above (the "Guarantor Payment Blockage Period"), and (ii) such declaration has not been rescinded or waived, at the end of the Guarantor Payment Blockage Period, Guarantor shall be required to pay to the Holders of the Securities all sums not paid to the Holders of the Securities during the Guarantor Payment Blockage Period due to the foregoing prohibitions (and upon the making of such payments any acceleration of the Securities made during the Guarantor Payment Blockage Period shall be of no further force or effect) and to resume all other payments as and when due on the Securities. Not more than one Guarantor Payment Notice may be given in any consecutive 365-day period, irrespective of the number of defaults with respect to Guarantor Senior Debt during such period. In no event, however, may the total number of days during which any Guarantor Payment Blockage Period is or Guarantor Payment Blockage Periods are in effect exceed 179 days in the aggregate during any consecutive 365 day period. (c) In furtherance of the provisions of Section 4.1, in the event that, notwithstanding the foregoing provisions of this Section 4.2, any payment or distribution of assets of Guarantor (other than Guarantor Junior Securities) shall be received by the Trustee on behalf of the Holders or any Paying Agent for the benefit of the Holders at a time when such payment or distribution is prohibited by the provisions of this Section 4.2, such payment or distribution (subject to the provisions of Sections 4.6 and 4.9) shall be held in trust for the benefit of the holders of Guarantor Senior Debt, and shall be paid or delivered by such Holders or the Trustee or such Paying Agent, as the case may be, to the holders of Guarantor Senior Debt remaining unpaid or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Guarantor Senior Debt may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Guarantor Senior Debt held or represented by each, for application to the payment of all Guarantor Senior Debt in full after giving effect to any concurrent payment and distribution to 7 the holders of such Guarantor Senior Debt. Section 4.3. Securities Subordinated to Prior Payment of All Guarantor Senior Debt on Dissolution, Liquidation or Reorganization. Upon any distribution of assets of Guarantor upon any dissolution, winding up, total or partial liquidation or reorganization of Guarantor, whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar proceeding or upon assignment for the benefit of creditors or any marshaling of assets or liabilities: (a) the holders of all Guarantor Senior Debt shall first be entitled to receive payments in full before the Holders are entitled to receive any payment on account of the Guarantor Subordinated Obligations (other than Guarantor Junior Securities); (b) any payment or distribution of assets of Guarantor of any kind or character, whether in cash, property or securities (other than Guarantor Junior Securities) to which the Holders or the Trustee on behalf of the Holders would be entitled (by setoff or otherwise), except for the provisions of this Article IV, shall be paid by the liquidating trustee or agent or other Person making such a payment or distribution directly to the holders of Guarantor Senior Debt or their representative to the extent necessary to make payment in full of all such Guarantor Senior Debt remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Guarantor Senior Debt (but this Section 4.3(b) shall not apply to payments or distributions to the Trustee for its own benefit); and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of Guarantor of any kind or character, whether in cash, property or securities (other than Guarantor Junior Securities), shall be received by the Trustee for the benefit of the Holders or the Holders or any Paying Agent for the benefit of the Holders (or, if Guarantor or any Affiliate of Guarantor is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) on account of Guarantor Subordinated Obligations before all Guarantor Senior Debt is paid in full, such payment or distribution (subject to the provisions of Sections 4.6 and 4.9) shall be received and held in trust by the Trustee or such Holder or Paying Agent for the benefit of the holders of such Guarantor Senior Debt, or their respective representative, and shall be paid over to or delivered to the holders of the Guarantor Senior Debt, ratably according to the respective amounts of such Guarantor Senior Debt held or represented by each, to the extent necessary to make payment as provided herein of all such Guarantor Senior Debt remaining unpaid after giving effect to all concurrent payments and distributions to or for the holders of such Guarantor Senior Debt, but only to the extent that as to any holder of such Guarantor Senior Debt, as promptly as practical following notice from the Trustee to the holders of such Guarantor Senior Debt that such prohibited payment has been received by the Trustee, Holder(s) or Paying Agent (or has been segregated as provided above), such holder (or a representative therefor) notifies the Trustee of the amounts then due and owing on such Guarantor Senior Debt, if any, held by such holder and only the amounts specified in such notices to the Trustee shall be paid to the holders of such Guarantor Senior Debt. Section 4.4. Securityholders to Be Subrogated to Rights of Holders of Guarantor 8 Senior Debt. Subject to the payment in full of all Guarantor Senior Debt as provided herein, the Holders of Securities shall be subrogated to the rights of the holders of such Guarantor Senior Debt to receive payments or distributions of assets of Guarantor applicable to the Guarantor Senior Debt until all amounts owing on the Securities shall be paid in full, and for the purpose of such subrogation no such payments or distributions to the holders of such Guarantor Senior Debt by Guarantor, or by or on behalf of the Holders by virtue of this Article IV, which otherwise would have been made to the Holders shall, as between Guarantor and the Holders, be deemed to be payment by Guarantor or on account of such Guarantor Senior Debt, it being understood that the provisions of this Article IV are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Guarantor Senior Debt, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article IV shall have been applied, pursuant to the provisions of this Article IV, to the payment of amounts payable under Guarantor Senior Debt, then the Holders shall be entitled to receive from the holders of such Guarantor Senior Debt any payments or distributions received by such holders of Guarantor Senior Debt in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Debt in full. 9 Section 4.5. Obligations of Guarantor Unconditional. Nothing contained in this Article IV or elsewhere in this Third Supplemental Indenture, the Indenture or in the Securities is intended to or shall impair as between Guarantor and the Holders, the obligation of each such Person (in the case of Guarantor, to the extent specified in this Third Supplemental Indenture), which is absolute and unconditional, to pay to the Holders the principal of, premium, if any, and interest on, the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of Guarantor other than the holders of the Guarantor Senior Debt, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under the Indenture, subject to the rights, if any, under this Article IV, of the holders of Guarantor Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Notwithstanding anything to the contrary in this Article IV or elsewhere in the Indenture or in the Securities, upon any distribution of assets of the Company referred to in this Article IV, the Trustee, subject to the provisions of Sections 7.1 and 7.2 of the Indenture, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Guarantor Senior Debt and other Indebtedness of Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article IV so long as such court has been apprised of the provisions of, or the order, decree or certificate makes reference to, the provisions of this Article IV. Nothing in this Section 4.5 shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7 of the Indenture or otherwise for its own benefit. Section 4.6. Trustee and Other Agents Entitled to Assume Payments Not Prohibited in Absence of Notice. Guarantor shall give prompt written notice to the Trustee of any fact known to Guarantor which would prohibit the making of any payment to or by the Trustee in respect of the Securities. The Trustee and all other Agents shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent shall have actually received, no later than one Business Day prior to such payment, written notice thereof in compliance with Section 14.2 of the Indenture from Guarantor or from one or more holders of Guarantor Senior Debt or from any representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2 of the Indenture, shall be entitled in all respects conclusively to assume that no such fact exists. Section 4.7. Subordination Rights Not Impaired by Acts or Omissions of Guarantor or Holders of Guarantor Senior Debt. No right of any present or future holders of any Guarantor Senior Debt to enforce subordination provisions contained in this Article IV shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by Guarantor with the terms of this Third Supplemental Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. Without the consent of or notice to the 10 Trustee or the Holders, the holders of Guarantor Senior Debt may extend, renew, modify or amend the terms of Guarantor Senior Debt or any security therefor and release, sell or exchange such security and otherwise deal freely with Guarantor, all without impairing the liabilities and obligations of the parties to this Third Supplemental Indenture or the Holders. Section 4.8. Securityholders Authorize Trustee to Effectuate Subordination of Securities. Each Holder of the Securities by his acceptance thereof authorizes the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provisions contained in this Article IV pursuant to this Third Supplemental Indenture, and appoints the Trustee his attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of Guarantor (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors of Guarantor), the immediate filing of a claim for the unpaid balance of his Securities in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Guarantor Senior Debt or their representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their representative to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior Debt or their representative to vote in respect of the claim of any Securityholder in any such proceeding. Section 4.9 Right of Trustee to Hold Guarantor Senior Debt. The Trustee shall be entitled to all of the rights set forth in this Article IV in respect of any Guarantor Senior Debt at any time held by it to the same extent as any other holder of Guarantor Senior Debt, and nothing in this Third Supplemental Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Nothing in this Article IV shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.7 of the Indenture. Section 4.10. Article IV Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, interest on, or Liquidated Damages with respect to, the Securities by reason of any provision of this Article IV shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1 of the Indenture or in any way prevent the Holders from exercising any right hereunder other than the right to receive payment on the Securities. Section 4.11. No Duty of Trustee and Other Agents to Holders of Guarantor Senior Debt. The Trustee and the other Agents shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Debt, and shall not be liable to any such holders (other than for its willful misconduct or negligence) if it shall in good faith mistakenly pay over or distribute to the 11 Holders of Securities or Guarantor or any other Person, cash, property or securities to which any holders of Guarantor Senior Debt shall be entitled by virtue of this Article IV or otherwise. Nothing in this Section 4.11 shall affect the obligation of any other such Person receiving such payment or distribution from the Trustee or any other Agent to hold such payment for the benefit of, and to pay such payment over to, the holders of Guarantor Senior Debt or their representative. With respect to the holders of Guarantor Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article IV and no implied covenants or obligations with respect to holders of Guarantor Senior Debt shall be read into this Third Supplemental Indenture as against the Trustee. Section 4.12. Amendments. The provisions of this Article IV may not be amended or modified without the written consent of the holders of Guarantor Senior Debt or their representatives in accordance with the instruments governing the terms of such Guarantor Senior Debt. ARTICLE V MISCELLANEOUS Section 5.1. This Third Supplemental Indenture. This Third Supplemental Indenture shall be construed as supplemental to the Indenture and shall form a part of it, and the Indenture is hereby incorporated by reference herein and each is hereby ratified, approved and confirmed. Section 5.2. Notice. Unless otherwise specifically provided herein, all communications under this Article shall be in writing and shall be deemed to have been given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the day of transmission if sent by facsimile transmission to the telecopy number given below, and telephonic confirmation of receipt is obtained promptly after completion of transmission; (iii) on the day after delivery to Federal Express or similar overnight courier, or (iv) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, return receipt requested, to the party as follows: If to the Senior Creditor: The CIT Group/Business Credit, Inc. 1200 Ashwood Parkway, Suite 150 Atlanta, Georgia 30338 Attn: Regional Credit Manager Telecopy: (770) 522-7673 If to Holder: The address in the records of the Trustee 12 If to Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attn: Corporate Trust Trustee Administration Telecopy: (212) 815-5915 If to Guarantor: Arris Group, Inc. 11450 Technology Circle Duluth, Georgia 30097 Attn: Chief Financial Officer Telecopy: (678) 473-8470 If to the Company: Arris International, Inc. 11450 Technology Circle Duluth, Georgia 30097 Attn: Chief Financial Officer Telecopy: (678) 473-8470 Any party hereto may change its address for purposes of this Section 5.2 by giving the other parties written notice of the new address in the manner set forth above. Section 5.3. Counterparts. This Third Supplemental Indenture may be executed in any number or counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. SECTION 5.4. THIS THIRD SUPPLEMENTAL INDENTURE AND ALL THE TERMS HEREIN, INCLUDING THE TERMS REGARDING SUBORDINATION, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF. 13 IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed by their respective authorized officers as of the day and year first above written. ARRIS INTERNATIONAL, INC. By: /s/ Armando Rois-Mendez ------------------------------------ Name: Armando Rois-Mendez Title: Assistant Secretary THE BANK OF NEW YORK By: /s/ Mary LaGumina ------------------------------------ Name: Mary LaGumina Title: Vice President ARRIS GROUP, INC. By: /s/ David Potts ------------------------------------ Name: David Potts Title: Senior Vice President-Finance 14 EX-10.1(B) 4 g76211ex10-1b.txt SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.1(B) EXECUTION SECOND AMENDMENT TO CREDIT AGREEMENT This SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of April 19, 2002 and entered into by and among ARRIS INTERNATIONAL, INC., a Delaware corporation (the "COMPANY"), ARRIS INTERACTIVE L.L.C., a Delaware limited liability company ("ARRIS"), EACH OF COMPANY'S SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF (Company, Arris and each such subsidiary are individually referred to herein as a "BORROWER" and, collectively, on a joint and several basis, as the "BORROWERS"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "LENDER" and collectively as "LENDERS"), CREDIT SUISSE FIRST BOSTON, as syndication agent for Lenders (in such capacity, "SYNDICATION AGENT") and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent and collateral agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT"), and is made with reference to that certain Credit Agreement dated as of August 3, 2001, as amended by that certain First Amendment to Credit Agreement dated as of January 8, 2002 (the "FIRST AMENDMENT") and as further supplemented by that certain Acknowledgement dated as of March ___, 2002 (as amended, restated, supplemented or otherwise modified as of the date hereof, the "CREDIT AGREEMENT"), by and among the Borrowers, Lenders, Syndication Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrowers desire to enter into certain Currency Agreements in connection with the sale of its products to foreign purchasers; and WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to (i) secure any Currency Agreement entered into by any Borrower with any Lender or any Affiliate of any Lender; (ii) reduce availability under the Credit Agreement by an amount equal to a portion of the funds subject to such Currency Agreement to be agreed upon by such Lender and Company; and (iii) make certain other amendments as set forth below; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS A. Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto the following definitions, which shall be inserted in proper alphabetical order: "CURRENCY AGREEMENT LENDER" means any Revolving Lender that enters into or has an Affiliate that enters into a Currency Agreement with any Borrower. "CURRENCY AGREEMENT RESERVED AMOUNT" means for each Lender Currency Agreement, at any date of determination, an amount (expressed in Dollars) to be agreed upon in writing by Company and the Currency Agreement Lender that entered into (or whose Affiliate entered into) such Lender Currency Agreement; provided, however, that notwithstanding any agreement between the Company and any Currency Agreement Lender, no Currency Agreement Reserved Amount shall be established for any Lender Currency Agreement that would cause the Lender Currency Agreement Reserve to exceed $8,000,000. "LENDER CURRENCY AGREEMENT" means any Currency Agreement entered into between any Borrower and any Lender or any Affiliate of any Lender that Administrative Agent has written notice of from such Lender that attaches a copy of the written agreement of the Company and such Lender on the requested Currency Agreement Reserved Amount for such Lender Currency Agreement. "LENDER CURRENT AGREEMENT RESERVE" means an amount equal to the aggregate amount of all Currency Agreement Reserved Amounts. B. Subsection 1.1 of the Credit Agreement is hereby further amended by deleting the definitions of "Obligations", "Discretionary Overdraft Loan", "Discretionary Post-Default Overdraft Loan", "Excess Availability" and "Loan Documents" therefrom in their entirety and substituting the following therefore: "OBLIGATIONS" means all obligations of every nature of each Loan Party from time to time owed to Administrative Agent, Lenders or any of them (or any Affiliate of any Lender that is a party to a Lender Currency Agreement) under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise. "DISCRETIONARY OVERDRAFT LOAN" means any Discretionary Loan if (i) the making of such Discretionary Loan would cause the Total Utilization of Revolving Loan Commitments to exceed an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve Amount then in effect or (ii) at the time such Discretionary Loan is made the Total Utilization of Revolving Loan Commitments exceeds an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve Amount then in effect. 2 "DISCRETIONARY POST-DEFAULT OVERDRAFT LOAN" means any Discretionary Post-Default Loan if (i) the making of such Discretionary Post-Default Loan would cause the Total Utilization of Revolving Loan Commitments to exceed an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve Amount then in effect or (ii) at the time such Discretionary Post-Default Loan is made the Total Utilization of Revolving Loans exceeds an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve Amount then in effect. "EXCESS AVAILABILITY" means the amount, as of any date of determination, by which (a) the lesser of (i) an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve Amount then in effect or (ii) the Revolving Loan Commitments exceeds (b) the Total Utilization of Revolving Loan Commitments, as determined by Administrative Agent. "LOAN DOCUMENTS" means this Agreement, the Notes, any Letter of Credit Guaranty, the Guaranties, any Lender Currency Agreement and the Collateral Documents. 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS A. Subsection 2.1A of the Credit Agreement is hereby amended by deleting the last paragraph of clause (i) of such subsection in its entirety and substituting therefore the following: "In addition, no Revolving Loans (other than Revolving Discretionary Loans) shall be made at any time if the Total Utilization of Revolving Loan Commitments at any time exceeds an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve Amount then in effect." B. Subsection 2.1A of the Credit Agreement is hereby further amended by deleting the second paragraph of clause (ii)(a) of such subsection in its entirety and substituting therefore the following: "Anything contained in this Agreement to the contrary notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the limitation, that in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the lesser of (i) the Revolving Loan Commitments then in effect and (ii) an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve then in effect (other than Discretionary Loans made in accordance with the following paragraph)." C. Subsection 2.1A of the Credit Agreement is hereby further amended by deleting clause (ii)(a)(2)(A) of such subsection in its entirety and substituting therefore the following: 3 "(A) the Total Utilization of Revolving Loan Commitments exceeds an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve then in effect and/or" D. Subsection 2.1A of the Credit Agreement is hereby further amended by deleting the last proviso contained in clause (ii)(a)(2) of such subsection in its entirety and substituting therefore the following: "provided, further, that anything contained in this Agreement to the contrary notwithstanding, the making of any Swing Line Loans that constitute Discretionary Loans shall be subject to the limitation that in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the lesser of (i) an amount equal to (x) the Maximum Discretionary Borrowing Base Amount then in effect minus (y) the Lender Currency Agreement Reserve then in effect and (ii) the Revolving Loan Commitments then in effect." E. Subsection 2.4A of the Credit Agreement is hereby amended by deleting clause (iii)(h)(2) of such subsection in its entirety and substituting therefore the following: "(2) if at any time (x) the Total Utilization of Revolving Loan Commitments minus the aggregate principal amount of outstanding Discretionary Loans and Revolving Discretionary Loans exceed (y) an amount equal to (i) the Borrowing Base then in effect minus (ii) the Lender Currency Agreement Reserve then in effect, Borrowers shall prepay first the Swing Line Loans (other than any Revolving Discretionary Loans) and second the Revolving Loans (other than any Revolving Discretionary Loans) in an amount equal to such excess." 1.3 AMENDMENT TO SECTION 3: LETTERS OF CREDIT Subsection 3.1A of the Credit Agreement is hereby amended by deleting clause (ii) of such subsection in its entirety and substituting therefore the following: "(ii) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve then in effect;" 1.4 AMENDMENT TO SECTION 4: CONDITIONS TO LOANS AND LETTERS OF CREDIT A. Subsection 4.2B of the Credit Agreement is hereby amended by deleting clause (v) of such subsection in its entirety and substituting therefore the following: "(v) After giving effect to the Loans requested on the Funding Date, the Total Utilization of Revolving Loan Commitments will not exceed an amount equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency Agreement Reserve then in effect; provided, however, that this clause shall not apply to the borrowing of any Swing Line Loan that is a Discretionary Overdraft Loan or any Revolving Loans that are Revolving Discretionary Overdraft Loans;" 4 B. Subsection 4.2B of the Credit Agreement is hereby further amended by deleting clause (vi)(a) of such subsection if its entirety and substituting therefore the following: "(a) after giving effect to the Loans requested on the Funding Date, the Total Utilization of Revolving Loan Commitments will not exceed an amount equal to (x) the Maximum Discretionary Borrowing Base Amount then in effect minus (y) the Lender Currency Agreement Reserve then in effect;" SECTION 2. BORROWERS' REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Each Borrower has all requisite corporate power and authority to enter into this Amendment, and perform its obligations under, the Credit Agreement as amended by the First Amendment and this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of each of the Borrowers. C. NO CONFLICT. The execution and delivery by Borrowers of this Amendment and the performance by Borrowers of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Borrower or any of their respective Subsidiaries, the Certificate or Articles of Incorporation or Bylaws or Certificate of Formation or Operating Agreement, as applicable, of any Borrower or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of any Borrower or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Borrower or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Borrower or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by each Borrower of this Amendment and the performance by the Borrowers of the Amended Agreement and the transactions contemplated by this Amendment do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by each Borrower and is the legally valid and binding obligations of the Borrowers, enforceable against the Borrowers in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, 5 moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. SECTION 3. ACKNOWLEDGEMENT AND CONSENT Holdings, each Borrower and each Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. Holdings and each Subsidiary Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Loan Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Loan Party to any future amendments to the Credit Agreement. SECTION 4. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (i) On and after the Second Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. 6 (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Agents and their counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective upon the execution of a counterpart hereof by each of the Borrowers, each of the Subsidiary Guarantors, Holdings and Requisite Lenders and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery. [Remainder of page intentionally left blank] 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HOLDINGS: ARRIS GROUP, INC. By: ---------------------------------------- Name: Lawrence A. Margolis Title: Vice President, Chief Financial Officer & Secretary COMPANY: ARRIS INTERNATIONAL, INC. By: ---------------------------------------- Name: Lawrence A. Margolis Title: Executive Vice President, Chief Financial Officer & Secretary ARRIS: ARRIS INTERACTIVE L.L.C. By: ---------------------------------------- Name: Lawrence A. Margolis Title: Executive Vice President SUBSIDIRIES OF COMPANY: ANTEC ASSET MANAGEMENT COMPANY By: ---------------------------------------- Name: Lawrence A. Margolis Title: President ANTEC LICENSING COMPANY By: ---------------------------------------- Name: Lawrence A. Margolis Title: President S-1 TEXSCAN CORPORATION By: ------------------------------------ Name: Lawrence A. Margolis Title: Chairman of the Board ELECTRONIC CONNECTOR CORPORATION OF ILLINOIS By: ------------------------------------ Name: Lawrence A. Margolis Title: Vice President POWER GUARD, INC. By: ------------------------------------ Name: Lawrence A. Margolis Title: Vice President ELECTRONIC SYSTEM PRODUCTS INC. By: ------------------------------------ Name: Lawrence A. Margolis Title: Vice President KEPTEL, INC. By: ------------------------------------ Name: Lawrence A. Margolis Title: Vice President S-2 SUBSIDIARY GUARATORS, for purposes of Section 3 only, TEXSCAN DE MEXICO, S.A. DE C.V. By: ------------------------------------ Name: Lawrence A. Margolis Title: Chairman KEPTEL DE MEXICO S.A. DE C.V. By: ------------------------------------ Name: Lawrence A. Margolis Title: Chairman ANTEC INTERNATIONAL CORPORATION By: ------------------------------------ Name: Lawrence A. Margolis Title: Director S-3 LENDERS: THE CIT GROUP/BUSINESS CREDIT, INC., individually and as Administrative Agent and Collateral Agent By: ------------------------------------ Name: Title: S-4 CREDIT SUISSE FIRST BOSTON, individually and as Syndication Agent By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: S-5 AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO By: ------------------------------------ Name: Title: S-6 COMERICA BANK By: ------------------------------------ Name: Title: S-7 CONGRESS FINANCIAL CORPORATION (SOUTHERN) By: ------------------------------------ Name: Title: S-8 FLEET CAPITAL CORPORATION By: ------------------------------------ Name: Title: S-9 GMAC COMMERCIAL CREDIT LLC By: ------------------------------------ Name: Title: S-10 IBM CREDIT CORPORATION By: ------------------------------------ Name: Title: S-11 PNC BANK, NATIONAL ASSOCIATION By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: S-12 EX-10.1(C) 5 g76211ex10-1c.txt THIRD AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.1(c) EXECUTION THIRD AMENDMENT TO CREDIT AGREEMENT This THIRD AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of April 24, 2002 and entered into by and among ARRIS INTERNATIONAL, INC., a Delaware corporation (the "COMPANY"), ARRIS INTERACTIVE L.L.C., a Delaware limited liability company ("ARRIS"), EACH OF COMPANY'S SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF (Company, Arris and each such subsidiary are individually referred to herein as a "BORROWER" and, collectively, on a joint and several basis, as the "BORROWERS"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "LENDER" and collectively as "LENDERS"), CREDIT SUISSE FIRST BOSTON, as syndication agent for Lenders (in such capacity, "SYNDICATION AGENT") and THE CIT GROUP/BUSINESS CREDIT, INC., as administrative agent and collateral agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT"), and is made with reference to that certain Credit Agreement dated as of August 3, 2001, as amended by that certain First Amendment to Credit Agreement dated as of January 8, 2002 (the "FIRST AMENDMENT"), as supplemented by that certain Acknowledgement dated as of March 21, 2002 and as further amended by that certain Second Amendment to Credit Agreement dated as of April 17, 2002 (as so amended, and supplemented as of the date hereof, the "CREDIT AGREEMENT"), by and among the Borrowers, Lenders, Syndication Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to (i) allow Keptel, Inc. and Company to sell substantially all of the assets related to the Company's demarcation and repeaters product line (the "KEPTEL SALE") to Buyer for cash proceeds of approximately $30,000,000; (ii) allow for the release from the Lien created by the Collateral Documents (a) certain equipment located at the Company's Rock Falls, Illinois facility (the "ROCK FALLS EQUIPMENT") and (b) Patent No. 5,092,663 that in connection with the Keptel Sale will be transferred to by Company in the future; (iii) permit the Company to grant Buyer a security interest in the Rock Falls Equipment; (iv) provide that the Revolving Loan Commitments shall be reduced by an amount equal to the Net Asset Sale Proceeds received by the Credit Parties in connection with the Keptel Sale on or about the date of the closing of the Keptel Sale on the earlier of (x) May 31, 2002 or (y) the date that such reduction is requested by Requisite Lenders; and (v) make certain other amendments as set forth below. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: EXECUTION AMENDMENTS TO THE CREDIT AGREEMENT AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto the following definitions, which shall be inserted in proper alphabetical order: "KEPTEL" means Keptel, Inc., a Delaware corporation. "KEPTEL ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement dated as of April 24, 2002, by and among Keptel, Buyer., a Delaware corporation and Company, as amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "KEPTEL ASSIGNMENT AND ASSUMPTION AGREEMENT" means the Assignment and Assumption Agreement dated as of April 24, 2002, by and among Keptel and Buyer, as amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "KEPTEL BILL OF SALE" means the Bill of Sale dated as of April 24, 2002, by and among Keptel and Buyer, as amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "KEPTEL CLOSING DATE" means the Closing Date (as such term is defined in the Keptel Asset Purchase Agreement). "KEPTEL DISTRIBUTION AGREEMENT" means the Distribution Agreement dated as of April 24, 2002, by and among Company and Buyer, as amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "KEPTEL SALE" means the sale by Keptel of substantially all of its assets and the transfer of certain of its liabilities pursuant to the Keptel Sale Documents. "KEPTEL SALE DOCUMENTS" means the Keptel Asset Purchase Agreement, Keptel Bill of Sale, Keptel Assignment and Assumption Agreement, Keptel Transition Services Agreement and Keptel Distribution Agreement, and all other instruments or documents delivered or entered into in connection with any of the foregoing, in each case including all schedules, annexes and exhibits thereto, as such Keptel Sale Documents may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "KEPTEL TRANSITION SERVICES AGREEMENT" means the Transition Services Agreement dated as of April 24, 2002, by and among Company and Buyer, as amended, 2 EXECUTION restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS Subsection 2.4A(iii)(a) of the Credit Agreement is hereby amended by adding the following proviso at the end of such subsection: "; provided, further, that notwithstanding anything in this clause (a) to the contrary, the Revolving Loan Commitments shall be reduced by an amount equal to the Net Asset Sale Proceeds received by Holdings or any of its Subsidiaries in connection with the Keptel Sale, (i) if such Net Asset Sale Proceeds are received on or about the Keptel Closing Date, upon the earlier of (x) May 31, 2002 or (y) the date that such reduction is requested by Requisite Lenders and (ii) if such Net Asset Sale Proceeds are received after the Keptel Closing Date, upon receipt of such Net Asset Sale Proceeds." Amendments to Section 7: Borrowers' Negative Covenants Subsection 7.2 of the Credit Agreement is hereby amended by (i) deleting the "and" at the end of subsection (vi) thereof, deleting the "." at the end of subsection (vii) thereof and substituting therefor "; and" and (ii) adding the following subsection (viii) to the end thereof: "(viii) Liens granted by Company in equipment located at the Rock Falls, Illinois facility of the Company in accordance with and pursuant to the Keptel Transitions Services Agreement." Subsection 7.3 of the Credit Agreement is hereby amended by (i) deleting the "and" at the end of subsection (xv) thereof, deleting the "." at the end of subsection (xvi) thereof and substituting therefor "; and" and (ii) adding the following subsection (xvii) to the end thereof: "(xvii) Company and Keptel may acquire and hold the earn-out obligation provided for under the Keptel Asset Purchase Agreement." Subsection 7.4 of the Credit Agreement is hereby amended by (i) deleting the "and" at the end of subsection (xv) thereof, deleting the "." at the end of subsection (xvi) thereof and substituting therefor "; and" and (ii) adding the following subsection (xvi) to the end thereof: "(xvi) Company may become and remain liable for Contingent Obligations arising under the Keptel Asset Purchase Agreement." Subsection 7.7 of the Credit Agreement is hereby amended by deleting the "and" at the end of clause (ix), deleting the period at the end of clause (x) and substituting therefore "; and", and inserting the following clause (xi) at the end of such subsection: "(xi) So long as no Event of Default or Potential Event of Default has occurred and is continuing, Keptel and Company may sell, license or lease the assets comprising 3 EXECUTION the Company's and its Subsidiaries' demarcation and repeaters product line for cash consideration of at least $30,000,000 in accordance with the terms of the Keptel Sale Documents." Subsection 7.12 of the Credit Agreement is hereby amended by deleting subsection 7.12A and substituting therefor the following: "A. AMENDMENTS OR WAIVERS OF CERTAIN AGREEMENTS. Neither any Borrower nor any of its Subsidiaries will agree to any amendment to, or waive any of its rights under, any Reorganization Document, Mexican Intercompany Security Document, Tax Abatement Transaction Document, Cadant Acquisition Document or Keptel Sale Document after the Closing Date, without in each case obtaining the prior written consent of Requisite Lenders to such amendment or waiver." RELEASE OF CERTAIN COLLATERAL In connection with the Keptel Sale, the Lenders hereby authorize Administrative Agent to release from the Liens the created by the Collateral Documents (i) the assets sold by the Company and Keptel pursuant to the Keptel Sale Documents, (ii) the equipment described in the Keptel Transition Services Agreement located at the Company's Rock Falls, Illinois facility and (iii) Patent No. 5,092,663. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the satisfaction of all of the following conditions precedent (the date of satisfaction of such conditions being referred to herein as the "THIRD AMENDMENT EFFECTIVE DATE"): on the Third Amendment Effective Date, all conditions to the consummation of the Keptel Sale (other than payment of the purchase price therefor and the conveyance of assets resulting therefrom) shall have been satisfied or waived with the consent of Administrative Agent and Administrative Agent shall have received (i) a fully executed or conformed copy of each Keptel Acquisition Document to be entered into on or prior to the Third Amendment Effective Date, in form and substance reasonably satisfactory to the Administrative Agent and each such Keptel Acquisition Document shall be in full force and effect and no provision thereof shall have been modified or waived without the consent of Administrative Agent and the parties to the Keptel Acquisition Documents shall not have failed in any material respect to perform any material obligation or covenant required by the Keptel Asset Purchase Agreement, respectively, to be performed or complied with by any of them on or before the Third Amendment Effective Date, and (ii) an Officer's Certificate of Company (1) to the effect set forth in clause (i) and (2) stating that Company and Keptel will proceed to consummate the Keptel Sale contemporaneously with the effectiveness of this Amendment. BORROWERS' REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that 4 EXECUTION the following statements are true, correct and complete: CORPORATE POWER AND AUTHORITY. Each Borrower has all requisite corporate power and authority to enter into this Amendment, and perform its obligations under, the Credit Agreement as amended by the First Amendment and this Amendment (the "AMENDED AGREEMENT"). AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of each of the Borrowers. NO CONFLICT. The execution and delivery by Borrowers of this Amendment and the performance by Borrowers of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Borrower or any of their respective Subsidiaries, the Certificate or Articles of Incorporation or Bylaws or Certificate of Formation or Operating Agreement, as applicable, of any Borrower or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of any Borrower or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Borrower or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Borrower or any of its Subsidiaries. GOVERNMENTAL CONSENTS. The execution and delivery by each Borrower of this Amendment and the performance by the Borrowers of the Amended Agreement and the transactions contemplated by this Amendment do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by each Borrower and is the legally valid and binding obligations of the Borrowers, enforceable against the Borrowers in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 5 EXECUTION ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. ACKNOWLEDGEMENT AND CONSENT Holdings, each Borrower and each Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. Holdings and each Subsidiary Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Loan Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Loan Party to any future amendments to the Credit Agreement. MISCELLANEOUS REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. On and after the Second Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Agents and their counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 6 EXECUTION HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective upon the execution of a counterpart hereof by each of the Borrowers, each of the Subsidiary Guarantors, Holdings and Requisite Lenders and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery. [Remainder of page intentionally left blank] 7 EXECUTION EXHIBIT 10.1(C) IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HOLDINGS: ARRIS GROUP, INC. By: ____________________________________ Name: Lawrence A. Margolis Title: Vice President, Chief Financial Officer & Secretary COMPANY: ARRIS INTERNATIONAL, INC. By: ____________________________________ Name: Lawrence A. Margolis Title: Executive Vice President, Chief Financial Officer & Secretary ARRIS: ARRIS INTERACTIVE L.L.C. By: ____________________________________ Name: Lawrence A. Margolis Title: Executive Vice President SUBSIDIRIES OF COMPANY: ANTEC ASSET MANAGEMENT COMPANY By: ____________________________________ Name: Lawrence A. Margolis Title: President ANTEC LICENSING COMPANY By: ____________________________________ Name: Lawrence A. Margolis Title: President S-1 EXECUTION TEXSCAN CORPORATION By: ____________________________________ Name: Lawrence A. Margolis Title: Chairman of the Board ELECTRONIC CONNECTOR CORPORATION OF ILLINOIS By: ____________________________________ Name: Lawrence A. Margolis Title: Vice President POWER GUARD, INC. By: ____________________________________ Name: Lawrence A. Margolis Title: Vice President ELECTRONIC SYSTEM PRODUCTS INC. By: ____________________________________ Name: Lawrence A. Margolis Title: Vice President KEPTEL, INC. By: ____________________________________ Name: Lawrence A. Margolis Title: Vice President S-2 EXECUTION SUBSIDIARY GUARATORS, for purposes of Section 3 only, TEXSCAN DE MEXICO, S.A. DE C.V. By: ____________________________________ Name: Lawrence A. Margolis Title: Chairman KEPTEL DE MEXICO S.A. DE C.V. By: ____________________________________ Name: Lawrence A. Margolis Title: Chairman ANTEC INTERNATIONAL CORPORATION By: ____________________________________ Name: Lawrence A. Margolis Title: Director S-3 EXECUTION LENDERS: THE CIT GROUP/BUSINESS CREDIT, INC., individually and as Administrative Agent and Collateral Agent By: ____________________________________ Name: Title: S-4 EXECUTION CREDIT SUISSE FIRST BOSTON, individually and as Syndication Agent By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: S-5 EXECUTION AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO By: ____________________________________ Name: Title: S-6 EXECUTION COMERICA BANK By: ____________________________________ Name: Title: S-7 EXECUTION CONGRESS FINANCIAL CORPORATION (SOUTHERN) By: ____________________________________ Name: Title: S-8 EXECUTION FLEET CAPITAL CORPORATION By: ____________________________________ Name: Title: S-9 EXECUTION GMAC COMMERCIAL CREDIT LLC By: ____________________________________ Name: Title: S-10 EXECUTION IBM CREDIT CORPORATION By: ____________________________________ Name: Title: S-11 EXECUTION PNC BANK, NATIONAL ASSOCIATION By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: S-12 EXECUTION EX-10.9(B) 6 g76211ex10-9b.txt FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.9(b) AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as of January 21, 2002, is by and between ARRIS GROUP, INC., a Delaware corporation (the "Company"), and GORDON HALVERSON ("Executive"). WHEREAS, Executive and a subsidiary of the Company are parties to a previous employment agreement dated as of October 25, 2000; WHEREAS, Executive and the Company desire to amend and restate the previous employment agreement; and WHEREAS, Executive and the Company want to enter into a written agreement providing for the terms of Executive's employment by the Company. NOW, THEREFORE, in consideration of the foregoing recital and of the mutual covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Employment. Executive agrees to enter into the continued employment of the Company, and the Company agrees to employ Executive, on the terms and conditions set forth in this Agreement. Executive agrees during the term of this Agreement to devote substantially all of his business time, efforts, skills and abilities to the performance of his duties as stated in this Agreement and to the furtherance of the Company's business. Executive's initial job title will be Executive CEO Telewire Supply and his duties will be those as are designated by the Chief Executive Officer of the Company. Executive further agrees to serve, without additional compensation, as an officer or director, or both, of any subsidiary, division or affiliate of the Company or any other entity in which the Company holds an equity interest, provided, however, that (a) the Company shall indemnify Executive from liabilities in connection with serving in any such position to the same extent as his indemnification rights pursuant to the Company's Certificate of Incorporation, By-laws and applicable Delaware law, and (b) such other position shall not materially detract from the responsibilities of Executive pursuant to this Section 1 or his ability to perform such responsibilities. 2. Compensation. (a) Base Salary. During the term of Executive's employment with the Company pursuant to this Agreement, the Company shall pay to Executive as compensation for his services an annual base salary of not less than $245,000 ("Base Salary"). Executive's Base Salary will be payable in arrears in accordance with the Company's normal payroll procedures and will be reviewed annually and subject to upward adjustment at the discretion of the Chief Executive Officer. (b) Incentive Bonus. During the term of Executive's employment with the Company pursuant to this Agreement, Executive's incentive compensation program shall be determined by the Company in its discretion with a target bonus equal to 50% of Base Salary, and allowing for payment of up to 150% of target. On termination at other than year-end the bonus will be prorated to reflect the period of actual employment. (c) Executive Perquisites. During the term of Executive's employment with the Company pursuant to this Agreement, Executive shall be entitled to receive such executive perquisites and fringe benefits as are provided to the executives in comparable positions and their families under any of the Company's plans and/or programs in effect from time to time and such other benefits as are customarily available to executives of the Company and their families, including without limitation vacations and life, medical and disability insurance. (d) Tax Withholding. The Company has the right to deduct from any compensation payable to Executive under this Agreement social security (FICA) taxes and all federal, state, municipal or other such taxes or charges as may now be in effect or that may hereafter be enacted or required. (e) Expense Reimbursements. The Company shall pay or reimburse Executive for all reasonable business expenses incurred or paid by Executive in the course of performing his duties hereunder, including but not limited to reasonable travel expenses for Executive. As a condition to such payment or reimbursement, however, Executive shall maintain and provide to the Company reasonable documentation and receipts for such expenses. 3. Term. Unless sooner terminated pursuant to Section 4 of this Agreement, and subject to the provisions of Section 5 hereof, the term of Executive's employment under this Agreement shall commence as of the date hereof and shall continue until five years and six months from the date hereof. 4. Termination. Notwithstanding the provisions of Section 3 hereof, but subject to the provisions of Section 5 hereof, Executive's employment under this Agreement shall terminate as follows: (a) Death. Executive's employment shall terminate upon the death of Executive; provided, however, that the Company shall continue to pay (in accordance with its normal payroll procedures) the Base Salary to Executive's estate for a period of three months after the date of Executive's death. (b) Termination for Cause. The Company may terminate Executive's employment at any time for "Cause" (as hereinafter defined) by delivering a written termination notice to Executive. For purposes of this Agreement, "Cause" shall mean any of: (i) Executive's 2 conviction of a felony or a crime involving moral turpitude; (ii) Executive's commission of an act constituting fraud, deceit or material misrepresentation with respect to the Company; (iii) Executive's embezzlement of funds or assets from the Company; (iv) Executive's addiction to any alcoholic, controlled or illegal substance or drug; (v) Executive's commission of any act or omission which would give the Company the right, other than the right generally to terminate Executive's employment "at will," to terminate Executive's employment under applicable law; or (vi) Executive's failure to correct or cure any material breach of or default under this Agreement within ten days after receiving written notice of such breach or default from the Company. (c) Termination Without Cause. The Company may terminate Executive's employment at any time by delivering a written termination notice to Executive. (d) Termination by Executive. Except as otherwise provided herein, Executive may terminate his employment at any time by delivering ninety days prior written notice to the Company; provided, however, that the terms, conditions and benefits specified in Section 5 hereof shall apply or be payable to Executive only if such termination occurs as a result of a material breach by the Company of any provision of this Agreement. (e) Termination Following Disability. In the event Executive suffers a permanent disability which materially impairs Executive's performance of Executive's duties for the Company and qualifies Executive for full benefits under the Company's long term disability insurance policy, the Company may terminate Executive's employment by delivering a written termination notice to Executive. Notwithstanding the foregoing, Executive shall continue to receive his full salary and benefits under this Agreement until the expiration of a period of six months after the effective date of such termination or until the commencement of benefits under the Company's long term disability insurance policy, which ever shall first occur. (f) Payments. Following any expiration or termination of this Agreement or Executive's employment hereunder, and in addition to any amounts owed pursuant to Section 5 hereof, the Company shall pay to Executive all amounts earned by Executive hereunder prior to the date of such expiration or termination. (g) Early Retirement. In the event, Executive upon at least 90 days written notice to the Company, elects to retire after reaching age 62, (i) the payments provided by Section 5(a) hereof shall be made at two thirds (2/3) of the rate provided by Section 5(a) until the expiration of a period of 36 months following such retirement or Executive's death, which ever shall first occur, less any amounts that Executive shall receive under the funded and unfunded pension plans of the Company and its subsidiaries, (ii) the benefits specified in Section 5(c), (d) and (e) shall be provided, and (iii) Executive's stock options and restricted stock grants shall vest and be exercisable as provided in Section 5(b) hereof. 5. Certain Termination Benefits. Subject to Section 6(a) hereof, in the event (i) the Company terminates Executive's employment without cause pursuant to Section 4(c) or (ii) Executive terminates his employment pursuant to Section 4(d): 3 (a) Base Salary and Bonus. The Company shall continue to pay to Executive his Base Salary (as in effect as of the date of such termination) and bonuses (calculated on a pro rata basis based upon the assumption that Executive would have fulfilled the requirements to earn his target bonus) that would have been payable hereunder to Executive from the date of such termination for a period of 24 months following the termination. (b) Stock. Subject to Section 10 hereof, on and as of the effective date of the termination of employment, all of Executive's outstanding stock options and restricted stock grants under the Company's stock option and other benefit plans shall immediately vest and all such stock options shall be exercisable for the period of 60 days, seven months or, in the case of death, 12 months after the conclusion of Executive's consultation pursuant to Section 14 as each stock option provides, or, if shorter, their remaining term. (c) Life Insurance. The Company shall continue to provide Executive with group and additional life insurance coverage until Executive reaches the age of 65. (d) Medical Insurance. The Company shall continue to provide Executive and his family with group medical insurance coverage under the Company's Medical Plans (as the same may change from time to time) or other substantially similar health insurance Until Executive reaches the age of 65. (e) Group Disability. The Company shall continue to provide Executive coverage under the Company's group disability plan until Executive reaches the age of 65, if and to the extent such coverage is available under the Company's insurance plan. (f) Support. Executive shall be entitled to retain the cellular telephone and the home office computer equipment provided to him by the Company; provided, however, that Executive shall be responsible for the payment of all of his cellular telephone bills. (g) Offset. Any fringe benefits received by Executive in connection with any other employment that are reasonably comparable, but not necessarily as beneficial, to Executive as the fringe benefits then being provided by the Company pursuant to Section 5 (c), (d) or (e), shall be deemed to be the equivalent of, and shall terminate the Company's responsibility to continue providing, the fringe benefits then being provided by the Company pursuant to Section 5 (c), (d) or (e). The Company acknowledges that if Executive's employment with the Company is terminated, Executive shall have no duty to mitigate damages. (h) General Release. Acceptance by Executive of any amounts pursuant to this Section 5 shall constitute a full and complete release by Executive of any and all claims Executive may have against the Company, its officers, directors and affiliates, including, but not limited to, claims he might have relating to Executive's cessation of employment with the Company; provided, however, that there may properly be excluded from the scope of such general release the following: 4 (i) claims that Executive may have against the Company for reimbursement of ordinary and necessary business expenses incurred by him during the course of his employment; (ii) claims that may be made by the Executive for payment of Base Salary, fringe benefits or stock options properly due to him; or (iii) claims respecting matters for which the Executive is entitled to be indemnified under the Company's Certificate of Incorporation or Bylaws, respecting third party claims asserted or third party litigation pending or threatened against the Executive. A condition to Executive's receipt of any amounts pursuant to this Section 5 shall be Executive's execution and delivery of a general release as described above. In exchange for such release, the Company shall, if Executive's employment is terminated without Cause, provide a release to Executive, but only with respect to claims against Executive which are actually known to the Company as of the time of such termination. (i) Retirement Benefits. Upon the completion of the payments provided by (a) above, Executive may receive benefits under the Company's defined benefit pension plan, as provided by his previous participation in that plan, and the Company's excess benefits plan without reduction for retirement prior to his normal retirement date. Any reduction for early retirement required by the provisions of the defined benefit plan will be paid by the Company. By written notice to the Company by Executive and his Spouse at least one year prior to the commencement of retirement payments by the Company outside the defined benefit plan, Executive may elect to receive such payments in a lump sum amount determined in good faith by the Company to be the actuarial equivalent of such payments. 6. Effect of Change in Control. (a) If in the six to twelve month period following a "Change of Control" (as hereinafter defined), Executive terminates his employment with the Company for any reason upon at least 30 days written notice to the Company, the Company shall provide to Executive the benefits specified in Section 5 hereof. (b) "Change of Control" shall mean the date as of which: (i) there shall be consummated (1) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (2) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; or (ii) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; or (iii) any person ( as such term is used in Sections 5 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% of the Company's outstanding common stock (other than Nortel or Liberty Media or one of their subsidiaries); or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire board of directors of the Company shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. It is understood and agreed that the sale of the Company's distribution business (Telewire Supply) or the assignment to and assumption of this Agreement to the buyer of that business shall not be considered a Change of Control and that upon such an assignment and assumption all references in this Agreement to "Company" shall mean the buyer of that business. (c) In the event that (i) Executive would otherwise be entitled to the compensation and benefits described in Section 6(a) hereof ("Compensation Payments"), and (ii) the Company determines, based upon the advice of tax counsel selected by the Company's independent auditors and acceptable to Executive, that, as a result of such Compensation Payments and any other benefits or payments required to be taken into account under Code Section 280G(b)(2) ("Parachute Payments"), any of such Parachute Payments would be reportable by the Company as "excess parachute payments", such Compensation Payments shall be reduced to the extent necessary to cause Executive's Parachute Payments to equal 2.99 times the "base amount" as defined in Code Section 280G(b)(3) with respect to such Executive. However, such reduction in the Compensation Payments shall be made only if, in the opinion of such tax counsel, it would result in a larger Parachute Payment to the Executive than payment of the unreduced Parachute Payments after deduction of tax imposed on and payable by the Executive under Section 4999 of the Code ("Excise Tax"). The value of any non-cash benefits or any deferred payment or benefit for purposes of this paragraph shall be determined by the Company's independent auditors. (d) The parties hereto agree that the payments provided under Section 6(a) above, as the case may be, are reasonable compensation in light of Executive's services rendered to the Company and that neither party shall contest the payment of such benefits as constituting an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. (e) Unless the Company determines that any Parachute Payments made hereunder must be reported as "excess parachute payments" in accordance with Section 6(e) above, neither party shall file any return taking the position that the payment of such benefits constitutes an "excess parachute payment" within the meaning of Section 280G(b)(1) of the Code. 7. Non-Competition. Executive agrees that during the term of this Agreement and for a period of four months from the date of the termination of Executive's employment with the Company pursuant to Sections 4(b), 4(c), 4(d), 4(e) or 6 herein or for any other reason that results in the Executive being entitled to the benefits described in Section 5, he will not, directly or indirectly, compete with the Company by providing to any company that is in a "Competing 6 Business" services substantially similar to the services provided by Executive at the time of termination. Competing Business shall be defined as any business that engages, in whole or in part, in the broadband communication equipment for broadband communications architectures in the United States, and Executive's employment function or affiliation is directly or indirectly in such business. 8. Nonsolicitation of Employees. For a period of two years after the termination or cessation of his employment with the Company for any reason whatsoever, Executive shall not, on his own behalf or on behalf of any other person, partnership, association, corporation, or other entity, solicit or in any manner attempt to influence or induce any employee of the Company or its subsidiaries or affiliates (known by the Executive to be such) to leave the employment of the Company or its subsidiaries or affiliates, nor shall he use or disclose to any person, partnership, association, corporation or other entity any information obtained while an employee of the Company concerning the names and addresses of the Company's employees. 9. Nondisclosure of Trade Secrets. During the term of this Agreement, Executive will have access to and become familiar with various trade secrets and proprietary and confidential information of the Company, its subsidiaries and affiliates, including, but not limited to, processes, computer programs, compilations of information, records, sales procedures, customer requirements, pricing techniques, customer lists, methods of doing business and other confidential information (collectively, referred to as "Trade Secrets") which are owned by the Company, its subsidiaries and/or affiliates and regularly used in the operation of its business, and as to which the Company, its subsidiaries and/or affiliates take precautions to prevent dissemination to persons other than certain directors, officers and employees. Executive acknowledges and agrees that the Trade Secrets (1) are secret and not known in the industry; (2) give the Company or its subsidiaries or affiliates an advantage over competitors who do not know or use the Trade Secrets; (3) are of such value and nature as to make it reasonable and necessary to protect and preserve the confidentiality and secrecy of the Trade Secrets; and (4) are valuable, special and unique assets of the Company or its subsidiaries or affiliates, the disclosure of which could cause substantial injury and loss of profits and goodwill to the Company or its subsidiaries or affiliates. Executive may not use in any way or disclose any of the Trade Secrets, directly or indirectly, either during the term of this Agreement or at any time thereafter, except as required in the course of his employment under this Agreement, if required in connection with a judicial or administrative proceeding, or if the information becomes public knowledge other than as a result of an unauthorized disclosure by the Executive. All files, records, documents, information, data and similar items relating to the business of the Company, whether prepared by Executive or otherwise coming into his possession, will remain the exclusive property of the Company and may not be removed from the premises of the Company under any circumstances without the prior written consent of the Board (except in the ordinary course of business during Executive's period of active employment under this Agreement), and in any event must be promptly delivered to the Company upon termination of Executive's employment with the Company. Executive agrees that upon his receipt of any subpoena, process or other request to produce or divulge, directly or indirectly, any Trade Secrets to any entity, agency, tribunal or person, Executive shall timely notify and promptly hand deliver a copy of the 7 subpoena, process or other request to the Board. For this purpose, Executive irrevocably nominates and appoints the Company (including any attorney retained by the Company), as his true and lawful attorney-in-fact, to act in Executive's name, place and stead to perform any act that Executive might perform to defend and protect against any disclosure of any Trade Secrets. 10. Return of Profits. In the event that Executive violates any of the provisions of Sections 7, 8 or 9 hereof or fails to provide the notice required by Section 4(d), 4(g) or 6(a) hereof, as the case may be, the Company shall be entitled to receive from Executive the profits, if any, received by Executive upon exercise of any Company granted stock options or stock appreciation rights or upon lapse of the restrictions on any grant of restricted stock to the extent such options or rights were exercised, or such restrictions lapsed, subsequent to six months prior to the termination of Executive's employment. 11. Severability. The parties hereto intend all provisions of Sections 7, 8, 9 and 10 hereof to be enforced to the fullest extent permitted by law. Accordingly, should a court of competent jurisdiction determine that the scope of any provision of Sections 7, 8, 9 or 10 hereof is too broad to be enforced as written, the parties intend that the court reform the provision to such narrower scope as it determines to be reasonable and enforceable. In addition, however, Executive agrees that the nonsolicitation and nondisclosure agreements set forth above each constitute separate agreements independently supported by good and adequate consideration shall be severable from the other provisions of, and shall survive, this Agreement. The existence of any claim or cause of action of Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants of Executive contained in the nonsolicitation and nondisclosure agreements. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never constituted a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance here from. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added as part of this Agreement, a provision as similar in its terms to such illegal, invalid or enforceable provision as may be possible and be legal, valid and enforceable. 12. Arbitration - Exclusive Remedy. (a) The parties agree that the exclusive remedy or method of resolving all disputes or questions arising out of or relating to this Agreement shall be arbitration. Arbitration shall be held in Atlanta, Georgia by three arbitrators, one to be appointed by the Company, a second to be appointed by Executive, and a third to be appointed by those two arbitrators. The third arbitrator shall act as chairman. Any arbitration may be initiated by either party by written notice ("Arbitration Notice") to the other party specifying the subject of the requested arbitration and appointing that party's arbitrator. 8 (b) If (i) the non-initiating party fails to appoint an arbitrator by written notice to the initiating party within ten days after the Arbitration Notice, or (ii) the two arbitrators appointed by the parties fail to appoint a third arbitrator within ten days after the date of the appointment of the second arbitrator, then the American Arbitration Association, upon application of the initiating party, shall appoint an arbitrator to fill that position. (c) The arbitration proceeding shall be conducted in accordance with the rules of the American Arbitration Association. A determination or award made or approved by at least two of the arbitrators shall be the valid and binding action of the arbitrators. The costs of arbitration (exclusive of the expense of a party in obtaining and presenting evidence and attending the arbitration and of the fees and expenses of legal counsel to a party, all of which shall be borne by that party) shall be borne by the Company only if Executive receives substantially the relief sought by him in the arbitration, whether by settlement, award or judgment; otherwise, the costs shall be borne equally between the parties. The arbitration determination or award shall be final and conclusive on the parties, and judgment upon such award may be entered and enforced in any court of competent jurisdiction. 13. Miscellaneous. (a) Notices. Any notices, consents, demands, requests, approvals and other communications to be given under this Agreement by either party to the other must be in writing and must be either (i) personally delivered, (ii) mailed by registered or certified mail, postage prepaid with return receipt requested, (iii) delivered by overnight express delivery service or same-day local courier service, or (iv) delivered by telex or facsimile transmission, to the address set forth below, or to such other address as may be designated by the parties from time to time in accordance with this Section 12(a): If to the Company: ARRIS Group, Inc 11450 Technology Circle Duluth, Georgia 30097 Attention: President Facsimile: (678) 473-8470 If to Executive: Gordy Halverson 4529 Silver Bell Circle Castle Rock, CO 80104 Facsimile: (720) 895-7125 With a copy to: John G. Brant 710 Kipling Street Suite 305 Lakewood, Colorado 80215 Facsimile: (303) 238-3970 9 Notices delivered personally or by overnight express delivery service or by local courier service are deemed given as of actual receipt. Mailed notices are deemed given three business days after mailing. Notices delivered by telex or facsimile transmission are deemed given upon receipt by the sender of the answer back (in the case of a telex) or transmission confirmation (in the case of a facsimile transmission). (b) Entire Agreement. This Agreement supersedes any and all other agreements, either oral or written, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect to the subject matter of this Agreement. (c) Modification. No change or modification of this Agreement is valid or binding upon the parties, nor will any waiver of any term or condition in the future be so binding, unless the change or modification or waiver is in writing and signed by the parties to this Agreement. (d) Governing Law and Venue. The parties acknowledge and agree that this Agreement and the obligations and undertakings of the parties under this Agreement will be performable in Georgia. This Agreement is governed by, and construed in accordance with, the laws of the State of Georgia. If any action is brought to enforce or interpret this Agreement, venue for the action will be in Georgia. (e) Counterparts. This Agreement may be executed in counterparts, each of which constitutes an original, but all of which constitutes one document. (f) Costs. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, each party shall bear its own costs and expenses. (g) Estate. If Executive dies prior to the expiration of the term of employment or during a period when monies are owing to him, any monies that may be due him from the Company under this Agreement as of the date of his death shall be paid to his estate and as when otherwise payable. (h) Assignment. The Company shall have the right to assign this Agreement to its successors or assigns. The terms "successors" and "assigns" shall include any person, corporation, partnership or other entity that buys all or substantially all of the Company's assets or all of its stock, or with which the Company merges or consolidates. The Company shall also have the right to assign this Agreement and substitute the assignee as the "Company" as provided in Section 6(b) hereof. The rights, duties and benefits to Executive hereunder are personal to him, and no such right or benefit may be assigned by him. (i) Binding Effect. This Agreement is binding upon the parties hereto, together with their respective executors, administrators, successors, personal representatives, heirs and permitted assigns. 10 (j) Waiver of Breach. The waiver by the Company or Executive of a breach of any provision of this Agreement by Executive or the Company may not operate or be construed as a waiver of any subsequent breach. 14. Consultation. During the period, Executive is receiving payments from the Company pursuant to Section 4(g), Section 5 or Section 6, Executive will be available to consult with the Company for up to total of a 100 days, but no more than 50 days in any 12 month period, on matters within Executive's experience or expertise without further payment, other than reimbursement of reasonable expenses incurred by Executive at the direction of the Company. During this period of consulting, notwithstanding any other provision of this Agreement, Executive will be bound by the provisions of Sections 7, 8, 9, 10 and 11 hereof as if his employment with the Company continued during this period of consulting, and the periods provided by those sections after the termination of Executive's employment shall commence on the expiration of this period of consulting. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. "Company" ARRIS GROUP, INC. By: _________________________________ Name: _________________________________ Title: _________________________________ "Executive" ________________________________________ 11 EX-10.18 7 g76211ex10-18.txt ASSET PURCHASE AGREEMENT FOR KEPTEL EXHIBIT 10.18 ================================================================================ ASSET PURCHASE AGREEMENT AMONG BUYER AND KEPTEL, INC., AND THE SOLE SHAREHOLDER OF KEPTEL, INC. ************ CLOSING DATE: APRIL , 2002 EFFECTIVE TIME: CLOSE OF BUSINESS ON APRIL , 2002 ************ ================================================================================ TABLE OF CONTENTS

PAGE ARTICLE 1 PURCHASE AND SALE OF ASSETS ................................................ 1 Section 1.1 Transfer of Assets ..................................................... 1 Section 1.2 Consideration .......................................................... 3 Section 1.3 Assumption of Liabilities .............................................. 3 Section 1.4 Retained Liabilities ................................................... 4 Section 1.5 Adjustments to Purchase Price .......................................... 4 Section 1.6 Allocation of Purchase Price ........................................... 4 Section 1.7 Sales Taxes ............................................................ 5 Section 1.8 Adjustment for Solectron Manufactured Goods ............................ 5 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER ................... 5 Section 2.1 Organization and Qualification ......................................... 5 Section 2.2 Corporate Power and Authority .......................................... 5 Section 2.3 Books and Records ...................................................... 6 Section 2.4 Validity, Etc .......................................................... 6 Section 2.5 Broker's or Finder's Fee ............................................... 6 Section 2.6 Capitalization, Shareholders, Subsidiaries and Investments ............. 6 Section 2.7 Financial Statements ................................................... 7 Section 2.8 Absence of Certain Changes and Events .................................. 7 Section 2.9 Absence of Undisclosed Liabilities ..................................... 7 Section 2.10 Employment and Labor Matters ........................................... 7 Section 2.11 Real Property .......................................................... 8 Section 2.12 Powers of Attorney; Absence of Limitations on Competition; Guarantees .. 8 Section 2.13 Governmental Approvals ................................................. 8 Section 2.14 Compliance with Law; Licenses and Permits .............................. 8 Section 2.15 Employee Benefits ...................................................... 9 Section 2.16 Assets ................................................................. 9 Section 2.17 Inventories ............................................................ 10 Section 2.18 Insurance .............................................................. 10 Section 2.19 Outstanding Contracts .................................................. 10

-i- TABLE OF CONTENTS (CONTINUED)

PAGE Section 2.20 Outstanding Leases ..................................................... 11 Section 2.21 Foreign Person ......................................................... 11 Section 2.22 Significant Customers .................................................. 11 Section 2.23 Taxes .................................................................. 11 Section 2.24 Litigation ............................................................. 12 Section 2.25 Environmental Matters .................................................. 12 Section 2.26 Intellectual Property .................................................. 13 Section 2.27 No Material Adverse Change ............................................. 14 Section 2.28 Product Warranty ....................................................... 14 Section 2.29 Product Liability ...................................................... 14 Section 2.30 Certain Practices ...................................................... 14 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER .............................. 15 Section 3.1 Organization and Qualification ......................................... 15 Section 3.2 Corporate Power and Authority .......................................... 15 Section 3.3 Validity, Etc .......................................................... 15 Section 3.4 Relationships with Affiliates .......................................... 16 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER .................................... 16 Section 4.1 Organization and Qualification ......................................... 16 Section 4.2 Corporate Power and Authority .......................................... 16 Section 4.3 Validity, Etc .......................................................... 16 Section 4.4 Broker's or Finder's Fee ............................................... 16 ARTICLE 5 COVENANTS AND AGREEMENTS ................................................... 17 Section 5.1 Required Approvals ..................................................... 17 Section 5.2 Employees And Employee Benefits ........................................ 17 Section 5.3 Customer and Other Business Relationships .............................. 20 Section 5.4 Tax Returns ............................................................ 20 Section 5.5 Employment Tax Reporting ............................................... 20 Section 5.6 Payment of Liabilities ................................................. 20 Section 5.7 Covenants of Seller and Shareholder .................................... 20

-ii- TABLE OF CONTENTS (CONTINUED)

PAGE Section 5.8 Further Assurances ..................................................... 22 Section 5.9 Best Efforts ........................................................... 22 ARTICLE 6 CONDITIONS TO BUYER'S OBLIGATIONS .......................................... 22 Section 6.1 Consents ............................................................... 22 Section 6.2 Solectron Manufacturing Services Agreement ............................. 22 Section 6.3 Distribution Agreement ................................................. 22 Section 6.4 Transition Services Agreement .......................................... 23 Section 6.5 Opinion of Counsel to Seller and Shareholder ........................... 23 Section 6.6 Approval of Board of Directors of Buyer and Approval of ................ 24 Section 6.7 Amendment to Certificate of Incorporation .............................. 24 Section 6.8 Closing Documents ...................................................... 24 ARTICLE 7 CONDITIONS TO SELLER'S OBLIGATIONS ......................................... 24 Section 7.1 Solectron Manufacturing Services Agreement ............................. 24 Section 7.2 Distribution Agreement ................................................. 24 Section 7.3 Transition Services Agreement .......................................... 24 Section 7.4 Opinion of Stites & Harbison ........................................... 24 Section 7.5 Closing Documents ...................................................... 25 ARTICLE 8 THE CLOSING AND CERTAIN CLOSING DELIVERIES ................................. 25 Section 8.1 Time and Place of Closing .............................................. 25 Section 8.2 Deliveries by Seller and the Shareholder ............................... 25 Section 8.3 Deliveries by Buyer .................................................... 26 ARTICLE 9 SURVIVAL AND INDEMNIFICATION ............................................... 26 Section 9.1 Survival ............................................................... 26 Section 9.2 Indemnification by Seller and the Shareholder .......................... 26 Section 9.3 Notice to Seller, Etc .................................................. 27 Section 9.4 Indemnification by Buyer ............................................... 27 Section 9.5 Notice to Buyer, Etc ................................................... 28 Section 9.6 Limitations on Indemnification ......................................... 28 Section 9.7 Offset ................................................................. 28 Section 9.8 Consequential Damages .................................................. 29

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PAGE Section 9.9 Exclusive Remedy ....................................................... 29 ARTICLE 10 MISCELLANEOUS .............................................................. 29 Section 10.1 Knowledge of Seller or Shareholder ..................................... 29 Section 10.2 Knowledge of Buyer ..................................................... 29 Section 10.3 Best Efforts ........................................................... 29 Section 10.4 Schedules .............................................................. 29 Section 10.5 Publicity .............................................................. 29 Section 10.6 Notices ................................................................ 30 Section 10.7 Entire Agreement ....................................................... 31 Section 10.8 Modifications and Amendments ........................................... 31 Section 10.9 Assignment/Binding Effect .............................................. 31 Section 10.10 Parties in Interest .................................................... 31 Section 10.11 Governing Law .......................................................... 31 Section 10.12 Severability ........................................................... 31 Section 10.13 Interpretation ......................................................... 32 Section 10.14 Headings and Captions .................................................. 32 Section 10.15 Terms .................................................................. 32 Section 10.16 Reliance ............................................................... 32 Section 10.17 Expenses ............................................................... 32 Section 10.18 Counterparts ........................................................... 32

-iv- LIST OF EXHIBITS Exhibit A - Bill of Sale Exhibit B - Assignment and Assumption Agreement Exhibit C - License Agreement Exhibit D - Solectron Manufacturing Services Agreement Exhibit E - Distribution Agreement Exhibit F - Transition Services Agreement LIST OF SCHEDULES Schedule 1.3 - Assumed Liabilities Schedule 2.1 - Organization and Qualification Schedule 2.4 - Validity, Etc. Schedule 2.5 - Broker's Fees Schedule 2.7 - Financial Statements Schedule 2.8 - Absence of Certain Changes and Events Schedule 2.10 - Employment and Labor Matters Schedule 2.12 - Powers of Attorney, Etc. Schedule 2.15 - Employee Benefits Schedule 2.16 - Assets Schedule 2.17 - Inventories Schedule 2.18 - Insurance Schedule 2.19 - Contracts Schedule 2.20 - Leases Schedule 2.22 - Significant Customers Schedule 2.23 - Taxes Schedule 2.24 - Litigation Schedule 2.25 - Environmental Matters Schedule 2.26 - Intellectual Property Schedule 2.27 - Accounts Receivable Schedule 2.28 - Product Warranty Schedule 3.4 - Relationships with Affiliates Schedule 6.1 - Consents -v- This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this ____ day of April, 2002 by and among (i)__________., a Delaware corporation ("Buyer"); (ii) KEPTEL, INC., a Delaware corporation ("Seller"); and (iii) ARRIS INTERNATIONAL, INC. a Delaware corporation and the sole shareholder of Seller ("Shareholder" and to the extent of its interest in any assets of the Business, also "Seller"). RECITALS A. Seller desires to sell or otherwise transfer to Buyer substantially all of the assets relating to its business of design, manufacture, and/or sale of the Product Lines set forth on the attached Schedule 2.17 (the "Business"); and B. Buyer desires to purchase substantially all of Seller's assets related to the Business on the terms and conditions set forth herein. AGREEMENTS In consideration of the foregoing preliminary statements and the mutual covenants, representations, warranties and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer, Seller and Shareholder hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF ASSETS SECTION 1.1 Transfer of Assets. (a) Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date, but effective as of the Effective Time (as defined in Section 8.1), Seller shall transfer to Buyer, free and clear of all claims, charges, liens, security interests, encumbrances and restrictions whatsoever (collectively, "Claims"), all of the assets, properties and rights owned by Seller and all rights or interests in assets or properties held by Seller, of every type and description, real, personal and mixed, tangible and intangible, confirmed or contingent, and exclusively used in connection with the Business (other than the Excluded Assets as hereinafter defined), including, without limitation, contracts, agreements, property, inventory, customer files and lists, prospect lists, licenses and permits, service marks, trade secrets, software (including, without limitation, documentation and related source and object codes), computers and computer equipment, files and other records, systems and processes, leasehold and other improvements, machines, machinery, equipment, furniture, fixtures, fixed assets, proprietary molds (wherever located), key tooling (wherever located), supplies, goodwill, all causes of action, claims and demands of every nature relating to the Assumed Liabilities and Contracts (as hereinafter defined) arising after the Closing, and Seller's rights to the name "Keptel" (collectively, the "Transferred Assets"), all with the intention that the Business shall be transferred to Buyer as a going concern. (b) Notwithstanding any provision contained in this Agreement to the contrary, there shall be excluded from the Transferred Assets and retained by Seller the following assets (the "Excluded Assets"): (i) all cash on hand and in banks (including all uncollected items); (ii) all billed and unbilled accounts receivable; (iii) all assets employed in the Business which are located at Seller's (or its subsidiary's) facilities in El Paso, Texas and Juarez, Mexico, other than proprietary molds and key tooling; (iv) all employee benefit plans, other than health insurance plans; (v) the minute books and stock transfer records of Seller; (vi) all contracts, arrangements and understandings which are not capable of being transferred or assigned without the approval or consent of any party thereto other than Seller if such approval or consent has not been obtained, subject, however, to Section 1.3 and Section 6.1 herein; (vii) security deposits, prepaid insurance, and all causes of action, claims and demands of every nature relating to the Assumed Liabilities and Contracts arising prior to the Closing; (viii) the assets set forth on Schedule 1.1(b), (ix) all Intellectual Property Assets (as defined in Section 2.26) which are not used exclusively in the Business which will be the subject of a paid-up, royalty-free, non-exclusive perpetual license from Seller and Shareholder to Buyer (the "Licensed Assets"); (x) any Hazardous Materials, including waste materials, other than unopened raw materials; and (xi) any underground storage tanks or electrical transformers. (c) Seller shall transfer the Transferred Assets to Buyer pursuant to a Bill of Sale in substantially the form of Exhibit A (the "Bill of Sale"), an Assignment and Assumption Agreement in substantially the form of Exhibit B (the "Assignment and Assumption Agreement"), and such other documents and instruments as Buyer or its counsel may reasonably request. Seller shall transfer the Licensed Assets to Buyer pursuant to a License Agreement in substantially the form of Exhibit C (the "License Agreement"). (d) At any time and from time to time after the Closing Date, at the request of Buyer and without further consideration, Seller shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation as may be reasonably requested in order to more effectively transfer, convey and assign to Buyer and to confirm Buyer's title to the Transferred Assets. (e) To the extent that Seller's rights under any Contract or Lease to be assigned to Buyer hereunder may not be assigned without the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof or be unlawful, and Seller shall use its Best Efforts (as defined in Section 10.3) to secure any such required consent(s) as promptly as possible. To the extent such consent is not obtained and the benefits of a Contract or Lease can be made available to Buyer without breaching such Contract or Lease, Seller will use its Best Efforts to obtain for Buyer the benefits of such Contract or Lease and Buyer will bear the costs incurred for such benefits as if such costs were Assumed Liabilities (as defined in Section 1.3). (f) At the termination of the Transition Services Agreement as described in Section 6.4, subject to the terms of this Agreement and related Disclosure Schedules, Seller shall transfer the assets identified on Schedule 1.1(b) as the Rock Falls Equipment to Buyer for $1, pursuant to a Bill of Sale. SECTION 1.2 Consideration. In consideration for the transfer of the Transferred Assets and the other covenants of Seller and Shareholder herein, upon the terms and subject to the 2 conditions set forth in this Agreement, Buyer shall assume the Assumed Liabilities pursuant to Section 1.3 hereof and shall make payments (collectively, the "Purchase Price") to Seller, which are subject to adjustment as set forth in Section 1.5(c), as follows: (a) an initial payment of Thirty Million Dollars ($30,000,000) shall be delivered to Seller in cash on the Closing Date (defined in Section 8.1 below) by wire transfer or other means of immediately available funds (the "Closing Payment"); (b) post-closing earn-out payments to Seller, if earned, as set forth below based upon Revenues received during the 2002 Revenue Period and the 2003 Revenue Period (the "Revenue Period"):

EARN-OUT EARN-OUT 2002 REVENUE PAYMENT 2003 REVENUE PAYMENT - ------------------------------------------------------------------------------------------------------------- $55,000,001 - $60,000,000 $ 0 - $1,500,000 $65,000,001 - $70,000,000 $ 0 - $1,500,000 $60,000,001 - $65,000,000 $1,500,001 - $2,750,000 $70,000,001 - $75,000,000 $1,500,001 - $2,750,000 $65,000,001 - $70,000,000 $2,750,001 - $4,000,000 $75,000,001 - $80,000,000 $2,750,001 - $4,000,000 $70,000,001 - $75,000,000 $4,000,001 - $5,000,000 $80,000,001 - $85,000,000 $4,000,001 - $5,000,000 $75,000,001 - $80,000,000 $5,000,001 - $6,000,000 $85,000,001 - $90,000,000 $5,000,001 - $6,000,000 $80,000,001 - $85,000,000 $6,000,001 - $7,000,000 $90,000,001 - $95,000,000 $6,000,001 - $7,000,000

Earn-out payments shall be calculated on a pro rata basis based on the Revenue received for the applicable Revenue Period. For example, if Revenue for the 2002 Revenue Period is equal to $57,500,000, Seller will be entitled to an earn-out payment equal to $750,000. Any earn-out payments due Seller shall be paid by Buyer within ninety (90) days following the end of the applicable Revenue Period. For purposes of this Section 1.2(b), "Revenue" shall be equal to all revenues from the Business received by Buyer (which for purposes of clarity shall include the Product Lines and any improvements or replacements therefor) during the applicable Revenue Period that are attributable to sales generated during such Revenue Period, together with all revenues of the Business attributable to orders received prior to the last three (3) days of the applicable Revenue Period for inventory in stock and to orders received prior to the last thirty (30) days of the applicable Revenue Period for product not in stock that is shipped within forty-five (45) days after the Revenue Period. Buyer shall operate the Business during the 2002 and 2003 Revenue Periods with the goal of maximizing revenue and profits of the Business during these periods without regard to the incurrence of earn-out payments. For purposes of this Section 1.2(b), the term "2002 Revenue Period" shall mean the period commencing on July 1, 2002 and ending on June 30, 2003 and the term "2003 Revenue Period" shall mean the period commencing on July 1, 2003 and ending on June 30, 2004. SECTION 1.3 Assumption of Liabilities. On the Closing Date, but effective as of the Effective Time, Buyer shall assume and discharge only the liabilities of Seller listed on Schedule 1.3 and any liability of Seller arising after the Effective Time under any Contracts assumed by Buyer pursuant to the Assignment and Assumption Agreement or the Lease Assignment and 3 Assumption Agreement (other than any liability arising out of or relating to a breach that occurred prior to the Effective Time) (collectively, the "Assumed Liabilities"). SECTION 1.4 Retained Liabilities. The Retained Liabilities shall remain the sole responsibility of and shall be retained, paid, performed and discharged solely by Seller. "Retained Liabilities" shall mean every liability of Seller (whether incurred prior to or following the Effective Time) other than the Assumed Liabilities. SECTION 1.5 Adjustments to Purchase Price. The Purchase Price shall be subject to the following credits and adjustments: (a) Prorations. Operating expenses, including without limitation rent payable under real estate and equipment leases and utilities for which bills are received or payment became due after the Effective Time with respect to periods both prior to and after the Effective Time will be allocated to each of Seller and Buyer on a pro-rata basis according to the ratio of pre-Effective Time days to post-Effective Time days. Promptly upon receipt of notice from one party of amounts so allocated to the other, the allocable amount shall be remitted. (b) Ad Valorem Taxes. Ad valorem real and tangible personal property taxes with respect to the Transferred Assets for the calendar year in which the Closing occurs shall be pro rated between Seller and Buyer as of the Effective Time on the basis of no applicable discount. Promptly upon receipt of notice from one party of amounts so allocated to the other, the allocable amount shall be remitted. (c) Inventory Audit. Prior to the Closing Date, Buyer shall be permitted to conduct an independent audit of the Inventories (defined in Section 2.17 below). Representatives of Seller shall be available to answer questions and assist (which shall include being available to move the Inventories from place to place during the audit) the independent auditor retained by Buyer to conduct such audit. Promptly following the audit, which shall be completed within six (6) business days prior to the execution of this Agreement, Buyer's independent auditor shall calculate the value of the Inventories based upon the physical count of the audit and the Standard Costs (defined in Section 2.17) (the "Inventory Value"). Promptly following the determination of the Inventory Value, Buyer shall notify Seller of the Inventory Value. In the event the Inventory Value is less than $10,000,000, Buyer shall deduct the amount of the deficit from the Closing Payment. If Seller, prior to the Closing, shall notify Buyer that Seller disputes the Inventory Value, the Closing shall take place on the basis of the determination of the independent auditor retained by Buyer, subject to further payment by Buyer after the Closing to the extent the Inventory Value is subsequently determined by the parties, or in the absence of agreement by the parties, by an independent auditor selected by the parties or selected in accordance with the rules of the American Arbitration Association if the parties cannot agree on an independent auditor, to be higher than the Inventory Value on which the Closing was based. SECTION 1.6 Allocation of Purchase Price. Within thirty (30) days after the Closing Date, Buyer and Seller shall agree to an allocation of the Purchase Price to the various classifications of Transferred Assets in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). The values to be reflected will be established as a result of good faith bargaining. In reporting the transactions contemplated by this Agreement to 4 the Internal Revenue Service, Buyer and Seller or Shareholder shall use such values, and cooperate with each other in meeting the requirements of the Code and the regulations promulgated thereunder. Each of Buyer and Seller or Shareholder shall timely complete a Form 8594, Asset Acquisition Statement, consistent with such allocation, shall provide a copy of such Form to the other party, and shall file a copy of such Form with its Federal income tax return for the period up to the Effective Time. The parties shall not take any position with any tax or other governmental or regulatory authority which is inconsistent with such allocation. SECTION 1.7 Sales Taxes. Any sales, use or transfer taxes required to be paid in connection with the transactions contemplated by this Agreement shall be the responsibility of Seller. SECTION 1.8 Adjustment for Solectron and UPG Manufactured Goods. For purposes of this section "Gross Margin" shall be the aggregate customer revenues from Solectron and UPG manufactured products ("Customer Revenues") less the aggregate Solectron or UPG invoices with respect to such products for the period beginning at Closing and ending December 31, 2002. In the event Gross Margin is less than 35.8%, Shareholder shall pay Buyer an amount equal to Customer Revenues times the difference between 35.8% and the actual Gross Margin up to a maximum of Eight Hundred Thousand Dollars ($800,000). From and after December 31, 2002, Shareholder shall pay said sum to Buyer within thirty (30) days of receipt of an invoice from Buyer. Buyer may, at its option, exercise a right of offset against any payments due Shareholder or Seller from Buyer pursuant to Section 1.2(b) of this Agreement or under the Transition Services Agreement. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER As an inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, Seller and Shareholder, jointly and severally, represent and warrant to Buyer as follows: SECTION 2.1 Organization and Qualification. Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction, with full corporate power and authority to conduct its business as it is now being conducted, to own or use the properties and assets that it purports to own or use, and to perform all of its obligations under the Contracts (as defined in Section 2.19 below). Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where failure to obtain such qualification would not have a material adverse effect on the Business or its financial condition. Schedule 2.1 contains a complete and accurate list of Seller's jurisdiction of incorporation and any other jurisdiction in which it is qualified to do business as a foreign corporation. SECTION 2.2 Corporate Power and Authority. Seller (a) has the power and authority to execute, deliver and perform this Agreement and the other agreements, schedules, documents and instruments contemplated hereby to be executed and delivered by it (collectively, the 5 agreements, schedules, documents and instruments contemplated by this Agreement shall constitute the "Documents") and to consummate the transactions contemplated hereby and thereby, and (b) has taken all necessary corporate and shareholder action to authorize and approve the execution, delivery and performance of this Agreement and the Documents and the consummation of the transactions contemplated hereby and thereby. This Agreement and the Documents have been duly and validly executed and delivered by Seller and, subject to due execution and delivery by Buyer, constitute valid and binding obligations of Seller, enforceable against Seller in accordance with their terms. SECTION 2.3 Books and Records. The books of account and other financial records of Seller relating to the Business, all of which have been made available to Buyer, are complete and represent actual, bona fide transactions and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. The minute books of Seller, which have been and will be made available to Buyer and its representatives, contain accurate records of all meetings held of, and corporate action taken by, the shareholders, the board of directors and committees of the board of directors of Seller. SECTION 2.4 Validity, Etc. Except as set forth on Schedule 2.4, neither the execution and delivery of this Agreement or the other Documents to which Seller is a party, the consummation of the transactions contemplated hereby or thereby, nor the performance of this Agreement or the Documents in compliance with the terms and conditions hereof and thereof by Seller will, directly or indirectly (with or without notice or lapse of time) (i) violate, conflict with or result in any breach of the Certificate of Incorporation, bylaws or any resolutions adopted by the board of directors or shareholders of Seller, (ii) violate, conflict with or result in a breach, default or termination under any contract or agreement to which Seller is party or give rise to any right of termination, cancellation or acceleration of the maturity of any payment date of any of the indebtedness or other obligation of Seller, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained in writing and provided to Buyer, (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, (iv) result in the creation of any Claim upon the Transferred Assets, or (v) result in any shareholder of Seller having the right to exercise dissenter's appraisal rights. Except as set forth on Schedule 2.4, Seller is not and will not be required to obtain any consent or approval from or to provide any notice to any Person (as defined in Section 3.4) in connection with the execution and delivery of this Agreement or the consummation or performance of the transactions contemplated by this Agreement and the other Documents. SECTION 2.5 Broker's or Finder's Fee. Except as set forth on Schedule 2.5, no agent, broker, Person or firm acting on behalf of Seller is, or will be, entitled to any commission or broker's or finder's fees from Seller, or from any Person controlling, controlled by or under common control with Seller, in connection with any of the transactions contemplated by this Agreement and the other Documents. SECTION 2.6 Capitalization, Shareholders, Subsidiaries and Investments. The authorized equity securities of Seller consist of one thousand (1000) shares of common stock, $1.00 par value per share, of which 1 share is issued and outstanding. Shareholder is the sole shareholder of Seller and owns one hundred percent (100%) of the issued and outstanding capital stock of Seller free and clear of all Claims. There are no contracts or agreements, whether written or oral, relating to the issuance, sale or transfer of any equity securities or other securities 6 of Seller. Seller has no subsidiaries and does not own, directly or indirectly, any capital stock or other equity or ownership or proprietary interest in any other corporation, partnership, association, trust, joint venture or other entity. SECTION 2.7 Financial Statements. Seller has previously furnished to Buyer, and attached hereto as Schedule 2.7 are, the unaudited balance sheet of the Business (the "Balance Sheet") as at December 31, 2001 (the "Balance Sheet Date"), the related unaudited income statement for the fiscal year then ended, and the unaudited balance sheet of the Business as at February 28, 2002 and the related unaudited income statement for the two (2) months then ended. Except as set forth on Schedule 2.7, all such financial statements (the "Financial Statements") were prepared from the books and records of Seller in accordance with Seller's historical policies and procedures consistently applied and fairly present the financial position and results of operations, changes in shareholders' equity and cash flows of Seller as of the respective dates of and for the periods referred to in such Financial Statements. SECTION 2.8 Absence of Certain Changes and Events. Since the Balance Sheet Date, except as set forth on Schedule 2.8, Seller has not (i) incurred any material liability or obligation of any nature (whether accrued, absolute, contingent or otherwise) outside of the ordinary course of business consistent with past practices, (ii) canceled any indebtedness owing to it or any claims that it might have possessed or waived any material rights of substantial value, (iii) sold, leased, encumbered, transferred or otherwise disposed of, or agreed to sell, lease, encumber, or otherwise dispose of its assets outside the ordinary course of business consistent with past practice, (iv) permitted any of its assets to be subjected to any mortgage, pledge, lien, security interest, encumbrance, restriction or charge of any kind, (v) made any material capital expenditure or commitment therefor, (vi) paid any bonuses, salaries or other compensation to any shareholder, director, officer or employee, other than in the ordinary course of business consistent with past practices, (vii) entered into any employment, severance or similar contract with any director, officer, shareholder or employee; (viii) declared or paid any dividend or made any distribution on any shares of its capital stock, or redeemed, purchased or otherwise acquired any shares of its capital stock or any option, warrant or other right to purchase or acquire any such shares, (ix) borrowed or agreed to borrow any funds, made any loan to any Person or guaranteed or agreed to guarantee any obligations of others, (x) written off as uncollectible any notes or accounts receivable, except write-offs in the ordinary course of business charged to applicable reserves, (xi) made any material change in any method of accounting or auditing practice, (xii) otherwise conducted the Business or entered into any transaction, except in the ordinary course consistent with past practices, or (xii) agreed, whether or not in writing, to do any of the foregoing. SECTION 2.9 Absence of Undisclosed Liabilities. Except (i) as and to the extent of the amounts specifically reflected or reserved against in the Balance Sheet, and (ii) liabilities and obligations incurred in the ordinary course of business and consistent with past practice, Seller has no material liabilities or obligations of any nature whether absolute, accrued, contingent or otherwise. SECTION 2.10 Employment and Labor Matters. (a) Schedule 2.10 lists each officer and employee of Seller (including any retired employee or any employee on leave of absence or layoff status but excluding employees 7 at the Rock Falls plant) exclusively involved in the Business on the date hereof, along with the amount of the current annual salaries and total compensation paid or due for services to each officer, or employee for the most recent fiscal year end. (b) Except as set forth on Schedule 2.10, Seller is not a party to or bound by any collective bargaining agreement with any labor organization, group or association covering any of its employees, and to the Knowledge (as defined in Section 10.1) of Seller there is no current attempt to organize Seller's employees by any Person, unit or group seeking to act as their bargaining agent. There are no pending or, to the Knowledge of Seller, threatened charges (by employees, their representatives or governmental authorities) of unfair labor practices or of employment discrimination or of any other wrongful action with respect to any aspect of employment of any person employed or formerly employed by Seller. Within the last two years, Seller has received no written notice of the scheduling by any governmental agency or authority, of any union representation election relating to the employees of Seller or any organizational effort with respect to any of such employees, or any investigation of Seller's employment policies or practices by any governmental agency or authority. Seller is not currently involved in labor negotiations with any unit or group seeking to become the bargaining unit for any employees of Seller. Within the last two years, Seller has not experienced any material work stoppages. (c) Seller has complied in all material respects with all laws and regulations relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, benefits, worker's compensation, employment practices, terms and conditions of employment, immigration, collective bargaining, equal opportunity or similar laws and the payment of social security and similar taxes, and is not liable for any material arrears of wages or any material taxes or penalties for failure to comply with any of the foregoing. SECTION 2.11 Real Property. Seller owns no real property used in the Business. SECTION 2.12 Powers of Attorney; Absence of Limitations on Competition; Guarantees. Except as set forth in Schedule 2.12, (i) no power of attorney or similar authorization given by Seller presently is in effect or outstanding; (ii) no contract or agreement to which Seller is a party or is bound or to which Seller's properties or assets are subject limits the freedom of Seller to compete in any line of business or with any Person; and (iii) Seller is not a party to or bound by any guarantee of any debt or obligation of any other Person. SECTION 2.13 Governmental Approvals. No registration or filing with, or consent or approval of or other action by any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance by Seller of this Agreement. SECTION 2.14 Compliance with Law; Licenses and Permits. Except as set forth on Schedule 2.25 regarding environmental matters, Seller is substantially in compliance with all laws, ordinances, legal requirements, rules, regulations and orders (collectively, "Legal Requirements") applicable to it, its operations, properties, assets, products and services, including, but not limited to, all Legal Requirements related to import, export and other customs Legal Requirements related to the Business. Seller has not received any notice or other communication (whether oral or written) from any governmental body or any other Person 8 regarding (i) any actual, alleged, possible or potential violation of, or failure to comply with any Legal Requirement, or (ii) any actual, alleged, possible or potential obligation on the part of Seller to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. Seller possesses all franchises, permits, licenses, certificates and consents required from any governmental or regulatory authority in order for Seller to carry on the Business as currently conducted and to own and operate its properties and assets as now owned and operated except for those franchises, permits, licenses, certificates or consents which Seller's failure to so possess would not have a material adverse effect on the Business or its financial condition. SECTION 2.15 Employee Benefits. (a) Set forth on Schedule 2.15 is a list of all pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, stock appreciation right, employee stock ownership, incentive, bonus, vacation, severance, change-in-control, disability, hospitalization, medical insurance, life insurance, fringe benefit, welfare and other employee benefit plans, programs, policies or arrangements pursuant to which Seller or its ERISA Affiliates provide (directly or indirectly, individually or jointly through others) benefits or compensation to or on behalf of employees, directors or independent contractors or former employees or former directors or former independent contractors of Seller (or its ERISA Affiliates) exclusively involved in the Business, whether formal or informal, whether or not written ("Employee Plan"). Seller shall furnish to Buyer true, complete and accurate copies of each written Employee Plan and related trust agreement, a complete and accurate description of each unwritten Employee Plan, a current copy of each summary plan description, all insurance contracts relating to Employee Plans, and all annual reports filed with respect to each Employee Plan for the last four years. Seller shall maintain the Employee Plans listed on Schedule 2.15 in full force and effect until the Effective Time. Except as set forth on Schedule 2.15, Buyer shall not have any obligation or liability of any kind or nature for any compensation or benefits of any kind or nature to the employees or consultants of Seller for services rendered prior to the Effective Time. (b) For purposes of this Section 2.15, the term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the term "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with Seller is treated as a single employer under section 414(b), (c), (m), (o), or (t) of the Internal Revenue Code. SECTION 2.16 Assets. (a) The Transferred Assets constitute all of the assets, tangible and intangible, of any nature whatsoever, necessary to operate the Business in the manner presently operated by Seller and include all of the operating assets of Seller, except in each case, the Excluded Assets and the Contracts and Leases which are being dealt with pursuant to Section 1.1(c) and 1.1(e). (b) Seller has good and marketable title to or a valid leasehold interest in all of the Transferred Assets, free and clear of all Claims. (c) Schedule 2.16 contains a true and complete list of all of the Transferred Assets which are proprietary molds, key tooling or fixed assets with an individual net book value 9 of greater than $25,000.00, whether owned or leased. All of Seller's fixed assets, whether owned or leased, are adequate and usable for the purposes for which they are currently used. SECTION 2.17 Inventories. (a) All inventory of Seller used in connection with the Business, including all finished goods, work-in-process, raw materials, spare parts and other materials and supplies to be used or consumed by Seller in the production of finished goods (collectively, the "Inventories") (a) consist of items which are good and merchantable within normal trade practice, and (b) are of a quality presently usable or salable in the ordinary course of business consistent with past practice. (b) No previously sold Inventories are subject to returns in excess of those historically experienced by Seller. Inventories now on hand that were purchased subsequent to the Balance Sheet Date were purchased in the ordinary course of business at a cost not exceeding market prices prevailing at the time of purchase. All Inventories have been valued at Seller's standard cost which standard costs have been approved by Buyer (the "Standard Costs"). (c) A listing of the Inventories of Seller and their respective Standard Costs, as of the Closing Date, is attached to Schedule 2.17. All Inventories are located in California, Florida, Illinois, North Carolina, Texas or Mexico. SECTION 2.18 Insurance. Seller is, and will be through the Closing, insured with insurers in respect of its properties, assets and businesses as set forth on the attached Schedule 2.18. The insurance policies listed on Schedule 2.18 are (i) valid, outstanding and enforceable, (ii) are issued by an insurer that is financial sound and reputable; and (iii) taken together, provide adequate insurance coverage of the assets and operations of Seller for all risks normally insured against by a Person carrying on the same business or businesses as Seller in the same location. Such insurance shall remain in full force and effect with respect to all events occurring prior to the Effective Time. Except as set forth on Schedule 2.18, Seller (i) has not failed to give any notice or present any claim under any such policy or binder in due and timely fashion, (ii) has not received notice of cancellation or non-renewal of any such policy or binder, (iii) is not aware of any threatened or proposed cancellation or non-renewal of any such policy or binder, and (iv) has not received notice of any insurance premium which will be materially increased in the future. There are no outstanding claims under any such policy which have gone unpaid for more than 45 days as to which the insurer has disclaimed liability. SECTION 2.19 Outstanding Contracts. Schedule 2.19 sets forth a list of all existing contracts, agreements, leases (other than real property leases), commitments, licenses and franchises related to the Business, which involve obligations or commitments by Seller of $50,000 or more and are not cancelable by Seller without penalty within thirty (30) days, along with a list or copy of all of purchase orders being transferred by Seller to Buyer hereunder (together with those not required to be listed because of the amount involved, collectively, the "Contracts"), whether written or oral. Seller has delivered or made available to Buyer true, correct and complete copies of all of the Contracts specified on Schedule 2.19 which are in writing, and such schedule sets forth a complete description of all Contracts which are not in writing. All of the Contracts on Schedule 2.19 are in full force and effect and enforceable in accordance with their terms. Seller and, to the Knowledge of Seller, each other party thereto has 10 materially performed all the obligations required to be performed by it, has received no notice of default and is not in default (with due notice or lapse of time or both) under any of these Contracts. Seller has no Knowledge of any significant breach by the other party to any of the Contracts to which Seller is a party. No written notice of termination of, or any threat to terminate, any of the Contracts has been given or received by Seller. SECTION 2.20 Outstanding Leases. Schedule 2.20 sets forth a list of each agreement by which Seller leases each parcel of real property (the "Real Property") used in connection with the Business (collectively, the "Leases"). Seller has delivered or made available to Buyer true, correct and complete copies of all of the Leases specified on Schedule 2.20. All rents due under the Leases have been paid. All of the Leases are in full force and effect and enforceable in accordance with their terms. Except as set forth on Schedule 2.20, Seller, and to the Knowledge of Seller, each other party thereto has performed all the obligations required to be performed by it, has received no notice of default and is not in default (with due notice or lapse of time or both) under any of the Leases. Seller has no Knowledge of any breach or anticipated breach by the other party to any of the Leases. No written notice of termination of, or any threat to terminate, any of the Leases has been given or received by Seller. SECTION 2.21 Foreign Person. Seller is not a foreign person as that term is defined in Section 1445(f)(3) of the Code and applicable regulations. SECTION 2.22 Significant Customers. Set forth on Schedule 2.22 is a true and correct list of Business' twenty (20) largest customers, based upon the amount of revenues attributable to such customers for the most recent twelve (12) month period ending December 31, 2001, together with the amount of services attributable to such customers expressed in dollars and as a percentage of total sales and services. SECTION 2.23 Taxes. (a) All federal, state, local and foreign tax returns and tax reports and customs reports or filings (collectively "Tax Returns") required to be filed by Seller on or before the date hereof have been timely filed with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed and all amounts shown as owing thereon or actually owed have been paid. All taxes, including, without limitation, income, accumulated earnings, property, sales, use, franchise, capital stock, excise, license, value added, fuel, customs, employees' income withholding and social security taxes (collectively, "Taxes"), which have become due or payable or are required to be collected by Seller or are otherwise attributable to any periods ending on or before the Closing Date and all interest and penalties thereon, whether disputed or not, have been paid. Seller currently is not the beneficiary of any extension of time within which to file any Tax Return. There are no Claims on any of the Transferred Assets that arose in connection with any failure (or alleged failure) to pay any Tax, and Seller has no Knowledge of any basis for assertion of any claims attributable to such Taxes, which, if adversely determined, would result in any such Claim. (b) Seller has delivered or made available to Buyer copies of, and Schedule 2.23 contains a complete and accurate list of, all Tax Returns filed since January 1, 1999. Schedule 2.23 contains a complete and accurate list of all Tax Returns of Seller that have been audited or are currently under audit and accurately describes any deficiencies or other amounts 11 that were paid or are currently being contested. To the Knowledge of Seller, no undisclosed deficiencies are reasonably expected to be asserted with respect to any such audit. Seller has no Knowledge that any governmental body or authority is likely to assess any additional Taxes for any period for which Tax Returns have been filed. Seller has not given or been requested to give waivers or extensions of any statute of limitations relating to the payment of Taxes of Seller for which Seller may be liable. (c) The charges, accruals and reserves with respect to Taxes on the books and records of Seller are adequate (determined in accordance with GAAP) and are at least equal to Seller's liability for Taxes. (d) All Taxes that Seller is or was required by law to withhold, deduct or collect have been duly withheld, deducted and collected and, to the extent required, have been paid to the proper governmental body or authority. (e) There is no tax sharing arrangement, tax allocation agreement, tax indemnity obligation or similar written or unwritten agreement, arrangement, understanding or practice with respect to Taxes that will require any payment by Seller. (f) Seller has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. SECTION 2.24 Litigation. Except as set forth on Schedule 2.24, there is no (i) action, suit, claim, proceeding or investigation pending or, to the Knowledge of Seller, threatened against the Business at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration proceeding pending against the Business, or (iii) governmental inquiry pending or, to the Knowledge of Seller, threatened against or involving the Business. There are no outstanding material orders, writs, judgments, injunctions or decrees served upon Seller by any court, governmental agency or arbitration tribunal against Seller. Seller is not in default with respect to any material order, writ, injunction or decree served upon it from any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. There is no material action or suit by Seller pending or threatened against any third party. SECTION 2.25 Environmental Matters. Except as disclosed in Schedule 2.25: (a) The Seller has at all times conducted its operations in substantial compliance with, and all equipment is in substantial compliance with, all applicable Environmental Laws. There is no pending or, to the knowledge of Seller, threatened claim, lawsuit, agency proceeding, or other action or proceeding arising under Environmental Laws concerning the Transferred Assets or operation of the Transferred Assets. Except as set forth on Schedule 2.25, none of the equipment contains any Hazardous Material. (b) As used in this Section 2.25, the term "Environmental Law" shall mean any federal, state, local, or other law, ordinance, code, regulation, order or decree issued, promulgated or entered into by any governmental entity, relating to the environment, preservation or reclamation of natural resources, or to Hazardous Materials. 12 (c) As used in this Section 2.25, the term "Hazardous Materials" shall mean any flammables, explosives, radioactive materials, asbestos, presumed asbestos-containing material, polychlorinated biphenyls ("PCBs"), pollutants, contaminants, hazardous wastes, toxic substances or related materials, urea formaldehyde, petroleum and petroleum products. SECTION 2.26 Intellectual Property. (a) The term "Intellectual Property Assets" means all intellectual property that is owned, licensed (as licensor or licensee) or utilized by Seller or in which Seller has a proprietary interest and which is used in the Business (other than licenses for commonly available software programs under which Seller is a licensee), including, without limitation: (i) all assumed fictional business names, trade names, registered and unregistered trademarks, service marks and applications (collectively, "Marks"); (ii) all patents, patent applications and inventions and discoveries that may be patentable (collectively, "Patents"); (iii) all registered and unregistered copyrights in both published works and unpublished works (collectively, "Copyrights"); (iv) all rights in mask works; (v) all know-how, trade secrets, confidential or proprietary information, customer lists, software, technical information, data, process technology, plans, drawings and blue prints (collectively, "Trade Secrets"). (b) Schedule 2.26 contains a complete and accurate list and summary description, including royalties paid or received by Seller with respect to the Business for the last two years, and Seller has delivered to Buyer accurate and complete copies, of all Seller contracts relating to the Intellectual Property Assets. Except as set forth on Schedule 2.26, there are no outstanding and, to Seller's Knowledge, no threatened disputes or disagreements with respect to any such contract. (c) Except as set forth on Schedule 2.26, the Intellectual Property Assets are all those necessary for the operation of the Business as it is currently conducted. Except as otherwise provided in Schedule 2.26, Seller is the owner or licensee of all right, title and interest in and to each of the Intellectual Property Assets, free and clear of all Claims, and has the right to use without payment to another Person, all of the Intellectual Property Assets. (d) Schedule 2.26 contains a complete and accurate list and summary description of all Patents used exclusively in the Business. All of the issued Patents used in the Business are currently in compliance with formal Legal Requirements (including payment of filing, examination and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date. (e) Schedule 2.26 contains a complete and accurate list and summary description of all Marks used exclusively in the Business. Except as otherwise provided on 13 Schedule 2.26, all Marks used in the Business have been registered with the United States Patent and Trademark Office, are currently in compliance with all formal Legal Requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) are valid and enforceable and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date. (f) Schedule 2.26 contains a complete and accurate list and summary description of all Copyrights used exclusively in the Business. All registered Copyrights used in the Business are currently in compliance with all formal Legal Requirements. (g) Schedule 2.26 contains a complete and accurate list and summary description of all Licensed Assets being transferred to Buyer pursuant to the License Agreement. Seller has the right to enter into the License Agreement and license the Licensed Assets to Buyer free and clear of all claims and without payment of any license fee. (h) There are no pending or, to the Knowledge of Seller, threatened proceedings or litigation or other adverse claims affecting or with respect to any of the Intellectual Property Assets. There is, to the Knowledge of Seller, no reasonable basis upon which a claim may be asserted against Seller for infringement of any Intellectual Property Assets of any other Person. To the Knowledge of Seller, no Person is infringing the Intellectual Property Assets. SECTION 2.27 No Material Adverse Change. Since the Balance Sheet Date, there has not been any material adverse change in the Business, operations, assets, results of operations or condition (financial or otherwise) of Seller, and no event has occurred that is reasonably likely to result in such a material adverse change. SECTION 2.28 Product Warranty. To the Knowledge of Seller, Seller does not have any liabilities for product warranties other than those set forth in the terms and conditions of sale furnished to Buyer. SECTION 2.29 Product Liability. To the Knowledge of Seller, Seller does not have any liability arising out of any injury to individuals or property as a result of the ownership, possession or use of any product manufactured, sold, leased or delivered by Seller in connection with the Business. SECTION 2.30 Certain Practices. To the Knowledge of Seller, none of Seller's directors, officers or employees have, directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entry on the books or records of Seller or any subsidiary; given any favor or gift which is not deductible for federal income tax purposes; or made any bribe, kickback, or other payment of a similar or comparable nature, whether lawful or not, to any person or entity, private or public, regardless of form, whether in money, business or to obtain special concessions, or to pay for favorable treatment for business secured or for special concessions already obtained. 14 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER As an inducement to Buyer to enter into this Agreement and to consummate the transactions contemplated hereby, Shareholder represents and warrants to Buyer as follows: SECTION 3.1 Organization and Qualification. Shareholder is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct its business as it is now being conducted. SECTION 3.2 Corporate Power and Authority. Shareholder (a) has the power and authority to execute, deliver and perform this Agreement and the Documents contemplated hereby to be executed and delivered by it and to consummate the transactions contemplated hereby and thereby, and (b) has taken all necessary corporate and shareholder action to authorize and approve the execution, delivery and performance of this Agreement and the Documents and the consummation of the transactions contemplated hereby and thereby. This Agreement and the Documents have been duly and validly executed and delivered by Shareholder and, subject to due execution and delivery by Buyer, constitute valid and binding obligations of Shareholder, enforceable against Shareholder in accordance with their terms. SECTION 3.3 Validity, Etc. Except as set forth on Schedule 2.4, neither the execution and delivery of this Agreement or the other Documents to which Shareholder is a party, the consummation of the transactions contemplated hereby or thereby, nor the performance of this Agreement or the Documents in compliance with the terms and conditions hereof and thereof by Seller will, directly or indirectly (with or without notice or lapse of time) (i) violate, conflict with or result in any breach of the Certificate of Incorporation, bylaws or any resolutions adopted by the board of directors or shareholders of Seller, (ii) violate, conflict with or result in a breach, default or termination under any contract or agreement to which Seller is party or give rise to any right of termination, cancellation or acceleration of the maturity of any payment date of any of the indebtedness or other obligation of Seller, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained in writing and provided to Buyer, (iii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, or (iv) result in the creation of any Claim upon the Transferred Assets. Shareholder is not and will not be required to obtain any consent or approval from or to provide any notice to any Person in connection with the execution and delivery of this Agreement or the consummation or performance of the transactions contemplated by this Agreement and the other Documents. SECTION 3.4 Relationships with Affiliates. Except as disclosed in Schedule 3.4, Shareholder has no interest in any property (whether real, personal or mixed and whether tangible or intangible) used in or pertaining to the Business. Neither Shareholder nor any Affiliate (defined below) of Shareholder during 2001 engaged in any transaction or series of related transactions with the Business involving more than $60,000 other than business dealings or transactions disclosed in Schedule 3.4, each of which has been conducted in the ordinary course of business with Seller at substantially prevailing market prices and on substantially prevailing market terms. An "Affiliate" is as defined by the Securities and Exchange Commission. 15 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER As an inducement to Seller and Shareholder to enter into this Agreement and to consummate the transactions contemplated hereby, Buyer represents and warrants to Seller and Shareholder as follows: SECTION 4.1 Organization and Qualification. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. SECTION 4.2 Corporate Power and Authority. Buyer (a) has the corporate power and authority to execute, deliver and perform this Agreement and the Documents to be executed by it and to consummate the transactions contemplated hereby and thereby, and (b) has taken all necessary corporate and shareholder action to authorize and approve the execution, delivery and performance of this Agreement and the other Documents and the consummation of the transactions contemplated hereby and thereby. This Agreement and the other Documents to which Buyer is a party have been duly and validly executed and delivered by Buyer and, subject to due execution and delivery by Seller and Shareholder, constitute valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms. SECTION 4.3 Validity, Etc. Neither the execution and delivery of this Agreement or the other Documents to which Buyer is a party, the consummation of the transactions contemplated hereby or thereby, nor the performance of this Agreement or the other Documents to which Buyer is a party in compliance with the terms and conditions hereof and thereof by Buyer will violate, conflict with or result in any breach of the Certificate of Incorporation or bylaws of Buyer or any writ, injunction, judgment, decree, order, statute, rule or regulation applicable to Buyer. SECTION 4.4 Broker's or Finder's Fee. No agent, broker, Person or firm acting on behalf of Buyer is, or will be, entitled to any commission or broker's or finder's fees from Buyer, or from any Person controlling, controlled by or under common control with Buyer, in connection with any of the transactions contemplated herein. ARTICLE 5 COVENANTS AND AGREEMENTS SECTION 5.1 Required Approvals. As promptly as practicable after the date of this Agreement, Seller shall make all filings and give all notices that are required by law to be made in order to consummate the transactions contemplated by this Agreement and the other Documents (including all filings under the Hart Scott Rodino Act). Seller and Shareholder shall also cooperate with Buyer and its representatives with respect to all filings that Buyer elects to make or, pursuant to applicable law, shall be required to make in order to consummate the transactions contemplated by this Agreement and the other Documents. Seller and Shareholder shall use their Best Efforts to obtain all consents of third parties that are required in connection with this transaction, unless otherwise waived by Buyer. 16 SECTION 5.2 Employees And Employee Benefits. (a) Information on Active Employees. For purposes of this Agreement, the term "Active Employees" shall mean all employees employed by Seller or an Affiliate in connection with the Business immediately prior to the Effective Time who are: (i) bargaining unit employees currently covered by a collective bargaining agreement, or (ii) employed exclusively in the Business as currently conducted, including employees on temporary leave of absence, including family medical leave, military leave, temporary disability or sick leave, but excluding employees on long-term disability leave. (b) Employment of Active Employees by Buyer. (i) Buyer will have reasonable access to the facilities and personnel records (including performance appraisals, disciplinary actions, grievances and medical Records) of Seller or an Affiliate for the purpose of preparing for and conducting employment interviews with any Active Employees it chooses to interview. Buyer shall offer employment to the Active Employees listed on Schedule 5.2, but is not otherwise obligated to hire any Active Employee. Any Active Employees to whom Buyer has made an offer of employment that has been accepted to be effective as of the Effective Time shall be referred to as the "Hired Active Employees". Buyer shall give service credit for service with Seller for purposes of Buyer's benefit plans, arrangements, policies and procedures, including, but not limited to (i) eligibility to participate and qualify for benefits under all of Buyer's "employee welfare benefit plans", and (ii) eligibility to participate and vesting under Buyer's "employee pension benefit plans" as defined under ERISA. Provided, however, that Buyer shall not give service credit for service with Seller for purposes of any of Buyer's severance plans, arrangements, policies and procedures and benefit accrual or calculation purposes unless the employment of a Hired Active Employee is terminated within the first twelve (12) months of employment with Buyer, in which case Buyer shall give two (2) weeks service credit for each year of service with Seller. Effective immediately before the Effective Time, Seller will terminate the employment of all of its Hired Active Employees. Buyer shall be given a reasonable opportunity to hire any Active Employees being retained by Seller for purposes of the Transition Services Agreement upon the completion of that agreement and any such employees hired by Buyer shall be considered Hired Active Employees. (ii) Neither Seller nor Shareholder nor their Affiliates shall solicit the continued employment of any Active Employee (unless and until Buyer has informed Seller in writing that the particular Active Employee will not receive any employment offer from Buyer in accordance with the above provisions). For a period of two (2) years after the Closing, neither Arris Group, Inc., the parent of the Shareholder (the "Shareholder Parent"), nor any of its subsidiaries will knowingly hire any other Hired Active Employee (unless and until that Employee 17 has been terminated by Buyer) or in any manner induce or attempt to induce any employee of Seller to terminate his or her employment with Buyer. (iii) It is understood and agreed that (A) Buyer's obligation to extend offers of employment as set forth in this section shall not constitute any commitment, contract or understanding (expressed or implied) of any obligation on the part of Buyer to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that Buyer may establish pursuant to individual offers of employment, except as otherwise provided herein, and (B) employment offered by Buyer is "at will" and may be terminated by Buyer or by an employee at any time for any reason (subject to any written commitments to the contrary made by Buyer or an employee and applicable law, to the provision of severance benefits in accordance with Buyer's plans and practices, and the collective bargaining agreement, if applicable). Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Buyer to terminate, reassign, promote or demote any of the Hired Active Employees after the Closing or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment of such employees. (c) Salaries and Benefits. (i) Seller shall be responsible for (A) the payment of all wages and other remuneration due to Active Employees with respect to their services as employees of Seller through the Effective Time, including pro rata bonus payments and all vacation pay earned prior to the Effective Time; (B) the payment of any termination or severance payments and the provision of health plan continuation coverage in accordance with the requirements of COBRA and Sections 601 through 608 of ERISA; and (C) any and all payments to employees required under the Worker Adjustment and Retraining Notification Act (the "WARN Act."). (ii) Seller shall be liable for any claims made or incurred by Active Employees and their beneficiaries through the Closing Date under the Employee Plans. For purposes of the immediately preceding sentence, a charge will be deemed incurred, in the case of hospital, medical or dental benefits, when the services that are the subject of the charge are performed and, in the case of other benefits (such as disability or life insurance), when an event has occurred or when a condition has been diagnosed that entitles the employee to the benefit. (d) Seller's Retirement and Savings Plans. All Hired Active Employees who are participants in Seller's retirement plans shall retain their accrued benefits under Seller's retirement plans as of the Closing Date, and Seller (or Seller's retirement plans) shall retain sole liability for the payment of such benefits as and when such Hired Active Employees become eligible therefor under such plans. All Hired Active Employees shall become fully vested in their accrued benefits under Seller's retirement plans as of the Closing Date, and Seller will so amend such plans if necessary to achieve this result. 18 (e) No Transfer of Assets. Neither Seller nor Shareholder nor their respective Affiliates will make any transfer of pension or other employee benefit plan assets to Buyer, until such time as approved by Buyer. (f) General Employee Provisions. (i) Seller and Buyer shall give any notices required by law and take whatever other actions with respect to the plans, programs and policies described in this Section 5.2 as may be necessary to carry out the arrangements described in this Section 5.2. (ii) Seller and Buyer shall provide each other with such plan documents and summary plan descriptions, employee data or other information as may be reasonably required to carry out the arrangements described in this Section 5.2. (iii) If any of the arrangements described in this Section 5.2 are determined by the Internal Revenue Service or other governmental body to be prohibited by law, Seller and Buyer shall modify such arrangements to as closely as possible reflect their expressed intent and retain the allocation of economic benefits and burdens to the parties contemplated herein in a manner that is not prohibited by law. (iv) Except as disclosed in Schedule 5.2(b)(iv), Seller has no foreign born Hired Active Employees who are employed in the United States pursuant to a work visa. (v) Buyer shall not have any responsibility, liability or obligation, whether to Active Employees, former employees, their beneficiaries or to any other Person, with respect to any employee benefit plans, practices, programs or arrangements (including the establishment, operation or termination thereof and the notification and provision of COBRA coverage extension) maintained by Seller. (g) Incentive Arrangements. For the 2002 and 2003 Revenue Periods, Buyer will establish incentive arrangements for the achievement of revenues and gross profits on an aggregate basis during the Revenue Period for the Hired Active Employees who had incentive plans for the year prior to the Closing consistent with Buyer's current incentive plans for employees in similar positions. SECTION 5.3 Customer and Other Business Relationships After the Closing, Seller and Shareholder shall cooperate with Buyer in its efforts to continue and maintain for the benefit of Buyer those business relationships of Seller existing prior to the Closing and relating to the business to be operated by Buyer after the Closing, including relationships with lessors, employees, regulatory authorities, licensors, customers, suppliers and others. Seller will refer to Buyer all inquiries relating to the Business, other than Retained Liabilities. Neither Seller nor any of its officers, employees, agents or shareholders shall take any action that would tend to diminish the value of the Transferred Assets after the Closing or that would interfere with the 19 business of Buyer to be engaged in after the Closing, including disparaging the name or business of Buyer. SECTION 5.4 Tax Returns. After the Closing, Seller shall prepare, at its sole expense, and timely file all of Seller's required Tax Returns, including, but not limited to, any short period returns and returns in the normal course. Seller and/or Shareholder, as applicable, shall be responsible for the payment of all amounts due or actually owed under such Tax Returns, and shall indemnify, defend and hold Buyer harmless against all Taxes due from or assessed against Seller. SECTION 5.5 Employment Tax Reporting.. Following the Closing Date, Buyer and Seller shall abide by the alternate procedure for employment tax reporting set forth in Section 5 of IRS Revenue Procedure 96-60 with respect to the filing of all applicable Form W-2s, 941s or other related employment tax filings for 2002. SECTION 5.6 Payment of Liabilities. Seller shall pay and satisfy in full all the Retained Liabilities. SECTION 5.7 Covenants of Seller and Shareholder. (a) Confidential Information and Trade Secrets. Seller and Shareholder hereby agree that they and each of their respective directors, officers, shareholders and employees shall not disclose to any Person any confidential and trade secret information, including, but not limited to, matters of a technical nature, such as formulae, "know how," computer programs, systems and software (including, without limitation, documentation and related source and object codes), product sources, product research and designs, and matters of a business nature, such as its customer lists, customer contact information, on-site program and support materials, training programs and associated materials, pricing lists, contracts, sales reports, sales, financial and marketing data, systems, forms, methods, procedures, and analyses, and any other proprietary information, whether communicated orally or in documentary or other tangible form, primarily concerning the Business (hereinafter, collectively referred to as "Confidential Information"). Seller and Shareholder recognize that Seller has invested considerable amounts of time and money in attaining and developing the Confidential Information, and any unauthorized disclosure or release of such Confidential Information in any form would irreparably harm Buyer. Notwithstanding the foregoing, the obligations imposed by this Section shall not apply, or shall cease to apply, to any Confidential Information if and when, but only to the extent that, such Confidential Information: (i) was, or becomes through no breach of Seller or Shareholder hereunder, known to the public; or (ii) becomes known to Seller or Shareholder from a source other than Buyer under circumstances which, to the Knowledge of Seller and Shareholder, do not involve any breach of any confidentiality obligations between such source and Buyer. In addition, it shall not be a breach of Seller's and Shareholder's obligations hereunder for Seller or Shareholder to disclose Confidential Information where, but only to the extent that, such disclosure is required by law or applicable legal process. (b) Non-Competition Covenants. Seller and Shareholder operate the Business throughout the United States of America, India and Mexico (the "Territory"). In consideration of the rights granted hereunder, Seller and Shareholder agree that during the Non-Compete Period (as defined below) neither they, Shareholder Parent nor any other subsidiary of Shareholder 20 Parent shall (without the prior written consent of Buyer), in any manner, directly or indirectly, engage in, have any equity or profit interest in, make any loan to or for the benefit of, guaranty the repayment of funds by, or render any services of any executive, marketing, sales, administrative, supervisory or consulting nature to any business conducting operations in the Territory which are competitive with the Business, except as set forth on Schedule 5.7, except as contemplated by the Distribution Agreement (defined in Section 6.3 below) or except for an interest that is acquired as part of an acquisition or merger and divested within six (6) months of acquisition. (c) Non-Solicitation and Other Covenants. Seller and Shareholder further agree that during the Non-Compete Period, neither they, Shareholder Parent nor any other subsidiary of Shareholder Parent shall, without the prior written approval of Buyer, directly or indirectly, acting either alone or in concert with others: (i) solicit, divert or appropriate or attempt to solicit, divert or appropriate any customers, clients, or suppliers of Seller for the purpose of providing services competitive, with the Business, except as set forth in Schedule 5.7, except as contemplated by the Distribution Agreement or except in the case of an acquisition which is being divested as provided above; or (ii) at any time publicly disparage Buyer or any of its shareholders, directors, officers, employees or agents. (d) Non-Compete Period. As used herein, "Non-Compete Period" shall mean the period beginning on the Closing Date and ending on the third (3rd) anniversary of the Closing Date. (e) Severability. If any court shall in any proceeding refuse to enforce Section 5.7(b) in whole or in part because the time limit, geographical scope or any other element thereof is deemed unreasonable in the jurisdiction of that court, it is expressly understood and agreed that Section 5.7(b) shall not be void but, for the purpose of such proceeding, such time limit, geographical scope or other element shall be deemed to be reduced to the extent necessary to permit the enforcement of Section 5.7(b) to the maximum extent allowable in that particular jurisdiction. The foregoing, however, is not intended to and shall not in any way affect, invalidate or limit the remaining provisions of Section 5.7(b) or affect, invalidate or limit the validity or enforceability of Section 5.7(b) as written in any other jurisdiction at any time. (f) Injunctive Relief. Seller and Shareholder hereby agree that any breach or threatened breach by Seller or Shareholder of Section 5.7(a), Section 5.7(b) or Section 5.7(c) of this Agreement will irreparably injure Buyer and that any remedy at law for any breach or threatened breach by Seller or Shareholder of the provisions contained in Section 5.7(a), Section 5.7(b) or Section 5.7(c) hereof shall be inadequate, and that Buyer shall be entitled to injunctive relief in addition to any other remedy they might have under this Agreement or at law or in equity without the necessity of (i) proving monetary damages or the insufficiency thereof. SECTION 5.8 Further Assurances. Buyer, Seller and Shareholder shall cooperate reasonably with each other and with their respective representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish upon request to each other such further information; (b) execute and deliver to each other such other documents; and (c) do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement, the other Documents and the transactions contemplated hereby and thereby. 21 SECTION 5.9 Best Efforts. Seller and Shareholder shall use their Best Efforts to cause the conditions in Article 6 to be satisfied. ARTICLE 6 CONDITIONS TO BUYER'S OBLIGATIONS The obligations of Buyer to make deliveries to Seller pursuant to Section 1.2 hereof and to consummate the other transactions contemplated hereby is subject to the satisfaction, on or before the Closing Date, of the following conditions each of which may be waived by Buyer in its sole discretion: SECTION 6.1 Consents. Except as set forth on Schedule 2.4 hereof, , Schedule 6.1 contains a complete list of all consents or approvals required in connection with the consummation of the transactions contemplated by this Agreement or the other Documents. All consents and approvals set forth on Schedule 6.1 shall have been obtained and shall be in full force and effect. SECTION 6.2 Solectron Manufacturing Services Agreement. Buyer and Solectron shall have executed and delivered a Manufacturing Services Agreement, in substantially the form attached hereto as Exhibit D (the "Solectron Manufacturing Services Agreement"). SECTION 6.3 Distribution Agreement. Telewire Supply, a division of Telewire International, Inc., a subsidiary of Shareholder, shall have executed and delivered to Buyer a Distribution Agreement in substantially the form attached hereto as Exhibit E (the "Distribution Agreement"). SECTION 6.4 Transition Services Agreement. Buyer and Shareholder shall have executed and delivered a Transition Services Agreement in substantially the form attached hereto as Exhibit F (the "Transition Services Agreement"). SECTION 6.5 Opinion of Counsel to Seller and Shareholder. Buyer shall have received from James E. Knox, counsel to Seller and Shareholder, an opinion, dated as of the Closing Date, in form and substance reasonably satisfactory to Buyer and in substantially the form of Exhibit G. SECTION 6.6 Approval of Board of Directors of Buyer and Approval of . The Board of Directors of Buyer and the Chief Executive Officer of shall have approved this Agreement and the transactions contemplated hereby. SECTION 6.7 Amendment to Certificate of Incorporation. Seller shall have prepared for filing Certificate of Amendment to its Certificate of Incorporation changing its name to a name other than "Keptel, Inc." SECTION 6.8 Closing Documents. Seller shall have delivered all of the resolutions, certificates, documents and instruments required by this Agreement. 22 ARTICLE 7 CONDITIONS TO SELLER'S OBLIGATIONS The obligation of Seller to transfer the Transferred Assets to Buyer and the obligations of Seller and the Shareholder to consummate the other transactions contemplated hereby is subject to the satisfaction, on or before the Closing Date, of the following conditions, each of which may be waived by Seller or Shareholder in their sole discretion: SECTION 7.1 Solectron Manufacturing Services Agreement. Buyer and Solectron Corporation shall have executed and delivered the Manufacturing Services Agreement. SECTION 7.2 Distribution Agreement. Buyer shall have executed and delivered the Distribution Agreement. SECTION 7.3 Transition Services Agreement. Buyer shall have entered into the Transition Services Agreement. SECTION 7.4 Opinion of Stites & Harbison. Seller and the Shareholder shall have received from Stites & Harbison, PLLC, counsel to Buyer, an opinion dated as of the Closing Date, in form and substance reasonably satisfactory to Seller and the Shareholder, and to the following effect: (a) Buyer is a corporation validly existing and in good standing under the laws of the State of Delaware; (b) Buyer has the corporate power and authority to execute, deliver and perform the Agreement and the other Documents to which it is a party. The Agreement and the other Documents to which it is a party have been duly and validly executed and delivered by Buyer and constitute the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms; and (c) The execution, delivery and performance of the Agreement and the other Documents to which Buyer is a party, and the consummation of the transactions contemplated hereby and thereby in compliance with the terms and conditions hereof and thereof by Buyer will not (i) violate, conflict with or result in any breach of the Certificate of Incorporation or bylaws of Buyer, (ii) to the knowledge of counsel, violate, conflict with or result in a breach, default or termination under any contract or agreement to which Buyer is a party or give rise to any right of termination, cancellation or acceleration of the maturity of any payment date of any indebtedness or other obligations of Buyer, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained in writing and provided to Seller, or (iii) to the knowledge of counsel, violate any order, writ, injunction, decree, statute, rule or regulation applicable to Buyer. SECTION 7.5 Closing Documents. Buyer shall have delivered all of the resolutions, certificates, documents and instruments required by this Agreement. 23 ARTICLE 8 THE CLOSING AND CERTAIN CLOSING DELIVERIES SECTION 8.1 Time and Place of Closing. Upon the terms and subject to the satisfaction of waiver of the conditions contained in this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the Seller at ___.m. on the date hereof (the "Closing Date"). The transactions contemplated in this Agreement shall be effective as of 12:01 A.M. on the Closing Date (the "Effective Time"). SECTION 8.2 Deliveries by Seller and the Shareholder. At the Closing, Seller and/or Shareholder, as appropriate, will deliver or cause to be delivered to Buyer the following: (a) the Bill of Sale required by Section 1.1(c); (b) the Assignment and Assumption Agreement required by Section 1.1(c); (c) the Distribution Agreement required by Section 6.3; (d) the Transition Services Agreement required by Section 6.5; (e) Articles of Amendment to Seller's Certificate of Incorporation; (f) a copy of the resolutions of the Board of Directors and shareholder of Seller adopting and approving this Agreement and the transactions contemplated hereby; and (g) all other documents, instruments and writings required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise required in connection herewith. SECTION 8.3 Deliveries by Buyer. At the Closing, Buyer will deliver the following to Seller: (a) the payment required by Section 1.2(a) above; (b) the Assignment and Assumption Agreement required by Section 1.1(c) above; (c) a certificate from an authorized representative of Buyer certifying satisfaction of the conditions precedent in Sections 6.2 and 6.6; (d) the Distribution Agreement required by Section 7.2 above; (e) the Transition Services Agreement required by Section 7.4; (f) a copy of the resolutions of the Board of Directors of Buyer adopting the Agreement and authorizing the transactions contemplated hereby; and 24 (g) all other documents, instruments and writings required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise required in connection herewith. ARTICLE 9 SURVIVAL AND INDEMNIFICATION SECTION 9.1 Survival. All representations, warranties and indemnification obligations contained in this Agreement and the other Documents shall survive the Closing of the purchase of the Transferred Assets contemplated by this Agreement for a period of three (3) years, except that (a) claims, if any, asserted in writing prior to such third anniversary identified as a claim for indemnification pursuant to this Article 9 shall survive until finally resolved and satisfied in full; and (b) customs, tax, or environmental representations and warranties contained in Section 2.14, Section 2.23 or Section 2.25, respectively, and any claims resulting from a breach thereof shall survive for the full period of the applicable statute of limitations, and until finally resolved and satisfied in full if asserted in writing on or prior to the expiration of any such period. The representations and warranties shall not be affected or otherwise diminished by any investigation at any time by or on behalf of the party for whose benefit such representations and warranties were made. SECTION 9.2 Indemnification by Seller and the Shareholder. Subject to the terms and limitations in this Article 9, Seller and Shareholder, jointly and severally, shall indemnify, defend, and hold Buyer, its directors, officers, shareholders and successors and assigns (the "Buyer's Indemnitees") harmless from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense of any kind or character, including reasonable attorneys' fees and expenses (the "Buyer Damages"), arising out of or in any manner incident, relating or attributable to: (a) any inaccuracy in any representation or breach of any warranty of Seller or the Shareholder contained in this Agreement; (b) any failure by Seller or Shareholder to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by it under this Agreement; (c) liabilities or obligations relating to, or arising out of, the operation of the Business prior to the Effective Time, whether or not such liabilities, obligations or claims were known on such date, but excluding the Assumed Liabilities and matters for which Seller and Shareholder are to be indemnified pursuant to Section 9.4; (d) any brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any Person with Seller or Shareholder (or any Person acting on their behalf) in connection with any of the transactions contemplated by this Agreement; (e) any liability under the WARN Act or any similar state or local Legal Requirement that may result from an "Employment Loss," as defined by 29 U.S.C. Section 2101 (a) 25 (6), caused by any action of Seller prior to the Closing or by Buyer's decision not to hire previous employees of Seller to whom Buyer has not agreed to offer employment; or (f) any current or former Employee Plan established or maintained by Seller or an Affiliate. SECTION 9.3 Notice to Seller, Etc. If any of the matters as to which Buyer's Indemnitees are entitled to receive indemnification under Section 9.2 should entail litigation with or claims asserted by parties other than Seller, Buyer shall give Seller prompt notice thereof and Seller shall have the right, at its expense, to control such claim or litigation upon prompt notice to Buyer of its election to do so. To the extent requested by Seller, Buyer, at its expense, shall cooperate with and assist Seller, in connection with such claim or litigation. Buyer shall have the right to appoint, at its expense, legal counsel to consult with and remain advised by Seller in connection with such claim or litigation. Seller shall have final authority to determine all matters in connection with such claim or litigation; provided, however, that Seller shall not settle any third party claim without the consent of Buyer, which shall not be unreasonably denied or delayed. SECTION 9.4 Indemnification by Buyer. Buyer shall indemnify, defend, and hold Seller, Seller's directors and officers, Shareholder and their respective successors and assigns (the "Seller's Indemnitees") harmless from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense of any kind or character, including reasonable attorneys' fees and expenses (the "Seller Damages"), arising out of or in any manner incident, relating or attributable to: (a) any inaccuracy in any representation or breach of warranty of Buyer contained in this Agreement; (b) any failure by Buyer to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by it under this Agreement; (c) the failure of Buyer to pay or perform the Assumed Liabilities subsequent to the Closing Date; (d) liabilities or obligations relating to or arising out of the operation of the Business after the Effective time including, without limitation, those arising from the sale of products or use of materials included in the Inventory; or (e) any brokerage or finder's fees or commissions or similar payments based upon any agreement or understanding made, or alleged to have been made, by any Person with Buyer (or any Person acting on its behalf) in connection with any of the transactions contemplated by this Agreement. SECTION 9.5 Notice to Buyer, Etc. If any of the matters as to which Seller's Indemnitees are entitled to receive indemnification under Section 9.4 should entail litigation with or claims asserted by parties other than Buyer, Seller shall give Buyer prompt notice thereof and Buyer shall have the right, at its expense, to control such claim or litigation upon prompt notice to Seller of its election to do so. To the extent requested by Buyer, Seller and Shareholder, at 26 their expense, shall cooperate with and assist Buyer, in connection with such claim or litigation. Seller and Shareholder shall have the right to appoint, at its expense, legal counsel to consult with and remain advised by Buyer in connection with such claim or litigation. Buyer shall have final authority to determine all matters in connection with such claim or litigation; provided, however, that Buyer shall not settle any third party claim without the consent of Seller, which shall not be unreasonably denied or delayed. SECTION 9.6 Limitations on Indemnification. Notwithstanding anything in this Agreement to the contrary, the aggregate liability of Seller and Shareholder under Section 9.2(a) shall be limited to thirty percent (30%) of the amount of the Purchase Price (the "Cap") and in no event shall Seller or the Shareholder be required to make to any Buyer's Indemnitee any payments to satisfy its obligations under Section 9.2(a) in excess of such amount; provided, however, that this Cap shall not apply to a breach of the representations or warranties relating to Assets contained in Section 2.16. In no event shall Buyer's Indemnitees be entitled to seek any relief or exercise any rights against either Seller or the Shareholder pursuant to the terms of Section 9.2(a) until and solely to the extent Buyer Damages hereunder exceed an aggregate amount of $300,000; provided, however that Seller and Shareholder shall indemnify Buyer's Indemnitees from any claims resulting from a breach of the customs, tax environmental or product warranty representations and warranties contained in Section 2.14, Section 2.23, Section 2.25 and Section 2.28, respectively, from the first dollar for claims or liabilities of Seller for which Buyer is to be held harmless pursuant to this Agreement. Notwithstanding anything in this Agreement to the contrary, the aggregate liability of Buyer under Section 9.4(a) shall be limited to thirty percent (30%) of the amount of the Purchase Price and in no event shall Buyer be required to make to any Seller's Indemnitee any payments to satisfy its obligations under Section 9.4(a) in excess of such amount. In no event shall Seller's Indemnitees be entitled to seek any relief or exercise any rights against either Buyer pursuant to the terms of Section 9.4(a) until and solely to the extent Seller Damages hereunder exceed an aggregate amount of $300,000. SECTION 9.7 Offset. The parties agree that each party shall be entitled to offset any indemnity claim under Section 9.2 against any payment due to that party under the Agreement. SECTION 9.8 Consequential Damages. Anything to the contrary contained herein notwithstanding, in no event shall any party hereto be liable for indirect, special, consequential or punitive damages arising out of a breach of this Agreement or a representation or warranty thereof, even if advised of the possibility of such damages; provided, however, that a party shall be entitled to seek consequential damages relating to or arising out of such a breach if such breach constituted fraud or bad faith. SECTION 9.9 Exclusive Remedy. The indemnification provisions of this Article 9 shall be the exclusive remedy for any breach of any representation, warranty or obligation of this Agreement, absent fraud or bad faith. 27 ARTICLE 10 MISCELLANEOUS SECTION 10.1 Knowledge of Seller or Shareholder. For purposes of this Agreement, the term "Knowledge" when applied to Seller or Shareholder, shall mean the current, actual knowledge of the President of Seller and the President and Chief Financial Officer of Shareholder after conducting a reasonably comprehensive investigation regarding such fact or matter. SECTION 10.2 Knowledge of Buyer. For purposes of this Agreement, the term "Knowledge" when applied to Buyer, shall mean the current, actual knowledge of the President of Buyer after conducting a reasonably comprehensive investigation regarding such fact or matter. SECTION 10.3 Best Efforts. For purposes of this Agreement, the term "Best Efforts" shall mean the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible; provided, however, that a Person required to use Best Efforts under this Agreement will not be required to take actions that would result in a material adverse change in the benefits to such Person of this Agreement and the transactions contemplated hereby or to dispose of or make any change to its business, expend any funds or incur any other burden, except for nominal funds or burdens. SECTION 10.4 Schedules. The disclosures in the Schedules must relate only to the representations and warranties in the section of the Agreement to which they expressly relate and not to any other representation or warranty in this Agreement. In the event of any inconsistency between the statements in the body of this Agreement and those in the Schedules (other than an exception clearly and expressly set forth in such in the Schedules with respect to a specifically identified representation or warranty), the statements in the body of this Agreement shall control. SECTION 10.5 Publicity. Any public announcement or similar publicity with respect to this Agreement or the transactions contemplated hereby will be issued, if at all, at such time and in such manner as the parties mutually determine, subject to the obligation of each party to disclose material matters under the securities laws and the rules of the relevant exchanges. Seller and Buyer shall consult with each other concerning the means by which Seller's employees, customers, suppliers and others having dealings with Seller will be informed of this Agreement and the transactions contemplated hereby, and Buyer shall have the right to be present for any such communication. SECTION 10.6 Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) sent by recognized overnight courier, (iii) made by facsimile transmission, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. 28 If to Buyer: With a copy, which shall not constitute notice, to each of: If to Seller or the Shareholder: Arris International, Inc. 11470 Technology Circle Duluth, GA 30097 Attention: __________________ Facsimile __________________ with a copy, which shall not constitute notice, to: Arris International, Inc. 11470 Technology Circle Duluth, GA 30097 Attention: Larry Margolis Facsimile (678) 473-8470 All notices, requests, consents and other communications hereunder shall be deemed to have been given (i) if by hand, at the time of the delivery thereof to the receiving party at the address of such party set forth above, (ii) if sent by overnight courier, on the next business day following the day such notice is delivered to the courier service, (iii) if made by telecopy or facsimile transmission, at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise, or (iv) if sent by registered or certified mail, on the fifth business day following the day such mailing is sent. The address of any party herein may be changed at any time by written notice to the parties. SECTION 10.7 Entire Agreement. This Agreement and the other Documents embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior oral or written agreements and understandings relating to the subject matter hereof. No statements, representation, warranty, covenant or agreement of any kind not expressly set forth in the other Documents shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. SECTION 10.8 Modifications and Amendments. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by all parties hereto. SECTION 10.9 Assignment/Binding Effect. Neither this Agreement, nor any right hereunder, may be assigned by any of the parties hereto without the prior written consent of the 29 other parties. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. SECTION 10.10 Parties in Interest. Nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no Person shall be regarded as a third-party beneficiary of this Agreement. SECTION 10.11 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the internal laws of the State of Delaware without giving effect to the conflict of law principles thereof. SECTION 10.12 Severability. In the event that any tribunal of competent jurisdiction shall finally determine that any provision, or any portion thereof, contained in this Agreement shall be void or unenforceable in any respect, then such provision shall be deemed limited to the extent that such tribunal determines it enforceable, and as so limited shall remain in full force and effect. In the event that such tribunal shall determine any such provision, or portion thereof, wholly unenforceable, the remaining provisions of this Agreement shall nevertheless remain in full force and effect. SECTION 10.13 Interpretation. The parties hereto acknowledge and agree that: (i) the rule of construction to the effect that ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement, and (ii) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto and not in favor of or against any party, regardless of which party was generally responsible for the preparation of this Agreement. SECTION 10.14 Headings and Captions. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect, or be considered in construing or interpreting the meaning or construction of any of the terms or provisions hereof. SECTION 10.15 Terms. Common nouns and pronouns refer to the masculine, feminine, neuter, singular and plural, as the identity of the Person may in the context require. Any reference to the Code or other statutes or laws include all amendments, modifications, or replacements of the specific sections and provisions concerned. SECTION 10.16 Reliance. The parties hereto agree that, notwithstanding any right of any party to this Agreement to investigate the affairs of any other party to this Agreement, the party having such right to investigate shall have the right to rely fully upon the representations and warranties of the other party expressly contained herein. SECTION 10.17 Expenses. Except as otherwise provided herein, each party shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) incurred in connection with this Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated. 30 SECTION 10.18 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same Agreement. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 31 SIGNATURES Buyer, Seller and Shareholder have caused this Agreement to be executed by the duly authorized officer of Buyer, Seller and Shareholder, as applicable, as of the day and year first above written. Buyer: By: ____________________________________ Its:____________________________________ Seller: KEPTEL, INC. By: ____________________________________ Its:____________________________________ Shareholder: ARRIS INTERNATIONAL, INC. By: ____________________________________ Its:____________________________________ 32 -----END PRIVACY-ENHANCED MESSAGE-----

EX-4.2(B)

                                                                  EXHIBIT 4.2(b)

================================================================================

                           ARRIS INTERNATIONAL, INC.,
                                     ISSUER,

                                ARRIS GROUP, INC.
                                    GUARANTOR

                                       AND

                              THE BANK OF NEW YORK,
                                     TRUSTEE

                          THIRD SUPPLEMENTAL INDENTURE,

                           DATED AS OF MARCH 20, 2002

                 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2003

================================================================================

                                                                  EXHIBIT 4.2(b)

      THIRD SUPPLEMENTAL INDENTURE (this "Third Supplemental Indenture"), dated
as of March 20, 2002, among Arris Group, Inc., a Delaware corporation ("Parent"
or "Guarantor"), Arris International, Inc. f/k/a ANTEC Corporation, a Delaware
corporation (the "Company"), and The Bank of New York, a New York banking
corporation, as Trustee (the "Trustee"), to the Indenture between the Company
and the Trustee, dated as of May 8, 1998, as amended or supplemented from time
to time (the "Indenture").

                                   WITNESSETH:

      WHEREAS, pursuant to the Indenture $115,000,000 of the Company's 4 1/2%
Convertible Subordinated Notes due 2003 (the "Securities") were issued;

      WHEREAS, Section 9.1 of the Indenture provides that, without the consent
of any Holder, the Company, when authorized by Board Resolutions, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental thereto, in form satisfactory to the Trustee, to provide
for collateral for or guarantors of the Securities;

      WHEREAS, pursuant to the Agreement and Plan of Reorganization, dated as of
October 18, 2000, as amended, among Parent, the Company, Broadband Transition
Corporation, a Delaware corporation, Nortel Networks Inc., a Delaware
corporation, Nortel Networks LLC, a Delaware limited liability company, and
Arris Interactive L.L.C., a Delaware limited liability company, the Company
became a wholly owned subsidiary of Parent on August 3, 2001;

      WHEREAS, Parent desires to unconditionally and irrevocably guarantee, on a
subordinated basis, the full and prompt payment of principal of and interest and
premium, if any, on, and Liquidated Damages, if any, with respect to, the
Securities when due, subject to any applicable grace periods, whether at
maturity, redemption, by acceleration, or otherwise, and all other obligations
of the Company to the Holders and the Trustee under the Indenture and the
Securities, (the "Guarantee") and to extend to the Holders certain rights and
privileges in connection with the Guarantee; and

      WHEREAS, the Company and Parent have requested that the Trustee execute
and deliver this Third Supplemental Indenture and all requirements necessary to
make this Third Supplemental Indenture a valid instrument in accordance with its
terms and to make the Guarantee the valid obligation of Parent, and the
execution and delivery of this Third Supplemental Indenture has been duly
authorized in all respects.

      NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the parties hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

      Section 1.1. Capitalized terms used in this Third Supplemental Indenture,
but not defined herein, shall have the meaning subscribed to them in the
Indenture.

      The following terms, as used herein, shall have the following respective
meanings:

      "Administrative Agent" shall mean (i) so long as the Senior Credit
Agreement is in effect, The CIT Group/Business Credit, Inc., in its capacity as
administrative agent for the Lenders party to the Senior Credit Agreement or any
successor or other Administrative Agent appointed pursuant to the Senior Credit
Agreement and (ii) if there is no Senior Credit Agreement in effect, thereafter
any agent designated as representative of holders of all other Guarantor Senior
Debt.

      "Bankruptcy Proceeding" shall mean (i) any insolvency or bankruptcy case
or proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to Guarantor or the Company
or to Guarantor's assets or the Company's assets, or (ii) any liquidation,
dissolution or other winding up of Guarantor or the Company, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or (iii)
any assignment for the benefit of creditors or any other marshaling of assets
and liabilities of Guarantor or the Company.

      "Borrower" shall mean each of the Company, Arris Interactive L.L.C. and
the other subsidiaries of the Company party to the Senior Credit Agreement and
"Borrowers" shall mean all such persons collectively.

      "Company" shall have the meaning set forth in the introductory paragraph
hereof.

      "Guarantor" shall have the meaning set forth in the introductory paragraph
hereof.

      "Guarantor Disqualified Capital Stock" shall mean, with respect to
Guarantor, Capital Stock of Guarantor that, by its terms or by the terms of any
security into which it is convertible, exercisable or exchangeable, is, or upon
the happening of an event or the passage of time would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by
Guarantor, in whole or in part, on or prior to the Stated Maturity of the
Securities, provided that only the portion of such Capital Stock which is so
convertible, exercisable, exchangeable or redeemable or subject to repurchase
prior to such Stated Maturity shall be deemed to be Guarantor Disqualified
Capital Stock.

      "Guarantor Junior Securities" shall mean any Guarantor Qualified Capital
Stock of Guarantor and any Indebtedness of Guarantor, in each case that is fully
subordinated to all Guarantor Senior Debt (and any debt securities issued in
exchange for Guarantor Senior Debt) to


                                       2

substantially the same extent as, or to a greater extent than, the Securities
are subordinated to Guarantor Senior Debt pursuant to this Third Supplemental
Indenture.

      "Guarantor Non-Payment Default" shall have the meaning set forth in
Section 4.2(b) hereof.

      "Guarantor Payment Blockage Period" shall have the meaning set forth in
Section 4.2(b) hereof.

      "Guarantor Payment Default" shall have the meaning set forth in Section
4.2(a) hereof.

      "Guarantor Payment Notice" shall have the meaning set forth in Section
4.2(b) hereof.

      "Guarantor Qualified Capital Stock" shall mean any Capital Stock of
Guarantor that is not Guarantor Disqualified Capital Stock.

      "Guarantor Senior Debt" shall mean (i) all indebtedness, obligations and
other liabilities of Guarantor, whether outstanding as of the date hereof or
hereafter created, incurred or assumed by Guarantor, arising under or in respect
of the Senior Credit Agreement and the Loan Documents including, without
limitation the principal of, the premium and interest on, all loans, letters of
credit, guaranties, including but not limited to the Parent Guaranty, and other
extensions of credit under the Senior Credit Agreement and the Loan Documents
and all commitment, facility, agency and other fees payable under or in
connection therewith and all expenses, reimbursements, indemnities and other
amounts and liabilities payable or owing by Guarantor thereunder and further
including, without limitation, any of the foregoing obligations and amounts
which would become due or accrue or arise but for the commencement of any
applicable Bankruptcy Proceeding, whether or not a claim is allowed for the same
in any such proceeding and (ii) any amendments, restatements, renewals
extensions or modifications of any of the foregoing.

      "Guarantor Subordinated Obligations" shall have the meaning set forth in
Section 4.2(a) hereof.

      "Indenture" shall have the meaning set forth in the introductory paragraph
hereof.

      "Lender" shall mean each bank or other financial institution now or
hereafter party to the Senior Credit Agreement, and "Lenders" shall mean all
such banks and financial institutions, collectively.

      "Loan Documents" shall mean the Senior Credit Agreement and the Notes, any
Letter of Credit Guaranty, the Guaranties and the Collateral Documents (as those
terms are defined in the Senior Credit Agreement).

      "Loan Party" shall mean each of Parent, the Company, Arris Interactive
L.L.C., the other Borrowers and any Subsidiary (as defined in the Senior Credit
Agreement) of any Borrower,


                                       3

respectively, from time to time executing a Loan Document and "Loan Parties"
shall mean all such persons, respectively.

      "Obligations" shall mean all obligations of every nature of each Loan
Party from time to time owed to Administrative Agent, Lenders or any of them
under the Loan Documents, whether for principal, interest, reimbursement of
amounts drawn under Letters of Credit (as defined in the Senior Credit
Agreement), fees, expenses, indemnification or otherwise.

      "Parent" shall have the meaning set forth in the introductory paragraph
hereof.

      "Parent Guaranty" shall mean that guarantee dated as of August 3, 2001, by
Parent for the benefit of, The CIT Group/Business Credit, Inc., as agent for and
representatives of the Lenders.

      "Securities" shall have the meaning set forth in the recitals hereof.

      "Senior Creditor" shall mean any Person now or hereafter holding Guarantor
Senior Debt, including, without limitation, any Lender, and "Senior Creditors"
shall mean all such persons, collectively.

      "Senior Credit Agreement" shall mean the Credit Agreement dated as of
August 3, 2001, by and among the Company, Arris Interactive L.L.C., certain
subsidiaries of the Company, the several Lenders from time to time parties
thereto, the Administrative Agent, and Credit Suisse First Boston as syndication
agent, lead arranger and book running manager, as such agreement may be amended,
supplemented, restated, refinanced, restructured or otherwise modified from time
to time (in whole or in part without limitation as to terms, extensions of
maturities, increasing the maximum amount of indebtedness or borrowings
thereunder or other conditions or covenants), and all related notes, collateral
documents, guarantees, Hedge Agreements (as defined in the Senior Credit
Agreement), instruments and agreements entered into in connection therewith, as
the same may be amended, supplemented, restated or modified from time to time.

      "Trustee" shall have the meaning set forth in the introductory paragraph
hereof.

      Section 1.2. Incorporation by Reference. The provisions of Section 1.2 and
1.3 of the Indenture shall apply as set forth herein.

                                   ARTICLE II

                    OBLIGATIONS UNDER SENIOR CREDIT AGREEMENT

      Section 2.1. The Company hereby confirms the designation of the
Obligations under the Senior Credit Agreement as Designated Senior Debt.


                                       4

                                   ARTICLE III

                                PARENT GUARANTEE

      Section 3.1. Absolute and Unconditional Guarantee. (a) Guarantor fully,
absolutely, irrevocably, unconditionally, and jointly and severally, guarantees,
on a subordinated basis, to each Holder of a Security authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
subject to the limitations set forth in Section 3.3 and Article IV hereof, that:
the principal of and interest and premium, if any, on, and Liquidated Damages,
if any, with respect to, the Securities shall be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, redemption, by
acceleration or otherwise, and interest on the overdue principal, if any, and
interest on any interest or Liquated Damages, to the extent lawful, of the
Securities and all other obligations of the Company to the Holders or the
Trustee under the Indenture and the Securities will be promptly paid in full,
all in accordance with the terms thereof.

            (b) Guarantor agrees that its obligations hereunder shall be
absolute, unconditional and irrevocable, irrespective of the validity,
regularity or enforceability of the Securities, or the Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstances
which might otherwise constitute a legal or equitable discharge or defense of
Guarantor, and each such legal or equitable discharge is hereby irrevocably and
forever waived. Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that (except as
otherwise set forth in this Article III) this Guarantee shall not be discharged
except by complete payment of the obligations contained in the Securities, the
Indenture, and in this Third Supplemental Indenture.

            (c) The obligation of Guarantor to make any payment hereunder may be
satisfied by causing the Company to make such payment. If any Holder or the
Trustee is required by any court or otherwise to return to the Company, the
Guarantor, or any custodian acting in relation to the Company or the Guarantor,
any amount paid by the Company or the Guarantor to the Trustee or such Holder,
this Guarantee, to the extent theretofore discharged, shall be reinstated in
full force and effect as to such amount only.

      Section 3.2. Severability. In case any provision of this Guarantee shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

      Section 3.3. Limitation of Guarantor's Liability. Guarantor and, by its
acceptance of any benefits hereof, each Holder hereby confirms that it is the
intention of all such parties that the guarantee by Guarantor pursuant hereto
shall not constitute a fraudulent transfer or conveyance for purposes of any
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law. To effectuate the foregoing
intention, each Holder who accepts the benefits hereof hereby irrevocably agrees
that the


                                       5

obligations under this Guarantee shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of Guarantor
(including, without limitation, any obligations under any bank credit
agreement), result in the obligations of such Guarantor under this Guarantee not
constituting such fraudulent transfer or conveyance.

      Section 3.4. No Personal Liability. No stockholder, officer, director,
employee or incorporator, past, present or future, of Guarantor, as such, shall
have any personal liability under this Guarantee.

                                   ARTICLE IV

                           SUBORDINATION OF GUARANTEE

      Section 4.1. Guarantee Subordinate to Guarantor Senior Debt. The Company
covenants and agrees, and each Holder of a Security, by his acceptance of the
benefits of the Guarantee, likewise covenants and agrees, that, to the extent
and in the manner set forth in Article XII of the Indenture and Article IV
hereof, the payment of Guarantor's obligations in respect of its Guarantee is
hereby expressly made subordinate and subject in right of payment to the prior
payment in full of all the obligations of Guarantor under all Guarantor Senior
Debt on the same basis as the Securities are junior and subordinated to the
Senior Indebtedness of the Company as set forth in Article XII of the Indenture.
For the purposes of the foregoing sentence, the Trustee and the Holders shall
have the right to receive and/or retain payments by Guarantor only at such times
as they may receive and/or retain payments in respect of the Securities pursuant
to the Indenture.

      This Section 4.1 and Article XII of the Indenture shall constitute a
continuing offer to all Persons who, in reliance upon such provisions, become
holders of, or continue to hold, Guarantor Senior Debt, and such provisions are
made for the benefit of the holders of Guarantor Senior Debt, and such holders
are made obligees hereunder and any one or more of them may enforce such
provisions. In addition, the payment of cash, property or securities (other than
Guarantor Junior Securities) upon conversion of a Security pursuant to Article
XIII will constitute payment on a Security and therefore will be subject to the
subordination provisions contained in this Article IV and in the Indenture.

      Section 4.2. No Payment on Securities in Certain Circumstances.

            (a) No payment may be made by Guarantor on account of the principal
of, premium, if any, interest on, or Liquidated Damages or any other obligations
under or with respect to, the Securities, or to acquire any of the Securities
(including repurchases of Securities at the option of the Holder) for cash or
property (other than Guarantor Junior Securities), or on account of the
redemption provisions of the Securities (collectively, the "Guarantor
Subordinated Obligations"), (i) upon the maturity of any Guarantor Senior Debt
by lapse of time, acceleration (unless waived) or otherwise, unless and until
all principal of, premium, if any, and interest on, and fees, charges, expenses,
indemnifications and all other amounts payable


                                       6

in respect of Guarantor Senior Debt are first paid in full, or (ii) in the event
of default in the payment of any principal of, premium, if any, or interest in
respect of Guarantor Senior Debt when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise
(collectively, a "Guarantor Payment Default"), unless and until such Guarantor
Payment Default has been cured or waived or otherwise has ceased to exist.

            (b) Upon (i) the happening of an event of default (other than a
Guarantor Payment Default) that permits, or would permit, with (w) the passage
of time, (x) the giving of notice, (y) the making of any payment of the
Securities then required to be made, or (z) any combination thereof
(collectively, a "Guarantor Non-Payment Default"), the holders of Guarantor
Senior Debt or their representative immediately to accelerate its maturity and
(ii) written notice of such Guarantor Non-Payment Default given to Guarantor and
the Trustee by the holders of Guarantor Senior Debt or their representative (a
"Guarantor Payment Notice"), then, unless and until such Guarantor Non-Payment
Default has been cured or waived or otherwise has ceased to exist, no payment
(by set-off or otherwise) may be made by or on behalf of Guarantor directly or
through any Subsidiary on account of the Guarantor Subordinated Obligations, in
any such case other than payments made with Guarantor Junior Securities.
Notwithstanding the foregoing, unless (i) the Guarantor Senior Debt in respect
of which such Guarantor Non-Payment Default exists has been declared due and
payable in its entirety within 179 days after the Guarantor Payment Notice is
delivered as set forth above (the "Guarantor Payment Blockage Period"), and (ii)
such declaration has not been rescinded or waived, at the end of the Guarantor
Payment Blockage Period, Guarantor shall be required to pay to the Holders of
the Securities all sums not paid to the Holders of the Securities during the
Guarantor Payment Blockage Period due to the foregoing prohibitions (and upon
the making of such payments any acceleration of the Securities made during the
Guarantor Payment Blockage Period shall be of no further force or effect) and to
resume all other payments as and when due on the Securities. Not more than one
Guarantor Payment Notice may be given in any consecutive 365-day period,
irrespective of the number of defaults with respect to Guarantor Senior Debt
during such period. In no event, however, may the total number of days during
which any Guarantor Payment Blockage Period is or Guarantor Payment Blockage
Periods are in effect exceed 179 days in the aggregate during any consecutive
365 day period.

            (c) In furtherance of the provisions of Section 4.1, in the event
that, notwithstanding the foregoing provisions of this Section 4.2, any payment
or distribution of assets of Guarantor (other than Guarantor Junior Securities)
shall be received by the Trustee on behalf of the Holders or any Paying Agent
for the benefit of the Holders at a time when such payment or distribution is
prohibited by the provisions of this Section 4.2, such payment or distribution
(subject to the provisions of Sections 4.6 and 4.9) shall be held in trust for
the benefit of the holders of Guarantor Senior Debt, and shall be paid or
delivered by such Holders or the Trustee or such Paying Agent, as the case may
be, to the holders of Guarantor Senior Debt remaining unpaid or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Guarantor
Senior Debt may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Guarantor Senior Debt held or represented by
each, for application to the payment of all Guarantor Senior Debt in full after
giving effect to any concurrent payment and distribution to


                                       7

the holders of such Guarantor Senior Debt.

      Section 4.3. Securities Subordinated to Prior Payment of All Guarantor
Senior Debt on Dissolution, Liquidation or Reorganization. Upon any distribution
of assets of Guarantor upon any dissolution, winding up, total or partial
liquidation or reorganization of Guarantor, whether voluntary or involuntary, in
bankruptcy, insolvency, receivership or a similar proceeding or upon assignment
for the benefit of creditors or any marshaling of assets or liabilities:

            (a) the holders of all Guarantor Senior Debt shall first be entitled
to receive payments in full before the Holders are entitled to receive any
payment on account of the Guarantor Subordinated Obligations (other than
Guarantor Junior Securities);

            (b) any payment or distribution of assets of Guarantor of any kind
or character, whether in cash, property or securities (other than Guarantor
Junior Securities) to which the Holders or the Trustee on behalf of the Holders
would be entitled (by setoff or otherwise), except for the provisions of this
Article IV, shall be paid by the liquidating trustee or agent or other Person
making such a payment or distribution directly to the holders of Guarantor
Senior Debt or their representative to the extent necessary to make payment in
full of all such Guarantor Senior Debt remaining unpaid, after giving effect to
any concurrent payment or distribution to the holders of such Guarantor Senior
Debt (but this Section 4.3(b) shall not apply to payments or distributions to
the Trustee for its own benefit); and

            (c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of Guarantor of any kind or character, whether in cash,
property or securities (other than Guarantor Junior Securities), shall be
received by the Trustee for the benefit of the Holders or the Holders or any
Paying Agent for the benefit of the Holders (or, if Guarantor or any Affiliate
of Guarantor is acting as its own Paying Agent, money for any such payment or
distribution shall be segregated or held in trust) on account of Guarantor
Subordinated Obligations before all Guarantor Senior Debt is paid in full, such
payment or distribution (subject to the provisions of Sections 4.6 and 4.9)
shall be received and held in trust by the Trustee or such Holder or Paying
Agent for the benefit of the holders of such Guarantor Senior Debt, or their
respective representative, and shall be paid over to or delivered to the holders
of the Guarantor Senior Debt, ratably according to the respective amounts of
such Guarantor Senior Debt held or represented by each, to the extent necessary
to make payment as provided herein of all such Guarantor Senior Debt remaining
unpaid after giving effect to all concurrent payments and distributions to or
for the holders of such Guarantor Senior Debt, but only to the extent that as to
any holder of such Guarantor Senior Debt, as promptly as practical following
notice from the Trustee to the holders of such Guarantor Senior Debt that such
prohibited payment has been received by the Trustee, Holder(s) or Paying Agent
(or has been segregated as provided above), such holder (or a representative
therefor) notifies the Trustee of the amounts then due and owing on such
Guarantor Senior Debt, if any, held by such holder and only the amounts
specified in such notices to the Trustee shall be paid to the holders of such
Guarantor Senior Debt.

      Section 4.4. Securityholders to Be Subrogated to Rights of Holders of
Guarantor


                                       8

Senior Debt. Subject to the payment in full of all Guarantor Senior Debt as
provided herein, the Holders of Securities shall be subrogated to the rights of
the holders of such Guarantor Senior Debt to receive payments or distributions
of assets of Guarantor applicable to the Guarantor Senior Debt until all amounts
owing on the Securities shall be paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of such Guarantor
Senior Debt by Guarantor, or by or on behalf of the Holders by virtue of this
Article IV, which otherwise would have been made to the Holders shall, as
between Guarantor and the Holders, be deemed to be payment by Guarantor or on
account of such Guarantor Senior Debt, it being understood that the provisions
of this Article IV are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of such
Guarantor Senior Debt, on the other hand.

      If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article IV shall have been applied,
pursuant to the provisions of this Article IV, to the payment of amounts payable
under Guarantor Senior Debt, then the Holders shall be entitled to receive from
the holders of such Guarantor Senior Debt any payments or distributions received
by such holders of Guarantor Senior Debt in excess of the amount sufficient to
pay all amounts payable under or in respect of such Guarantor Senior Debt in
full.


                                       9

      Section 4.5. Obligations of Guarantor Unconditional. Nothing contained in
this Article IV or elsewhere in this Third Supplemental Indenture, the Indenture
or in the Securities is intended to or shall impair as between Guarantor and the
Holders, the obligation of each such Person (in the case of Guarantor, to the
extent specified in this Third Supplemental Indenture), which is absolute and
unconditional, to pay to the Holders the principal of, premium, if any, and
interest on, the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of Guarantor other than the holders of the
Guarantor Senior Debt, nor shall anything herein or therein prevent the Trustee
or any Holder from exercising all remedies otherwise permitted by applicable law
upon default under the Indenture, subject to the rights, if any, under this
Article IV, of the holders of Guarantor Senior Debt in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Notwithstanding anything to the contrary in this Article IV or elsewhere in the
Indenture or in the Securities, upon any distribution of assets of the Company
referred to in this Article IV, the Trustee, subject to the provisions of
Sections 7.1 and 7.2 of the Indenture, and the Holders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending, or a certificate of the liquidating trustee or agent or other Person
making any distribution to the Trustee or to the Holders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Guarantor Senior Debt and other Indebtedness of Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article IV so long as
such court has been apprised of the provisions of, or the order, decree or
certificate makes reference to, the provisions of this Article IV. Nothing in
this Section 4.5 shall apply to the claims of, or payments to, the Trustee under
or pursuant to Section 7.7 of the Indenture or otherwise for its own benefit.

      Section 4.6. Trustee and Other Agents Entitled to Assume Payments Not
Prohibited in Absence of Notice. Guarantor shall give prompt written notice to
the Trustee of any fact known to Guarantor which would prohibit the making of
any payment to or by the Trustee in respect of the Securities. The Trustee and
all other Agents shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have actually received, no later than one Business Day prior to such
payment, written notice thereof in compliance with Section 14.2 of the Indenture
from Guarantor or from one or more holders of Guarantor Senior Debt or from any
representative therefor and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Sections 7.1 and 7.2 of the Indenture,
shall be entitled in all respects conclusively to assume that no such fact
exists.

      Section 4.7. Subordination Rights Not Impaired by Acts or Omissions of
Guarantor or Holders of Guarantor Senior Debt. No right of any present or future
holders of any Guarantor Senior Debt to enforce subordination provisions
contained in this Article IV shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of Guarantor or by any act or
failure to act, in good faith, by any such holder, or by any noncompliance by
Guarantor with the terms of this Third Supplemental Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
Without the consent of or notice to the


                                       10

Trustee or the Holders, the holders of Guarantor Senior Debt may extend, renew,
modify or amend the terms of Guarantor Senior Debt or any security therefor and
release, sell or exchange such security and otherwise deal freely with
Guarantor, all without impairing the liabilities and obligations of the parties
to this Third Supplemental Indenture or the Holders.

      Section 4.8. Securityholders Authorize Trustee to Effectuate Subordination
of Securities. Each Holder of the Securities by his acceptance thereof
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provisions contained in this Article
IV pursuant to this Third Supplemental Indenture, and appoints the Trustee his
attorney-in-fact for such purpose, including, in the event of any dissolution,
winding up, liquidation or reorganization of Guarantor (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors of Guarantor), the immediate filing of a claim for the unpaid balance
of his Securities in the form required in said proceedings and cause said claim
to be approved. If the Trustee does not file a proper claim or proof of debt in
the form required in such proceeding prior to 30 days before the expiration of
the time to file such claim or claims, then the holders of the Guarantor Senior
Debt or their representative are or is hereby authorized to have the right to
file and are or is hereby authorized to file an appropriate claim for and on
behalf of the Holders of said Securities. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their
representative to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Guarantor Senior Debt or their
representative to vote in respect of the claim of any Securityholder in any such
proceeding.

      Section 4.9 Right of Trustee to Hold Guarantor Senior Debt. The Trustee
shall be entitled to all of the rights set forth in this Article IV in respect
of any Guarantor Senior Debt at any time held by it to the same extent as any
other holder of Guarantor Senior Debt, and nothing in this Third Supplemental
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.

      Nothing in this Article IV shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.7 of the Indenture.

      Section 4.10. Article IV Not to Prevent Events of Default. The failure to
make a payment on account of principal of, premium, if any, interest on, or
Liquidated Damages with respect to, the Securities by reason of any provision of
this Article IV shall not be construed as preventing the occurrence of a Default
or an Event of Default under Section 6.1 of the Indenture or in any way prevent
the Holders from exercising any right hereunder other than the right to receive
payment on the Securities.

      Section 4.11. No Duty of Trustee and Other Agents to Holders of Guarantor
Senior Debt. The Trustee and the other Agents shall not be deemed to owe any
fiduciary duty to the holders of Guarantor Senior Debt, and shall not be liable
to any such holders (other than for its willful misconduct or negligence) if it
shall in good faith mistakenly pay over or distribute to the


                                       11

Holders of Securities or Guarantor or any other Person, cash, property or
securities to which any holders of Guarantor Senior Debt shall be entitled by
virtue of this Article IV or otherwise. Nothing in this Section 4.11 shall
affect the obligation of any other such Person receiving such payment or
distribution from the Trustee or any other Agent to hold such payment for the
benefit of, and to pay such payment over to, the holders of Guarantor Senior
Debt or their representative.

      With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants or obligations as
are specifically set forth in this Article IV and no implied covenants or
obligations with respect to holders of Guarantor Senior Debt shall be read into
this Third Supplemental Indenture as against the Trustee.

      Section 4.12. Amendments. The provisions of this Article IV may not be
amended or modified without the written consent of the holders of Guarantor
Senior Debt or their representatives in accordance with the instruments
governing the terms of such Guarantor Senior Debt.

                                    ARTICLE V

                                  MISCELLANEOUS

      Section 5.1. This Third Supplemental Indenture. This Third Supplemental
Indenture shall be construed as supplemental to the Indenture and shall form a
part of it, and the Indenture is hereby incorporated by reference herein and
each is hereby ratified, approved and confirmed.

      Section 5.2. Notice. Unless otherwise specifically provided herein, all
communications under this Article shall be in writing and shall be deemed to
have been given (i) on the date of service if served personally on the party to
whom notice is to be given, (ii) on the day of transmission if sent by facsimile
transmission to the telecopy number given below, and telephonic confirmation of
receipt is obtained promptly after completion of transmission; (iii) on the day
after delivery to Federal Express or similar overnight courier, or (iv) on the
fifth day after mailing, if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepaid, and properly
addressed, return receipt requested, to the party as follows:

      If to the Senior Creditor:  The CIT Group/Business Credit, Inc.
                                  1200 Ashwood Parkway, Suite 150
                                  Atlanta, Georgia 30338
                                  Attn:  Regional Credit Manager
                                  Telecopy:   (770) 522-7673

      If to Holder:               The address in the records of the Trustee



                                       12

      If to Trustee:              The Bank of New York
                                  101 Barclay Street,
                                  Floor 21 West
                                  New York, New York 10286
                                  Attn: Corporate Trust Trustee Administration
                                  Telecopy: (212) 815-5915

      If to Guarantor:            Arris Group, Inc.
                                  11450 Technology Circle
                                  Duluth, Georgia  30097
                                  Attn: Chief Financial Officer
                                  Telecopy: (678) 473-8470

      If to the Company:          Arris International, Inc.
                                  11450 Technology Circle
                                  Duluth, Georgia  30097
                                  Attn: Chief Financial Officer
                                  Telecopy: (678) 473-8470

      Any party hereto may change its address for purposes of this Section 5.2
by giving the other parties written notice of the new address in the manner set
forth above.

      Section 5.3. Counterparts. This Third Supplemental Indenture may be
executed in any number or counterparts, each of which shall be an original, but
all of which shall constitute one and the same instrument.

      SECTION 5.4. THIS THIRD SUPPLEMENTAL INDENTURE AND ALL THE TERMS HEREIN,
INCLUDING THE TERMS REGARDING SUBORDINATION, SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK IN ALL RESPECTS, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REGARD TO THE
CHOICE OF LAW PROVISIONS THEREOF.


                                       13

      IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental
Indenture to be duly executed by their respective authorized officers as of the
day and year first above written.

                                        ARRIS INTERNATIONAL, INC.

                                        By: /s/ Armando Rois-Mendez
                                            ------------------------------------
                                            Name:  Armando Rois-Mendez
                                            Title: Assistant Secretary


                                        THE BANK OF NEW YORK

                                        By: /s/ Mary LaGumina
                                            ------------------------------------
                                            Name:  Mary LaGumina
                                            Title: Vice President


                                        ARRIS GROUP, INC.

                                        By: /s/ David Potts
                                            ------------------------------------
                                            Name:  David Potts
                                            Title: Senior Vice President-Finance


                                       14

EX-10.1(B)

                                                                 EXHIBIT 10.1(B)
                                                                       EXECUTION

                                SECOND AMENDMENT
                               TO CREDIT AGREEMENT

         This SECOND AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated
as of April 19, 2002 and entered into by and among ARRIS INTERNATIONAL, INC., a
Delaware corporation (the "COMPANY"), ARRIS INTERACTIVE L.L.C., a Delaware
limited liability company ("ARRIS"), EACH OF COMPANY'S SUBSIDIARIES LISTED ON
THE SIGNATURE PAGES HEREOF (Company, Arris and each such subsidiary are
individually referred to herein as a "BORROWER" and, collectively, on a joint
and several basis, as the "BORROWERS"), THE FINANCIAL INSTITUTIONS LISTED ON THE
SIGNATURE PAGES HEREOF (each individually referred to herein as a "LENDER" and
collectively as "LENDERS"), CREDIT SUISSE FIRST BOSTON, as syndication agent for
Lenders (in such capacity, "SYNDICATION AGENT") and THE CIT GROUP/BUSINESS
CREDIT, INC., as administrative agent and collateral agent for Lenders (in such
capacity, "ADMINISTRATIVE AGENT"), and is made with reference to that certain
Credit Agreement dated as of August 3, 2001, as amended by that certain First
Amendment to Credit Agreement dated as of January 8, 2002 (the "FIRST
AMENDMENT") and as further supplemented by that certain Acknowledgement dated as
of March ___, 2002 (as amended, restated, supplemented or otherwise modified as
of the date hereof, the "CREDIT AGREEMENT"), by and among the Borrowers,
Lenders, Syndication Agent and Administrative Agent. Capitalized terms used
herein without definition shall have the same meanings herein as set forth in
the Credit Agreement.

                                    RECITALS

         WHEREAS, Borrowers desire to enter into certain Currency Agreements in
connection with the sale of its products to foreign purchasers; and

         WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to
(i) secure any Currency Agreement entered into by any Borrower with any Lender
or any Affiliate of any Lender; (ii) reduce availability under the Credit
Agreement by an amount equal to a portion of the funds subject to such Currency
Agreement to be agreed upon by such Lender and Company; and (iii) make certain
other amendments as set forth below;

         NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:




         SECTION 1.        AMENDMENTS TO THE CREDIT AGREEMENT

         1.1      AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS

         A. Subsection 1.1 of the Credit Agreement is hereby amended by adding
thereto the following definitions, which shall be inserted in proper
alphabetical order:

         "CURRENCY AGREEMENT LENDER" means any Revolving Lender that enters into
    or has an Affiliate that enters into a Currency Agreement with any Borrower.

         "CURRENCY AGREEMENT RESERVED AMOUNT" means for each Lender Currency
    Agreement, at any date of determination, an amount (expressed in Dollars) to
    be agreed upon in writing by Company and the Currency Agreement Lender that
    entered into (or whose Affiliate entered into) such Lender Currency
    Agreement; provided, however, that notwithstanding any agreement between the
    Company and any Currency Agreement Lender, no Currency Agreement Reserved
    Amount shall be established for any Lender Currency Agreement that would
    cause the Lender Currency Agreement Reserve to exceed $8,000,000.

         "LENDER CURRENCY AGREEMENT" means any Currency Agreement entered into
    between any Borrower and any Lender or any Affiliate of any Lender that
    Administrative Agent has written notice of from such Lender that attaches a
    copy of the written agreement of the Company and such Lender on the
    requested Currency Agreement Reserved Amount for such Lender Currency
    Agreement.

         "LENDER CURRENT AGREEMENT RESERVE" means an amount equal to the
    aggregate amount of all Currency Agreement Reserved Amounts.

         B. Subsection 1.1 of the Credit Agreement is hereby further amended by
deleting the definitions of "Obligations", "Discretionary Overdraft Loan",
"Discretionary Post-Default Overdraft Loan", "Excess Availability" and "Loan
Documents" therefrom in their entirety and substituting the following therefore:

         "OBLIGATIONS" means all obligations of every nature of each Loan Party
    from time to time owed to Administrative Agent, Lenders or any of them (or
    any Affiliate of any Lender that is a party to a Lender Currency Agreement)
    under the Loan Documents, whether for principal, interest, reimbursement of
    amounts drawn under Letters of Credit, fees, expenses, indemnification or
    otherwise.

         "DISCRETIONARY OVERDRAFT LOAN" means any Discretionary Loan if (i) the
    making of such Discretionary Loan would cause the Total Utilization of
    Revolving Loan Commitments to exceed an amount equal to (x) the Borrowing
    Base then in effect minus (y) the Lender Currency Agreement Reserve Amount
    then in effect or (ii) at the time such Discretionary Loan is made the Total
    Utilization of Revolving Loan Commitments exceeds an amount equal to (x) the
    Borrowing Base then in effect minus (y) the Lender Currency Agreement
    Reserve Amount then in effect.


                                       2


         "DISCRETIONARY POST-DEFAULT OVERDRAFT LOAN" means any Discretionary
    Post-Default Loan if (i) the making of such Discretionary Post-Default Loan
    would cause the Total Utilization of Revolving Loan Commitments to exceed an
    amount equal to (x) the Borrowing Base then in effect minus (y) the Lender
    Currency Agreement Reserve Amount then in effect or (ii) at the time such
    Discretionary Post-Default Loan is made the Total Utilization of Revolving
    Loans exceeds an amount equal to (x) the Borrowing Base then in effect minus
    (y) the Lender Currency Agreement Reserve Amount then in effect.

         "EXCESS AVAILABILITY" means the amount, as of any date of
    determination, by which (a) the lesser of (i) an amount equal to (x) the
    Borrowing Base then in effect minus (y) the Lender Currency Agreement
    Reserve Amount then in effect or (ii) the Revolving Loan Commitments exceeds
    (b) the Total Utilization of Revolving Loan Commitments, as determined by
    Administrative Agent.

         "LOAN DOCUMENTS" means this Agreement, the Notes, any Letter of Credit
    Guaranty, the Guaranties, any Lender Currency Agreement and the Collateral
    Documents.

         1.2      AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND
                  LOANS

         A. Subsection 2.1A of the Credit Agreement is hereby amended by
deleting the last paragraph of clause (i) of such subsection in its entirety and
substituting therefore the following:

         "In addition, no Revolving Loans (other than Revolving Discretionary
    Loans) shall be made at any time if the Total Utilization of Revolving Loan
    Commitments at any time exceeds an amount equal to (x) the Borrowing Base
    then in effect minus (y) the Lender Currency Agreement Reserve Amount then
    in effect."

         B. Subsection 2.1A of the Credit Agreement is hereby further amended by
deleting the second paragraph of clause (ii)(a) of such subsection in its
entirety and substituting therefore the following:

         "Anything contained in this Agreement to the contrary notwithstanding,
    the Swing Line Loans and the Swing Line Loan Commitment shall be subject to
    the limitation, that in no event shall the Total Utilization of Revolving
    Loan Commitments at any time exceed the lesser of (i) the Revolving Loan
    Commitments then in effect and (ii) an amount equal to (x) the Borrowing
    Base then in effect minus (y) the Lender Currency Agreement Reserve then in
    effect (other than Discretionary Loans made in accordance with the following
    paragraph)."

         C. Subsection 2.1A of the Credit Agreement is hereby further amended by
deleting clause (ii)(a)(2)(A) of such subsection in its entirety and
substituting therefore the following:


                                       3


         "(A) the Total Utilization of Revolving Loan Commitments exceeds an
    amount equal to (x) the Borrowing Base then in effect minus (y) the Lender
    Currency Agreement Reserve then in effect and/or"

         D. Subsection 2.1A of the Credit Agreement is hereby further amended by
deleting the last proviso contained in clause (ii)(a)(2) of such subsection in
its entirety and substituting therefore the following:

         "provided, further, that anything contained in this Agreement to the
    contrary notwithstanding, the making of any Swing Line Loans that constitute
    Discretionary Loans shall be subject to the limitation that in no event
    shall the Total Utilization of Revolving Loan Commitments at any time exceed
    the lesser of (i) an amount equal to (x) the Maximum Discretionary Borrowing
    Base Amount then in effect minus (y) the Lender Currency Agreement Reserve
    then in effect and (ii) the Revolving Loan Commitments then in effect."

         E. Subsection 2.4A of the Credit Agreement is hereby amended by
deleting clause (iii)(h)(2) of such subsection in its entirety and substituting
therefore the following:

         "(2) if at any time (x) the Total Utilization of Revolving Loan
    Commitments minus the aggregate principal amount of outstanding
    Discretionary Loans and Revolving Discretionary Loans exceed (y) an amount
    equal to (i) the Borrowing Base then in effect minus (ii) the Lender
    Currency Agreement Reserve then in effect, Borrowers shall prepay first the
    Swing Line Loans (other than any Revolving Discretionary Loans) and second
    the Revolving Loans (other than any Revolving Discretionary Loans) in an
    amount equal to such excess."

         1.3      AMENDMENT TO SECTION 3: LETTERS OF CREDIT

         Subsection 3.1A of the Credit Agreement is hereby amended by deleting
clause (ii) of such subsection in its entirety and substituting therefore the
following:

         "(ii) any Letter of Credit if, after giving effect to such issuance,
    the Total Utilization of Revolving Loan Commitments would exceed an amount
    equal to (x) the Borrowing Base then in effect minus (y) the Lender Currency
    Agreement Reserve then in effect;"

         1.4      AMENDMENT TO SECTION 4: CONDITIONS TO LOANS AND LETTERS OF
                  CREDIT

         A. Subsection 4.2B of the Credit Agreement is hereby amended by
deleting clause (v) of such subsection in its entirety and substituting
therefore the following:

         "(v) After giving effect to the Loans requested on the Funding Date,
    the Total Utilization of Revolving Loan Commitments will not exceed an
    amount equal to (x) the Borrowing Base then in effect minus (y) the Lender
    Currency Agreement Reserve then in effect; provided, however, that this
    clause shall not apply to the borrowing of any Swing Line Loan that is a
    Discretionary Overdraft Loan or any Revolving Loans that are Revolving
    Discretionary Overdraft Loans;"


                                       4


         B. Subsection 4.2B of the Credit Agreement is hereby further amended by
deleting clause (vi)(a) of such subsection if its entirety and substituting
therefore the following:

         "(a) after giving effect to the Loans requested on the Funding Date,
    the Total Utilization of Revolving Loan Commitments will not exceed an
    amount equal to (x) the Maximum Discretionary Borrowing Base Amount then in
    effect minus (y) the Lender Currency Agreement Reserve then in effect;"

         SECTION 2.        BORROWERS' REPRESENTATIONS AND WARRANTIES

         In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Borrowers represent and
warrant to each Lender that the following statements are true, correct and
complete:

         A. CORPORATE POWER AND AUTHORITY. Each Borrower has all requisite
corporate power and authority to enter into this Amendment, and perform its
obligations under, the Credit Agreement as amended by the First Amendment and
this Amendment (the "AMENDED AGREEMENT").

         B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of each of the Borrowers.

         C. NO CONFLICT. The execution and delivery by Borrowers of this
Amendment and the performance by Borrowers of the Amended Agreement do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to any Borrower or any of their respective Subsidiaries,
the Certificate or Articles of Incorporation or Bylaws or Certificate of
Formation or Operating Agreement, as applicable, of any Borrower or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on any Borrower or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of any Borrower or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of the properties or assets of any Borrower or any of its Subsidiaries
(other than Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of any Borrower or any of its Subsidiaries.

         D. GOVERNMENTAL CONSENTS. The execution and delivery by each Borrower
of this Amendment and the performance by the Borrowers of the Amended Agreement
and the transactions contemplated by this Amendment do not and will not require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.

         E. BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by each Borrower and is the legally valid and
binding obligations of the Borrowers, enforceable against the Borrowers in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization,


                                       5


moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.

         F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.

         G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would constitute an Event of Default or a Potential Event of Default.

         SECTION 3.        ACKNOWLEDGEMENT AND CONSENT

         Holdings, each Borrower and each Subsidiary Guarantor hereby
acknowledges that such Loan Party has read this Amendment and consents to the
terms hereof and further hereby confirms and agrees that, notwithstanding the
effectiveness of this Amendment, the obligations of such Loan Party under each
of the Loan Documents to which such Loan Party is a party shall not be impaired
and each of the Loan Documents to which such Loan Party is a party are, and
shall continue to be, in full force and effect and are hereby confirmed and
ratified in all respects.

         Holdings and each Subsidiary Guarantor acknowledges and agrees that (i)
notwithstanding the conditions to effectiveness set forth in this Amendment,
such Loan Party is not required by the terms of the Credit Agreement or any
other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the consent
of such Loan Party to any future amendments to the Credit Agreement.

         SECTION 4.        MISCELLANEOUS

         A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

         (i)      On and after the Second Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement shall mean
and be a reference to the Amended Agreement.

         (ii)     Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.


                                       6


         (iii)    The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
Administrative Agent or any Lender under, the Credit Agreement or any of the
other Loan Documents.

         B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agents and their counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Borrowers.

         C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.

         D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

         E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective upon the execution of a
counterpart hereof by each of the Borrowers, each of the Subsidiary Guarantors,
Holdings and Requisite Lenders and receipt by Company and Administrative Agent
of written or telephonic notification of such execution and authorization of
delivery.

                  [Remainder of page intentionally left blank]


                                       7


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.


HOLDINGS:                          ARRIS GROUP, INC.



                                   By:
                                       ----------------------------------------
                                       Name:  Lawrence A. Margolis
                                       Title: Vice President, Chief Financial
                                              Officer & Secretary


COMPANY:                           ARRIS INTERNATIONAL, INC.



                                   By:
                                       ----------------------------------------
                                       Name:  Lawrence A. Margolis
                                       Title: Executive Vice President, Chief
                                              Financial Officer & Secretary


ARRIS:                             ARRIS INTERACTIVE L.L.C.



                                   By:
                                       ----------------------------------------
                                       Name:  Lawrence A. Margolis
                                       Title: Executive Vice President


SUBSIDIRIES OF COMPANY:            ANTEC ASSET MANAGEMENT COMPANY



                                   By:
                                       ----------------------------------------
                                       Name:  Lawrence A. Margolis
                                       Title: President


                                   ANTEC LICENSING COMPANY



                                   By:
                                       ----------------------------------------
                                       Name:  Lawrence A. Margolis
                                       Title: President


                                      S-1


                                      TEXSCAN CORPORATION



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Chairman of the Board


                                       ELECTRONIC CONNECTOR
                                       CORPORATION OF ILLINOIS



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Vice President


                                       POWER GUARD, INC.



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Vice President


                                       ELECTRONIC SYSTEM PRODUCTS INC.



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Vice President


                                       KEPTEL, INC.



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Vice President


                                      S-2


SUBSIDIARY GUARATORS,
for purposes of Section 3 only,        TEXSCAN DE MEXICO, S.A. DE C.V.



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Chairman


                                       KEPTEL DE MEXICO S.A. DE C.V.



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Chairman


                                       ANTEC INTERNATIONAL
                                       CORPORATION



                                       By:
                                           ------------------------------------
                                           Name:  Lawrence A. Margolis
                                           Title: Director


                                      S-3


LENDERS:                               THE CIT GROUP/BUSINESS CREDIT,
                                       INC.,
                                       individually and as Administrative Agent
                                       and Collateral Agent



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-4


                                       CREDIT SUISSE FIRST BOSTON,
                                       individually and as Syndication Agent



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:

                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-5


                                       AMERICAN NATIONAL BANK AND
                                       TRUST COMPANY OF CHICAGO



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-6


                                       COMERICA BANK



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-7


                                       CONGRESS FINANCIAL CORPORATION
                                       (SOUTHERN)



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-8


                                       FLEET CAPITAL CORPORATION



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-9


                                       GMAC COMMERCIAL CREDIT LLC



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-10


                                       IBM CREDIT CORPORATION



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-11


                                       PNC BANK, NATIONAL ASSOCIATION



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:



                                       By:
                                           ------------------------------------
                                           Name:
                                           Title:


                                      S-12

EX-10.1(C)

                                                                 EXHIBIT 10.1(c)

                                                                       EXECUTION

                                 THIRD AMENDMENT
                               TO CREDIT AGREEMENT

            This THIRD AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated
as of April 24, 2002 and entered into by and among ARRIS INTERNATIONAL, INC., a
Delaware corporation (the "COMPANY"), ARRIS INTERACTIVE L.L.C., a Delaware
limited liability company ("ARRIS"), EACH OF COMPANY'S SUBSIDIARIES LISTED ON
THE SIGNATURE PAGES HEREOF (Company, Arris and each such subsidiary are
individually referred to herein as a "BORROWER" and, collectively, on a joint
and several basis, as the "BORROWERS"), THE FINANCIAL INSTITUTIONS LISTED ON THE
SIGNATURE PAGES HEREOF (each individually referred to herein as a "LENDER" and
collectively as "LENDERS"), CREDIT SUISSE FIRST BOSTON, as syndication agent for
Lenders (in such capacity, "SYNDICATION AGENT") and THE CIT GROUP/BUSINESS
CREDIT, INC., as administrative agent and collateral agent for Lenders (in such
capacity, "ADMINISTRATIVE AGENT"), and is made with reference to that certain
Credit Agreement dated as of August 3, 2001, as amended by that certain First
Amendment to Credit Agreement dated as of January 8, 2002 (the "FIRST
AMENDMENT"), as supplemented by that certain Acknowledgement dated as of March
21, 2002 and as further amended by that certain Second Amendment to Credit
Agreement dated as of April 17, 2002 (as so amended, and supplemented as of the
date hereof, the "CREDIT AGREEMENT"), by and among the Borrowers, Lenders,
Syndication Agent and Administrative Agent. Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the
Credit Agreement.

                                    RECITALS

            WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement
to (i) allow Keptel, Inc. and Company to sell substantially all of the assets
related to the Company's demarcation and repeaters product line (the "KEPTEL
SALE") to Buyer for cash proceeds of approximately $30,000,000; (ii) allow for
the release from the Lien created by the Collateral Documents (a) certain
equipment located at the Company's Rock Falls, Illinois facility (the "ROCK
FALLS EQUIPMENT") and (b) Patent No. 5,092,663 that in connection with the
Keptel Sale will be transferred to by Company in the future; (iii) permit the
Company to grant Buyer a security interest in the Rock Falls Equipment; (iv)
provide that the Revolving Loan Commitments shall be reduced by an amount equal
to the Net Asset Sale Proceeds received by the Credit Parties in connection with
the Keptel Sale on or about the date of the closing of the Keptel Sale on the
earlier of (x) May 31, 2002 or (y) the date that such reduction is requested by
Requisite Lenders; and (v) make certain other amendments as set forth below.

            NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:


                                                                       EXECUTION

            AMENDMENTS TO THE CREDIT AGREEMENT

            AMENDMENTS TO SECTION 1: PROVISIONS RELATING TO DEFINED TERMS

            Subsection 1.1 of the Credit Agreement is hereby amended by adding
      thereto the following definitions, which shall be inserted in proper
      alphabetical order:

            "KEPTEL" means Keptel, Inc., a Delaware corporation.

            "KEPTEL ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement
      dated as of April 24, 2002, by and among Keptel, Buyer., a Delaware
      corporation and Company, as amended, restated, supplemented or otherwise
      modified from time to time to the extent permitted under subsection 7.12.

            "KEPTEL ASSIGNMENT AND ASSUMPTION AGREEMENT" means the Assignment
      and Assumption Agreement dated as of April 24, 2002, by and among Keptel
      and Buyer, as amended, restated, supplemented or otherwise modified from
      time to time to the extent permitted under subsection 7.12.

            "KEPTEL BILL OF SALE" means the Bill of Sale dated as of April 24,
      2002, by and among Keptel and Buyer, as amended, restated, supplemented or
      otherwise modified from time to time to the extent permitted under
      subsection 7.12.

            "KEPTEL CLOSING DATE" means the Closing Date (as such term is
      defined in the Keptel Asset Purchase Agreement).

            "KEPTEL DISTRIBUTION AGREEMENT" means the Distribution Agreement
      dated as of April 24, 2002, by and among Company and Buyer, as amended,
      restated, supplemented or otherwise modified from time to time to the
      extent permitted under subsection 7.12.

            "KEPTEL SALE" means the sale by Keptel of substantially all of its
      assets and the transfer of certain of its liabilities pursuant to the
      Keptel Sale Documents.

            "KEPTEL SALE DOCUMENTS" means the Keptel Asset Purchase Agreement,
      Keptel Bill of Sale, Keptel Assignment and Assumption Agreement, Keptel
      Transition Services Agreement and Keptel Distribution Agreement, and all
      other instruments or documents delivered or entered into in connection
      with any of the foregoing, in each case including all schedules, annexes
      and exhibits thereto, as such Keptel Sale Documents may be amended,
      restated, supplemented or otherwise modified from time to time to the
      extent permitted under subsection 7.12.

            "KEPTEL TRANSITION SERVICES AGREEMENT" means the Transition Services
      Agreement dated as of April 24, 2002, by and among Company and Buyer, as
      amended,


                                        2                              EXECUTION

      restated, supplemented or otherwise modified from time to time to the
      extent permitted under subsection 7.12.

            AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS

            Subsection 2.4A(iii)(a) of the Credit Agreement is hereby amended by
adding the following proviso at the end of such subsection:

            "; provided, further, that notwithstanding anything in this clause
      (a) to the contrary, the Revolving Loan Commitments shall be reduced by an
      amount equal to the Net Asset Sale Proceeds received by Holdings or any of
      its Subsidiaries in connection with the Keptel Sale, (i) if such Net Asset
      Sale Proceeds are received on or about the Keptel Closing Date, upon the
      earlier of (x) May 31, 2002 or (y) the date that such reduction is
      requested by Requisite Lenders and (ii) if such Net Asset Sale Proceeds
      are received after the Keptel Closing Date, upon receipt of such Net Asset
      Sale Proceeds."

            Amendments to Section 7: Borrowers' Negative Covenants

            Subsection 7.2 of the Credit Agreement is hereby amended by (i)
deleting the "and" at the end of subsection (vi) thereof, deleting the "." at
the end of subsection (vii) thereof and substituting therefor "; and" and (ii)
adding the following subsection (viii) to the end thereof:

            "(viii) Liens granted by Company in equipment located at the Rock
      Falls, Illinois facility of the Company in accordance with and pursuant to
      the Keptel Transitions Services Agreement."

            Subsection 7.3 of the Credit Agreement is hereby amended by (i)
deleting the "and" at the end of subsection (xv) thereof, deleting the "." at
the end of subsection (xvi) thereof and substituting therefor "; and" and (ii)
adding the following subsection (xvii) to the end thereof:

            "(xvii) Company and Keptel may acquire and hold the earn-out
      obligation provided for under the Keptel Asset Purchase Agreement."

            Subsection 7.4 of the Credit Agreement is hereby amended by (i)
deleting the "and" at the end of subsection (xv) thereof, deleting the "." at
the end of subsection (xvi) thereof and substituting therefor "; and" and (ii)
adding the following subsection (xvi) to the end thereof:

            "(xvi) Company may become and remain liable for Contingent
      Obligations arising under the Keptel Asset Purchase Agreement."

            Subsection 7.7 of the Credit Agreement is hereby amended by deleting
the "and" at the end of clause (ix), deleting the period at the end of clause
(x) and substituting therefore "; and", and inserting the following clause (xi)
at the end of such subsection:

            "(xi) So long as no Event of Default or Potential Event of Default
      has occurred and is continuing, Keptel and Company may sell, license or
      lease the assets comprising


                                        3                              EXECUTION

      the Company's and its Subsidiaries' demarcation and repeaters product line
      for cash consideration of at least $30,000,000 in accordance with the
      terms of the Keptel Sale Documents."

            Subsection 7.12 of the Credit Agreement is hereby amended by
deleting subsection 7.12A and substituting therefor the following:

            "A. AMENDMENTS OR WAIVERS OF CERTAIN AGREEMENTS. Neither any
      Borrower nor any of its Subsidiaries will agree to any amendment to, or
      waive any of its rights under, any Reorganization Document, Mexican
      Intercompany Security Document, Tax Abatement Transaction Document, Cadant
      Acquisition Document or Keptel Sale Document after the Closing Date,
      without in each case obtaining the prior written consent of Requisite
      Lenders to such amendment or waiver."

            RELEASE OF CERTAIN COLLATERAL

      In connection with the Keptel Sale, the Lenders hereby authorize
Administrative Agent to release from the Liens the created by the Collateral
Documents (i) the assets sold by the Company and Keptel pursuant to the Keptel
Sale Documents, (ii) the equipment described in the Keptel Transition Services
Agreement located at the Company's Rock Falls, Illinois facility and (iii)
Patent No. 5,092,663.

            CONDITIONS TO EFFECTIVENESS

            Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "THIRD AMENDMENT
EFFECTIVE DATE"):

            on the Third Amendment Effective Date, all conditions to the
consummation of the Keptel Sale (other than payment of the purchase price
therefor and the conveyance of assets resulting therefrom) shall have been
satisfied or waived with the consent of Administrative Agent and Administrative
Agent shall have received (i) a fully executed or conformed copy of each Keptel
Acquisition Document to be entered into on or prior to the Third Amendment
Effective Date, in form and substance reasonably satisfactory to the
Administrative Agent and each such Keptel Acquisition Document shall be in full
force and effect and no provision thereof shall have been modified or waived
without the consent of Administrative Agent and the parties to the Keptel
Acquisition Documents shall not have failed in any material respect to perform
any material obligation or covenant required by the Keptel Asset Purchase
Agreement, respectively, to be performed or complied with by any of them on or
before the Third Amendment Effective Date, and (ii) an Officer's Certificate of
Company (1) to the effect set forth in clause (i) and (2) stating that Company
and Keptel will proceed to consummate the Keptel Sale contemporaneously with the
effectiveness of this Amendment.

            BORROWERS' REPRESENTATIONS AND WARRANTIES

            In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Borrowers represent and
warrant to each Lender that


                                        4                              EXECUTION

the following statements are true, correct and complete:

            CORPORATE POWER AND AUTHORITY. Each Borrower has all requisite
corporate power and authority to enter into this Amendment, and perform its
obligations under, the Credit Agreement as amended by the First Amendment and
this Amendment (the "AMENDED AGREEMENT").

            AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate action on the part of each of the Borrowers.

            NO CONFLICT. The execution and delivery by Borrowers of this
Amendment and the performance by Borrowers of the Amended Agreement do not and
will not (i) violate any provision of any law or any governmental rule or
regulation applicable to any Borrower or any of their respective Subsidiaries,
the Certificate or Articles of Incorporation or Bylaws or Certificate of
Formation or Operating Agreement, as applicable, of any Borrower or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on any Borrower or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of any Borrower or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of the properties or assets of any Borrower or any of its Subsidiaries
(other than Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of any Borrower or any of its Subsidiaries.

            GOVERNMENTAL CONSENTS. The execution and delivery by each Borrower
of this Amendment and the performance by the Borrowers of the Amended Agreement
and the transactions contemplated by this Amendment do not and will not require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.

            BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by each Borrower and is the legally valid and
binding obligations of the Borrowers, enforceable against the Borrowers in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.

            INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.


                                        5                              EXECUTION

            ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would constitute an Event of Default or a Potential Event of Default.

            ACKNOWLEDGEMENT AND CONSENT

                        Holdings, each Borrower and each Subsidiary Guarantor
hereby acknowledges that such Loan Party has read this Amendment and consents to
the terms hereof and further hereby confirms and agrees that, notwithstanding
the effectiveness of this Amendment, the obligations of such Loan Party under
each of the Loan Documents to which such Loan Party is a party shall not be
impaired and each of the Loan Documents to which such Loan Party is a party are,
and shall continue to be, in full force and effect and are hereby confirmed and
ratified in all respects.

            Holdings and each Subsidiary Guarantor acknowledges and agrees that
(i) notwithstanding the conditions to effectiveness set forth in this Amendment,
such Loan Party is not required by the terms of the Credit Agreement or any
other Loan Document to consent to the amendments to the Credit Agreement
effected pursuant to this Amendment and (ii) nothing in the Credit Agreement,
this Amendment or any other Loan Document shall be deemed to require the consent
of such Loan Party to any future amendments to the Credit Agreement.

            MISCELLANEOUS

            REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

            On and after the Second Amendment Effective Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.

            Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.

            The execution, delivery and performance of this Amendment shall not,
except as expressly provided herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of Administrative Agent or any
Lender under, the Credit Agreement or any of the other Loan Documents.

            FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agents and their counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Borrowers.


                                        6                              EXECUTION

            HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.

            APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.

            COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective upon the execution of a
counterpart hereof by each of the Borrowers, each of the Subsidiary Guarantors,
Holdings and Requisite Lenders and receipt by Company and Administrative Agent
of written or telephonic notification of such execution and authorization of
delivery.

                  [Remainder of page intentionally left blank]


                                        7                              EXECUTION

                                                          EXHIBIT 10.1(C)

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.

HOLDINGS:                               ARRIS GROUP, INC.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Vice President, Chief
                                                   Financial Officer & Secretary


COMPANY:                                ARRIS INTERNATIONAL, INC.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Executive Vice President,
                                                   Chief Financial Officer &
                                                   Secretary


ARRIS:                                  ARRIS INTERACTIVE L.L.C.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Executive Vice President


SUBSIDIRIES OF COMPANY:                 ANTEC ASSET MANAGEMENT COMPANY

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: President

                                        ANTEC LICENSING COMPANY

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: President


                                      S-1                              EXECUTION

                                        TEXSCAN CORPORATION

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Chairman of the Board


                                        ELECTRONIC CONNECTOR
                                        CORPORATION OF ILLINOIS

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Vice President


                                        POWER GUARD, INC.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Vice President


                                        ELECTRONIC SYSTEM PRODUCTS INC.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Vice President


                                        KEPTEL, INC.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Vice President


                                      S-2                              EXECUTION

SUBSIDIARY GUARATORS,
for purposes of Section 3 only,         TEXSCAN DE MEXICO, S.A. DE C.V.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Chairman


                                        KEPTEL DE MEXICO S.A. DE C.V.

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Chairman


                                        ANTEC INTERNATIONAL CORPORATION

                                        By: ____________________________________
                                            Name:  Lawrence A. Margolis
                                            Title: Director


                                      S-3                              EXECUTION

LENDERS:                                THE CIT GROUP/BUSINESS CREDIT, INC.,
                                        individually and as Administrative Agent
                                        and Collateral Agent

                                        By: ____________________________________
                                            Name:
                                            Title:


                                      S-4                              EXECUTION

                                        CREDIT SUISSE FIRST BOSTON,
                                        individually and as Syndication Agent


                                        By: ____________________________________
                                            Name:
                                            Title:


                                        By: ____________________________________
                                            Name:
                                            Title:


                                      S-5                              EXECUTION

                                        AMERICAN NATIONAL BANK AND
                                        TRUST COMPANY OF CHICAGO


                                        By: ____________________________________
                                            Name:
                                            Title:


                                      S-6                              EXECUTION

                                        COMERICA BANK


                                        By: ____________________________________
                                            Name:
                                            Title:


                                      S-7                              EXECUTION

                                        CONGRESS FINANCIAL CORPORATION
                                        (SOUTHERN)


                                        By: ____________________________________
                                            Name:
                                            Title:


                                      S-8                              EXECUTION

                                        FLEET CAPITAL CORPORATION


                                        By: ____________________________________
                                            Name:
                                            Title:


                                      S-9                              EXECUTION

                                        GMAC COMMERCIAL CREDIT LLC


                                        By: ____________________________________
                                            Name:
                                            Title:


                                     S-10                              EXECUTION

                                        IBM CREDIT CORPORATION


                                        By: ____________________________________
                                            Name:
                                            Title:


                                     S-11                              EXECUTION

                                        PNC BANK, NATIONAL ASSOCIATION


                                        By: ____________________________________
                                            Name:
                                            Title:


                                        By: ____________________________________
                                            Name:
                                            Title:


                                     S-12                              EXECUTION

EX-10.9(B)

                                                                 EXHIBIT 10.9(b)

                    AMENDED AND RESTATED EMPLOYMENT AGREEMENT

      THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), dated as
of January 21, 2002, is by and between ARRIS GROUP, INC., a Delaware corporation
(the "Company"), and GORDON HALVERSON ("Executive").

      WHEREAS, Executive and a subsidiary of the Company are parties to a
previous employment agreement dated as of October 25, 2000;

      WHEREAS, Executive and the Company desire to amend and restate the
previous employment agreement; and

      WHEREAS, Executive and the Company want to enter into a written agreement
providing for the terms of Executive's employment by the Company.

      NOW, THEREFORE, in consideration of the foregoing recital and of the
mutual covenants set forth herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:

      1. Employment. Executive agrees to enter into the continued employment of
the Company, and the Company agrees to employ Executive, on the terms and
conditions set forth in this Agreement. Executive agrees during the term of this
Agreement to devote substantially all of his business time, efforts, skills and
abilities to the performance of his duties as stated in this Agreement and to
the furtherance of the Company's business.

            Executive's initial job title will be Executive CEO Telewire Supply
and his duties will be those as are designated by the Chief Executive Officer of
the Company. Executive further agrees to serve, without additional compensation,
as an officer or director, or both, of any subsidiary, division or affiliate of
the Company or any other entity in which the Company holds an equity interest,
provided, however, that (a) the Company shall indemnify Executive from
liabilities in connection with serving in any such position to the same extent
as his indemnification rights pursuant to the Company's Certificate of
Incorporation, By-laws and applicable Delaware law, and (b) such other position
shall not materially detract from the responsibilities of Executive pursuant to
this Section 1 or his ability to perform such responsibilities.

      2. Compensation.

            (a) Base Salary. During the term of Executive's employment with the
Company pursuant to this Agreement, the Company shall pay to Executive as
compensation for his services an annual base salary of not less than $245,000
("Base Salary"). Executive's Base

Salary will be payable in arrears in accordance with the Company's normal
payroll procedures and will be reviewed annually and subject to upward
adjustment at the discretion of the Chief Executive Officer.

            (b) Incentive Bonus. During the term of Executive's employment with
the Company pursuant to this Agreement, Executive's incentive compensation
program shall be determined by the Company in its discretion with a target bonus
equal to 50% of Base Salary, and allowing for payment of up to 150% of target.
On termination at other than year-end the bonus will be prorated to reflect the
period of actual employment.

            (c) Executive Perquisites. During the term of Executive's employment
with the Company pursuant to this Agreement, Executive shall be entitled to
receive such executive perquisites and fringe benefits as are provided to the
executives in comparable positions and their families under any of the Company's
plans and/or programs in effect from time to time and such other benefits as are
customarily available to executives of the Company and their families, including
without limitation vacations and life, medical and disability insurance.

            (d) Tax Withholding. The Company has the right to deduct from any
compensation payable to Executive under this Agreement social security (FICA)
taxes and all federal, state, municipal or other such taxes or charges as may
now be in effect or that may hereafter be enacted or required.

            (e) Expense Reimbursements. The Company shall pay or reimburse
Executive for all reasonable business expenses incurred or paid by Executive in
the course of performing his duties hereunder, including but not limited to
reasonable travel expenses for Executive. As a condition to such payment or
reimbursement, however, Executive shall maintain and provide to the Company
reasonable documentation and receipts for such expenses.

      3. Term. Unless sooner terminated pursuant to Section 4 of this Agreement,
and subject to the provisions of Section 5 hereof, the term of Executive's
employment under this Agreement shall commence as of the date hereof and shall
continue until five years and six months from the date hereof.

      4. Termination. Notwithstanding the provisions of Section 3 hereof, but
subject to the provisions of Section 5 hereof, Executive's employment under this
Agreement shall terminate as follows:

            (a) Death. Executive's employment shall terminate upon the death of
Executive; provided, however, that the Company shall continue to pay (in
accordance with its normal payroll procedures) the Base Salary to Executive's
estate for a period of three months after the date of Executive's death.

            (b) Termination for Cause. The Company may terminate Executive's
employment at any time for "Cause" (as hereinafter defined) by delivering a
written termination notice to Executive. For purposes of this Agreement, "Cause"
shall mean any of: (i) Executive's


                                       2

conviction of a felony or a crime involving moral turpitude; (ii) Executive's
commission of an act constituting fraud, deceit or material misrepresentation
with respect to the Company; (iii) Executive's embezzlement of funds or assets
from the Company; (iv) Executive's addiction to any alcoholic, controlled or
illegal substance or drug; (v) Executive's commission of any act or omission
which would give the Company the right, other than the right generally to
terminate Executive's employment "at will," to terminate Executive's employment
under applicable law; or (vi) Executive's failure to correct or cure any
material breach of or default under this Agreement within ten days after
receiving written notice of such breach or default from the Company.

            (c) Termination Without Cause. The Company may terminate Executive's
employment at any time by delivering a written termination notice to Executive.

            (d) Termination by Executive. Except as otherwise provided herein,
Executive may terminate his employment at any time by delivering ninety days
prior written notice to the Company; provided, however, that the terms,
conditions and benefits specified in Section 5 hereof shall apply or be payable
to Executive only if such termination occurs as a result of a material breach by
the Company of any provision of this Agreement.

            (e) Termination Following Disability. In the event Executive suffers
a permanent disability which materially impairs Executive's performance of
Executive's duties for the Company and qualifies Executive for full benefits
under the Company's long term disability insurance policy, the Company may
terminate Executive's employment by delivering a written termination notice to
Executive. Notwithstanding the foregoing, Executive shall continue to receive
his full salary and benefits under this Agreement until the expiration of a
period of six months after the effective date of such termination or until the
commencement of benefits under the Company's long term disability insurance
policy, which ever shall first occur.

            (f) Payments. Following any expiration or termination of this
Agreement or Executive's employment hereunder, and in addition to any amounts
owed pursuant to Section 5 hereof, the Company shall pay to Executive all
amounts earned by Executive hereunder prior to the date of such expiration or
termination.

            (g) Early Retirement. In the event, Executive upon at least 90 days
written notice to the Company, elects to retire after reaching age 62, (i) the
payments provided by Section 5(a) hereof shall be made at two thirds (2/3) of
the rate provided by Section 5(a) until the expiration of a period of 36 months
following such retirement or Executive's death, which ever shall first occur,
less any amounts that Executive shall receive under the funded and unfunded
pension plans of the Company and its subsidiaries, (ii) the benefits specified
in Section 5(c), (d) and (e) shall be provided, and (iii) Executive's stock
options and restricted stock grants shall vest and be exercisable as provided in
Section 5(b) hereof.

      5. Certain Termination Benefits. Subject to Section 6(a) hereof, in the
event (i) the Company terminates Executive's employment without cause pursuant
to Section 4(c) or (ii) Executive terminates his employment pursuant to Section
4(d):


                                       3

            (a) Base Salary and Bonus. The Company shall continue to pay to
Executive his Base Salary (as in effect as of the date of such termination) and
bonuses (calculated on a pro rata basis based upon the assumption that Executive
would have fulfilled the requirements to earn his target bonus) that would have
been payable hereunder to Executive from the date of such termination for a
period of 24 months following the termination.

            (b) Stock. Subject to Section 10 hereof, on and as of the effective
date of the termination of employment, all of Executive's outstanding stock
options and restricted stock grants under the Company's stock option and other
benefit plans shall immediately vest and all such stock options shall be
exercisable for the period of 60 days, seven months or, in the case of death, 12
months after the conclusion of Executive's consultation pursuant to Section 14
as each stock option provides, or, if shorter, their remaining term.

            (c) Life Insurance. The Company shall continue to provide Executive
with group and additional life insurance coverage until Executive reaches the
age of 65.

            (d) Medical Insurance. The Company shall continue to provide
Executive and his family with group medical insurance coverage under the
Company's Medical Plans (as the same may change from time to time) or other
substantially similar health insurance Until Executive reaches the age of 65.

            (e) Group Disability. The Company shall continue to provide
Executive coverage under the Company's group disability plan until Executive
reaches the age of 65, if and to the extent such coverage is available under the
Company's insurance plan.

            (f) Support. Executive shall be entitled to retain the cellular
telephone and the home office computer equipment provided to him by the Company;
provided, however, that Executive shall be responsible for the payment of all of
his cellular telephone bills.

            (g) Offset. Any fringe benefits received by Executive in connection
with any other employment that are reasonably comparable, but not necessarily as
beneficial, to Executive as the fringe benefits then being provided by the
Company pursuant to Section 5 (c), (d) or (e), shall be deemed to be the
equivalent of, and shall terminate the Company's responsibility to continue
providing, the fringe benefits then being provided by the Company pursuant to
Section 5 (c), (d) or (e). The Company acknowledges that if Executive's
employment with the Company is terminated, Executive shall have no duty to
mitigate damages.

            (h) General Release. Acceptance by Executive of any amounts pursuant
to this Section 5 shall constitute a full and complete release by Executive of
any and all claims Executive may have against the Company, its officers,
directors and affiliates, including, but not limited to, claims he might have
relating to Executive's cessation of employment with the Company; provided,
however, that there may properly be excluded from the scope of such general
release the following:


                                       4

                  (i) claims that Executive may have against the Company for
            reimbursement of ordinary and necessary business expenses incurred
            by him during the course of his employment;

                  (ii) claims that may be made by the Executive for payment of
            Base Salary, fringe benefits or stock options properly due to him;
            or

                  (iii) claims respecting matters for which the Executive is
            entitled to be indemnified under the Company's Certificate of
            Incorporation or Bylaws, respecting third party claims asserted or
            third party litigation pending or threatened against the Executive.

A condition to Executive's receipt of any amounts pursuant to this Section 5
shall be Executive's execution and delivery of a general release as described
above. In exchange for such release, the Company shall, if Executive's
employment is terminated without Cause, provide a release to Executive, but only
with respect to claims against Executive which are actually known to the Company
as of the time of such termination.

      (i) Retirement Benefits. Upon the completion of the payments provided by
(a) above, Executive may receive benefits under the Company's defined benefit
pension plan, as provided by his previous participation in that plan, and the
Company's excess benefits plan without reduction for retirement prior to his
normal retirement date. Any reduction for early retirement required by the
provisions of the defined benefit plan will be paid by the Company. By written
notice to the Company by Executive and his Spouse at least one year prior to the
commencement of retirement payments by the Company outside the defined benefit
plan, Executive may elect to receive such payments in a lump sum amount
determined in good faith by the Company to be the actuarial equivalent of such
payments.

      6. Effect of Change in Control.

            (a) If in the six to twelve month period following a "Change of
Control" (as hereinafter defined), Executive terminates his employment with the
Company for any reason upon at least 30 days written notice to the Company, the
Company shall provide to Executive the benefits specified in Section 5 hereof.

            (b) "Change of Control" shall mean the date as of which: (i) there
shall be consummated (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's common stock would be converted into cash, securities or
other property, other than a merger of the Company in which the holders of the
Company's common stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company; or (ii) the stockholders of the Company approve
any plan or proposal for the liquidation or dissolution of the Company; or (iii)
any person ( as such term is used in Sections


                                       5

13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 30% of the Company's outstanding common stock
(other than Nortel or Liberty Media or one of their subsidiaries); or (iv)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the entire board of directors of the Company shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period. It is understood and agreed
that the sale of the Company's distribution business (Telewire Supply) or the
assignment to and assumption of this Agreement to the buyer of that business
shall not be considered a Change of Control and that upon such an assignment and
assumption all references in this Agreement to "Company" shall mean the buyer of
that business.

            (c) In the event that (i) Executive would otherwise be entitled to
the compensation and benefits described in Section 6(a) hereof ("Compensation
Payments"), and (ii) the Company determines, based upon the advice of tax
counsel selected by the Company's independent auditors and acceptable to
Executive, that, as a result of such Compensation Payments and any other
benefits or payments required to be taken into account under Code Section
280G(b)(2) ("Parachute Payments"), any of such Parachute Payments would be
reportable by the Company as "excess parachute payments", such Compensation
Payments shall be reduced to the extent necessary to cause Executive's Parachute
Payments to equal 2.99 times the "base amount" as defined in Code Section
280G(b)(3) with respect to such Executive. However, such reduction in the
Compensation Payments shall be made only if, in the opinion of such tax counsel,
it would result in a larger Parachute Payment to the Executive than payment of
the unreduced Parachute Payments after deduction of tax imposed on and payable
by the Executive under Section 4999 of the Code ("Excise Tax"). The value of any
non-cash benefits or any deferred payment or benefit for purposes of this
paragraph shall be determined by the Company's independent auditors.

            (d) The parties hereto agree that the payments provided under
Section 6(a) above, as the case may be, are reasonable compensation in light of
Executive's services rendered to the Company and that neither party shall
contest the payment of such benefits as constituting an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.

            (e) Unless the Company determines that any Parachute Payments made
hereunder must be reported as "excess parachute payments" in accordance with
Section 6(e) above, neither party shall file any return taking the position that
the payment of such benefits constitutes an "excess parachute payment" within
the meaning of Section 280G(b)(1) of the Code.

      7. Non-Competition. Executive agrees that during the term of this
Agreement and for a period of four months from the date of the termination of
Executive's employment with the Company pursuant to Sections 4(b), 4(c), 4(d),
4(e) or 6 herein or for any other reason that results in the Executive being
entitled to the benefits described in Section 5, he will not, directly or
indirectly, compete with the Company by providing to any company that is in a
"Competing


                                       6

Business" services substantially similar to the services provided by Executive
at the time of termination. Competing Business shall be defined as any business
that engages, in whole or in part, in the broadband communication equipment for
broadband communications architectures in the United States, and Executive's
employment function or affiliation is directly or indirectly in such business.

      8. Nonsolicitation of Employees. For a period of two years after the
termination or cessation of his employment with the Company for any reason
whatsoever, Executive shall not, on his own behalf or on behalf of any other
person, partnership, association, corporation, or other entity, solicit or in
any manner attempt to influence or induce any employee of the Company or its
subsidiaries or affiliates (known by the Executive to be such) to leave the
employment of the Company or its subsidiaries or affiliates, nor shall he use or
disclose to any person, partnership, association, corporation or other entity
any information obtained while an employee of the Company concerning the names
and addresses of the Company's employees.

      9. Nondisclosure of Trade Secrets. During the term of this Agreement,
Executive will have access to and become familiar with various trade secrets and
proprietary and confidential information of the Company, its subsidiaries and
affiliates, including, but not limited to, processes, computer programs,
compilations of information, records, sales procedures, customer requirements,
pricing techniques, customer lists, methods of doing business and other
confidential information (collectively, referred to as "Trade Secrets") which
are owned by the Company, its subsidiaries and/or affiliates and regularly used
in the operation of its business, and as to which the Company, its subsidiaries
and/or affiliates take precautions to prevent dissemination to persons other
than certain directors, officers and employees. Executive acknowledges and
agrees that the Trade Secrets (1) are secret and not known in the industry; (2)
give the Company or its subsidiaries or affiliates an advantage over competitors
who do not know or use the Trade Secrets; (3) are of such value and nature as to
make it reasonable and necessary to protect and preserve the confidentiality and
secrecy of the Trade Secrets; and (4) are valuable, special and unique assets of
the Company or its subsidiaries or affiliates, the disclosure of which could
cause substantial injury and loss of profits and goodwill to the Company or its
subsidiaries or affiliates. Executive may not use in any way or disclose any of
the Trade Secrets, directly or indirectly, either during the term of this
Agreement or at any time thereafter, except as required in the course of his
employment under this Agreement, if required in connection with a judicial or
administrative proceeding, or if the information becomes public knowledge other
than as a result of an unauthorized disclosure by the Executive. All files,
records, documents, information, data and similar items relating to the business
of the Company, whether prepared by Executive or otherwise coming into his
possession, will remain the exclusive property of the Company and may not be
removed from the premises of the Company under any circumstances without the
prior written consent of the Board (except in the ordinary course of business
during Executive's period of active employment under this Agreement), and in any
event must be promptly delivered to the Company upon termination of Executive's
employment with the Company. Executive agrees that upon his receipt of any
subpoena, process or other request to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal or person,
Executive shall timely notify and promptly hand deliver a copy of the


                                       7

subpoena, process or other request to the Board. For this purpose, Executive
irrevocably nominates and appoints the Company (including any attorney retained
by the Company), as his true and lawful attorney-in-fact, to act in Executive's
name, place and stead to perform any act that Executive might perform to defend
and protect against any disclosure of any Trade Secrets.

      10. Return of Profits. In the event that Executive violates any of the
provisions of Sections 7, 8 or 9 hereof or fails to provide the notice required
by Section 4(d), 4(g) or 6(a) hereof, as the case may be, the Company shall be
entitled to receive from Executive the profits, if any, received by Executive
upon exercise of any Company granted stock options or stock appreciation rights
or upon lapse of the restrictions on any grant of restricted stock to the extent
such options or rights were exercised, or such restrictions lapsed, subsequent
to six months prior to the termination of Executive's employment.

      11. Severability. The parties hereto intend all provisions of Sections 7,
8, 9 and 10 hereof to be enforced to the fullest extent permitted by law.
Accordingly, should a court of competent jurisdiction determine that the scope
of any provision of Sections 7, 8, 9 or 10 hereof is too broad to be enforced as
written, the parties intend that the court reform the provision to such narrower
scope as it determines to be reasonable and enforceable. In addition, however,
Executive agrees that the nonsolicitation and nondisclosure agreements set forth
above each constitute separate agreements independently supported by good and
adequate consideration shall be severable from the other provisions of, and
shall survive, this Agreement. The existence of any claim or cause of action of
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants of Executive contained in the nonsolicitation and nondisclosure
agreements. If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision never
constituted a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance here from.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or enforceable provision as may be possible and be legal,
valid and enforceable.

      12. Arbitration - Exclusive Remedy.

            (a) The parties agree that the exclusive remedy or method of
resolving all disputes or questions arising out of or relating to this Agreement
shall be arbitration. Arbitration shall be held in Atlanta, Georgia by three
arbitrators, one to be appointed by the Company, a second to be appointed by
Executive, and a third to be appointed by those two arbitrators. The third
arbitrator shall act as chairman. Any arbitration may be initiated by either
party by written notice ("Arbitration Notice") to the other party specifying the
subject of the requested arbitration and appointing that party's arbitrator.


                                       8

            (b) If (i) the non-initiating party fails to appoint an arbitrator
by written notice to the initiating party within ten days after the Arbitration
Notice, or (ii) the two arbitrators appointed by the parties fail to appoint a
third arbitrator within ten days after the date of the appointment of the second
arbitrator, then the American Arbitration Association, upon application of the
initiating party, shall appoint an arbitrator to fill that position.

            (c) The arbitration proceeding shall be conducted in accordance with
the rules of the American Arbitration Association. A determination or award made
or approved by at least two of the arbitrators shall be the valid and binding
action of the arbitrators. The costs of arbitration (exclusive of the expense of
a party in obtaining and presenting evidence and attending the arbitration and
of the fees and expenses of legal counsel to a party, all of which shall be
borne by that party) shall be borne by the Company only if Executive receives
substantially the relief sought by him in the arbitration, whether by
settlement, award or judgment; otherwise, the costs shall be borne equally
between the parties. The arbitration determination or award shall be final and
conclusive on the parties, and judgment upon such award may be entered and
enforced in any court of competent jurisdiction.

      13. Miscellaneous.

            (a) Notices. Any notices, consents, demands, requests, approvals and
other communications to be given under this Agreement by either party to the
other must be in writing and must be either (i) personally delivered, (ii)
mailed by registered or certified mail, postage prepaid with return receipt
requested, (iii) delivered by overnight express delivery service or same-day
local courier service, or (iv) delivered by telex or facsimile transmission, to
the address set forth below, or to such other address as may be designated by
the parties from time to time in accordance with this Section 12(a):

            If to the Company:  ARRIS Group, Inc
                                11450 Technology Circle
                                Duluth, Georgia  30097
                                Attention: President
                                Facsimile: (678) 473-8470

            If to Executive:    Gordy Halverson
                                4529 Silver Bell Circle
                                Castle Rock, CO 80104
                                Facsimile: (720) 895-7125

                                With a copy to:
                                John G. Brant
                                710 Kipling Street
                                Suite 305
                                Lakewood, Colorado 80215
                                Facsimile: (303) 238-3970


                                       9

            Notices delivered personally or by overnight express delivery
service or by local courier service are deemed given as of actual receipt.
Mailed notices are deemed given three business days after mailing. Notices
delivered by telex or facsimile transmission are deemed given upon receipt by
the sender of the answer back (in the case of a telex) or transmission
confirmation (in the case of a facsimile transmission).

            (b) Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or written, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect to the subject matter of this
Agreement.

            (c) Modification. No change or modification of this Agreement is
valid or binding upon the parties, nor will any waiver of any term or condition
in the future be so binding, unless the change or modification or waiver is in
writing and signed by the parties to this Agreement.

            (d) Governing Law and Venue. The parties acknowledge and agree that
this Agreement and the obligations and undertakings of the parties under this
Agreement will be performable in Georgia. This Agreement is governed by, and
construed in accordance with, the laws of the State of Georgia. If any action is
brought to enforce or interpret this Agreement, venue for the action will be in
Georgia.

            (e) Counterparts. This Agreement may be executed in counterparts,
each of which constitutes an original, but all of which constitutes one
document.

            (f) Costs. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, each party shall bear its own costs
and expenses.

            (g) Estate. If Executive dies prior to the expiration of the term of
employment or during a period when monies are owing to him, any monies that may
be due him from the Company under this Agreement as of the date of his death
shall be paid to his estate and as when otherwise payable.

            (h) Assignment. The Company shall have the right to assign this
Agreement to its successors or assigns. The terms "successors" and "assigns"
shall include any person, corporation, partnership or other entity that buys all
or substantially all of the Company's assets or all of its stock, or with which
the Company merges or consolidates. The Company shall also have the right to
assign this Agreement and substitute the assignee as the "Company" as provided
in Section 6(b) hereof. The rights, duties and benefits to Executive hereunder
are personal to him, and no such right or benefit may be assigned by him.

            (i) Binding Effect. This Agreement is binding upon the parties
hereto, together with their respective executors, administrators, successors,
personal representatives, heirs and permitted assigns.


                                       10

            (j) Waiver of Breach. The waiver by the Company or Executive of a
breach of any provision of this Agreement by Executive or the Company may not
operate or be construed as a waiver of any subsequent breach.

      14. Consultation. During the period, Executive is receiving payments from
the Company pursuant to Section 4(g), Section 5 or Section 6, Executive will be
available to consult with the Company for up to total of a 100 days, but no more
than 50 days in any 12 month period, on matters within Executive's experience or
expertise without further payment, other than reimbursement of reasonable
expenses incurred by Executive at the direction of the Company. During this
period of consulting, notwithstanding any other provision of this Agreement,
Executive will be bound by the provisions of Sections 7, 8, 9, 10 and 11 hereof
as if his employment with the Company continued during this period of
consulting, and the periods provided by those sections after the termination of
Executive's employment shall commence on the expiration of this period of
consulting.

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                        "Company"

                                        ARRIS GROUP, INC.

                                        By:    _________________________________
                                        Name:  _________________________________
                                        Title: _________________________________


                                        "Executive"

                                        ________________________________________


                                       11

EX-10.18

                                                                   EXHIBIT 10.18

================================================================================

                            ASSET PURCHASE AGREEMENT

                                      AMONG

                                      BUYER

                                       AND

                                  KEPTEL, INC.,

                                       AND

                      THE SOLE SHAREHOLDER OF KEPTEL, INC.

                                  ************

                           CLOSING DATE: APRIL , 2002

                EFFECTIVE TIME: CLOSE OF BUSINESS ON APRIL , 2002

                                  ************

================================================================================

                                TABLE OF CONTENTS



                                                                                                          PAGE
                                                                                                    
ARTICLE 1               PURCHASE AND SALE OF ASSETS ................................................        1

         Section 1.1        Transfer of Assets .....................................................        1

         Section 1.2        Consideration ..........................................................        3

         Section 1.3        Assumption of Liabilities ..............................................        3

         Section 1.4        Retained Liabilities ...................................................        4

         Section 1.5        Adjustments to Purchase Price ..........................................        4

         Section 1.6        Allocation of Purchase Price ...........................................        4

         Section 1.7        Sales Taxes ............................................................        5

         Section 1.8        Adjustment for Solectron Manufactured Goods ............................        5

ARTICLE 2               REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER ...................        5

         Section 2.1        Organization and Qualification .........................................        5

         Section 2.2        Corporate Power and Authority ..........................................        5

         Section 2.3        Books and Records ......................................................        6

         Section 2.4        Validity, Etc ..........................................................        6

         Section 2.5        Broker's or Finder's Fee ...............................................        6

         Section 2.6        Capitalization, Shareholders, Subsidiaries and Investments .............        6

         Section 2.7        Financial Statements ...................................................        7

         Section 2.8        Absence of Certain Changes and Events ..................................        7

         Section 2.9        Absence of Undisclosed Liabilities .....................................        7

         Section 2.10       Employment and Labor Matters ...........................................        7

         Section 2.11       Real Property ..........................................................        8

         Section 2.12       Powers of Attorney; Absence of Limitations on Competition; Guarantees ..        8

         Section 2.13       Governmental Approvals .................................................        8

         Section 2.14       Compliance with Law; Licenses and Permits ..............................        8

         Section 2.15       Employee Benefits ......................................................        9

         Section 2.16       Assets .................................................................        9

         Section 2.17       Inventories ............................................................       10

         Section 2.18       Insurance ..............................................................       10

         Section 2.19       Outstanding Contracts ..................................................       10



                                      -i-

                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                          PAGE
                                                                                                    
         Section 2.20       Outstanding Leases .....................................................       11

         Section 2.21       Foreign Person .........................................................       11

         Section 2.22       Significant Customers ..................................................       11

         Section 2.23       Taxes ..................................................................       11

         Section 2.24       Litigation .............................................................       12

         Section 2.25       Environmental Matters ..................................................       12

         Section 2.26       Intellectual Property ..................................................       13

         Section 2.27       No Material Adverse Change .............................................       14

         Section 2.28       Product Warranty .......................................................       14

         Section 2.29       Product Liability ......................................................       14

         Section 2.30       Certain Practices ......................................................       14

ARTICLE 3               REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER ..............................       15

         Section 3.1        Organization and Qualification .........................................       15

         Section 3.2        Corporate Power and Authority ..........................................       15

         Section 3.3        Validity, Etc ..........................................................       15

         Section 3.4        Relationships with Affiliates ..........................................       16

ARTICLE 4               REPRESENTATIONS AND WARRANTIES OF BUYER ....................................       16

         Section 4.1        Organization and Qualification .........................................       16

         Section 4.2        Corporate Power and Authority ..........................................       16

         Section 4.3        Validity, Etc ..........................................................       16

         Section 4.4        Broker's or Finder's Fee ...............................................       16

ARTICLE 5               COVENANTS AND AGREEMENTS ...................................................       17

         Section 5.1        Required Approvals .....................................................       17

         Section 5.2        Employees And Employee Benefits ........................................       17

         Section 5.3        Customer and Other Business Relationships ..............................       20

         Section 5.4        Tax Returns ............................................................       20

         Section 5.5        Employment Tax Reporting ...............................................       20

         Section 5.6        Payment of Liabilities .................................................       20

         Section 5.7        Covenants of Seller and Shareholder ....................................       20



                                      -ii-

                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                          PAGE
                                                                                                    
         Section 5.8        Further Assurances .....................................................       22

         Section 5.9        Best Efforts ...........................................................       22

ARTICLE 6               CONDITIONS TO BUYER'S OBLIGATIONS ..........................................       22

         Section 6.1        Consents ...............................................................       22

         Section 6.2        Solectron Manufacturing Services Agreement .............................       22

         Section 6.3        Distribution Agreement .................................................       22

         Section 6.4        Transition Services Agreement ..........................................       23

         Section 6.5        Opinion of Counsel to Seller and Shareholder ...........................       23

         Section 6.6        Approval of Board of Directors of Buyer and Approval of ................       24

         Section 6.7        Amendment to Certificate of Incorporation ..............................       24

         Section 6.8        Closing Documents ......................................................       24

ARTICLE 7               CONDITIONS TO SELLER'S OBLIGATIONS .........................................       24

         Section 7.1        Solectron Manufacturing Services Agreement .............................       24

         Section 7.2        Distribution Agreement .................................................       24

         Section 7.3        Transition Services Agreement ..........................................       24

         Section 7.4        Opinion of Stites & Harbison ...........................................       24

         Section 7.5        Closing Documents ......................................................       25

ARTICLE 8               THE CLOSING AND CERTAIN CLOSING DELIVERIES .................................       25

         Section 8.1        Time and Place of Closing ..............................................       25

         Section 8.2        Deliveries by Seller and the Shareholder ...............................       25

         Section 8.3        Deliveries by Buyer ....................................................       26

ARTICLE 9               SURVIVAL AND INDEMNIFICATION ...............................................       26

         Section 9.1        Survival ...............................................................       26

         Section 9.2        Indemnification by Seller and the Shareholder ..........................       26

         Section 9.3        Notice to Seller, Etc ..................................................       27

         Section 9.4        Indemnification by Buyer ...............................................       27

         Section 9.5        Notice to Buyer, Etc ...................................................       28

         Section 9.6        Limitations on Indemnification .........................................       28

         Section 9.7        Offset .................................................................       28

         Section 9.8        Consequential Damages ..................................................       29



                                     -iii-

                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                          PAGE
                                                                                                    
         Section 9.9        Exclusive Remedy .......................................................       29

ARTICLE 10              MISCELLANEOUS ..............................................................       29

         Section 10.1       Knowledge of Seller or Shareholder .....................................       29

         Section 10.2       Knowledge of Buyer .....................................................       29

         Section 10.3       Best Efforts ...........................................................       29

         Section 10.4       Schedules ..............................................................       29

         Section 10.5       Publicity ..............................................................       29

         Section 10.6       Notices ................................................................       30

         Section 10.7       Entire Agreement .......................................................       31

         Section 10.8       Modifications and Amendments ...........................................       31

         Section 10.9       Assignment/Binding Effect ..............................................       31

         Section 10.10      Parties in Interest ....................................................       31

         Section 10.11      Governing Law ..........................................................       31

         Section 10.12      Severability ...........................................................       31

         Section 10.13      Interpretation .........................................................       32

         Section 10.14      Headings and Captions ..................................................       32

         Section 10.15      Terms ..................................................................       32

         Section 10.16      Reliance ...............................................................       32

         Section 10.17      Expenses ...............................................................       32

         Section 10.18      Counterparts ...........................................................       32



                                      -iv-

                                LIST OF EXHIBITS

Exhibit A     -    Bill of Sale
Exhibit B     -    Assignment and Assumption Agreement
Exhibit C     -    License Agreement
Exhibit D     -    Solectron Manufacturing Services Agreement
Exhibit E     -    Distribution Agreement
Exhibit F     -    Transition Services Agreement

                                LIST OF SCHEDULES

Schedule 1.3    -  Assumed Liabilities
Schedule 2.1    -  Organization and Qualification
Schedule 2.4    -  Validity, Etc.
Schedule 2.5    -  Broker's Fees
Schedule 2.7    -  Financial Statements
Schedule 2.8    -  Absence of Certain Changes and Events
Schedule 2.10   -  Employment and Labor Matters
Schedule 2.12   -  Powers of Attorney, Etc.
Schedule 2.15   -  Employee Benefits
Schedule 2.16   -  Assets
Schedule 2.17   -  Inventories
Schedule 2.18   -  Insurance
Schedule 2.19   -  Contracts
Schedule 2.20   -  Leases
Schedule 2.22   -  Significant Customers
Schedule 2.23   -  Taxes
Schedule 2.24   -  Litigation
Schedule 2.25   -  Environmental Matters
Schedule 2.26   -  Intellectual Property
Schedule 2.27   -  Accounts Receivable
Schedule 2.28   -  Product Warranty
Schedule 3.4    -  Relationships with Affiliates
Schedule 6.1    -  Consents


                                      -v-

      This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into this ____
day of April, 2002 by and among (i)__________., a Delaware corporation
("Buyer"); (ii) KEPTEL, INC., a Delaware corporation ("Seller"); and (iii) ARRIS
INTERNATIONAL, INC. a Delaware corporation and the sole shareholder of Seller
("Shareholder" and to the extent of its interest in any assets of the Business,
also "Seller").

                                    RECITALS

      A. Seller desires to sell or otherwise transfer to Buyer substantially all
of the assets relating to its business of design, manufacture, and/or sale of
the Product Lines set forth on the attached Schedule 2.17 (the "Business"); and

      B. Buyer desires to purchase substantially all of Seller's assets related
to the Business on the terms and conditions set forth herein.

                                   AGREEMENTS

      In consideration of the foregoing preliminary statements and the mutual
covenants, representations, warranties and agreements hereinafter set forth, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Buyer, Seller and Shareholder hereby agree as follows:

                                   ARTICLE 1

                           PURCHASE AND SALE OF ASSETS

      SECTION 1.1 Transfer of Assets.

            (a) Upon the terms and subject to the conditions set forth in this
Agreement, on the Closing Date, but effective as of the Effective Time (as
defined in Section 8.1), Seller shall transfer to Buyer, free and clear of all
claims, charges, liens, security interests, encumbrances and restrictions
whatsoever (collectively, "Claims"), all of the assets, properties and rights
owned by Seller and all rights or interests in assets or properties held by
Seller, of every type and description, real, personal and mixed, tangible and
intangible, confirmed or contingent, and exclusively used in connection with the
Business (other than the Excluded Assets as hereinafter defined), including,
without limitation, contracts, agreements, property, inventory, customer files
and lists, prospect lists, licenses and permits, service marks, trade secrets,
software (including, without limitation, documentation and related source and
object codes), computers and computer equipment, files and other records,
systems and processes, leasehold and other improvements, machines, machinery,
equipment, furniture, fixtures, fixed assets, proprietary molds (wherever
located), key tooling (wherever located), supplies, goodwill, all causes of
action, claims and demands of every nature relating to the Assumed Liabilities
and Contracts (as hereinafter defined) arising after the Closing, and Seller's
rights to the name "Keptel" (collectively, the "Transferred Assets"), all with
the intention that the Business shall be transferred to Buyer as a going
concern.

            (b) Notwithstanding any provision contained in this Agreement to the
contrary, there shall be excluded from the Transferred Assets and retained by
Seller the following assets (the "Excluded Assets"): (i) all cash on hand and in
banks (including all uncollected items); (ii) all billed and unbilled accounts
receivable; (iii) all assets employed in the Business which are located at
Seller's (or its subsidiary's) facilities in El Paso, Texas and Juarez, Mexico,
other than proprietary molds and key tooling; (iv) all employee benefit plans,
other than health insurance plans; (v) the minute books and stock transfer
records of Seller; (vi) all contracts, arrangements and understandings which are
not capable of being transferred or assigned without the approval or consent of
any party thereto other than Seller if such approval or consent has not been
obtained, subject, however, to Section 1.3 and Section 6.1 herein; (vii)
security deposits, prepaid insurance, and all causes of action, claims and
demands of every nature relating to the Assumed Liabilities and Contracts
arising prior to the Closing; (viii) the assets set forth on Schedule 1.1(b),
(ix) all Intellectual Property Assets (as defined in Section 2.26) which are not
used exclusively in the Business which will be the subject of a paid-up,
royalty-free, non-exclusive perpetual license from Seller and Shareholder to
Buyer (the "Licensed Assets"); (x) any Hazardous Materials, including waste
materials, other than unopened raw materials; and (xi) any underground storage
tanks or electrical transformers.

            (c) Seller shall transfer the Transferred Assets to Buyer pursuant
to a Bill of Sale in substantially the form of Exhibit A (the "Bill of Sale"),
an Assignment and Assumption Agreement in substantially the form of Exhibit B
(the "Assignment and Assumption Agreement"), and such other documents and
instruments as Buyer or its counsel may reasonably request. Seller shall
transfer the Licensed Assets to Buyer pursuant to a License Agreement in
substantially the form of Exhibit C (the "License Agreement").

            (d) At any time and from time to time after the Closing Date, at the
request of Buyer and without further consideration, Seller shall execute and
deliver such other instruments of sale, transfer, conveyance, assignment and
confirmation as may be reasonably requested in order to more effectively
transfer, convey and assign to Buyer and to confirm Buyer's title to the
Transferred Assets.

            (e) To the extent that Seller's rights under any Contract or Lease
to be assigned to Buyer hereunder may not be assigned without the consent of
another Person which has not been obtained, this Agreement shall not constitute
an agreement to assign the same if an attempted assignment would constitute a
breach thereof or be unlawful, and Seller shall use its Best Efforts (as defined
in Section 10.3) to secure any such required consent(s) as promptly as possible.
To the extent such consent is not obtained and the benefits of a Contract or
Lease can be made available to Buyer without breaching such Contract or Lease,
Seller will use its Best Efforts to obtain for Buyer the benefits of such
Contract or Lease and Buyer will bear the costs incurred for such benefits as if
such costs were Assumed Liabilities (as defined in Section 1.3).

            (f) At the termination of the Transition Services Agreement as
described in Section 6.4, subject to the terms of this Agreement and related
Disclosure Schedules, Seller shall transfer the assets identified on Schedule
1.1(b) as the Rock Falls Equipment to Buyer for $1, pursuant to a Bill of Sale.

      SECTION 1.2 Consideration. In consideration for the transfer of the
Transferred Assets and the other covenants of Seller and Shareholder herein,
upon the terms and subject to the


                                       2

conditions set forth in this Agreement, Buyer shall assume the Assumed
Liabilities pursuant to Section 1.3 hereof and shall make payments
(collectively, the "Purchase Price") to Seller, which are subject to adjustment
as set forth in Section 1.5(c), as follows:

            (a) an initial payment of Thirty Million Dollars ($30,000,000) shall
be delivered to Seller in cash on the Closing Date (defined in Section 8.1
below) by wire transfer or other means of immediately available funds (the
"Closing Payment");

            (b) post-closing earn-out payments to Seller, if earned, as set
forth below based upon Revenues received during the 2002 Revenue Period and the
2003 Revenue Period (the "Revenue Period"):



                                     EARN-OUT                                                 EARN-OUT
      2002 REVENUE                   PAYMENT                   2003 REVENUE                   PAYMENT
- -------------------------------------------------------------------------------------------------------------
                                                                             
$55,000,001 - $60,000,000    $        0 - $1,500,000     $65,000,001 - $70,000,000    $        0 - $1,500,000
$60,000,001 - $65,000,000    $1,500,001 - $2,750,000     $70,000,001 - $75,000,000    $1,500,001 - $2,750,000
$65,000,001 - $70,000,000    $2,750,001 - $4,000,000     $75,000,001 - $80,000,000    $2,750,001 - $4,000,000
$70,000,001 - $75,000,000    $4,000,001 - $5,000,000     $80,000,001 - $85,000,000    $4,000,001 - $5,000,000
$75,000,001 - $80,000,000    $5,000,001 - $6,000,000     $85,000,001 - $90,000,000    $5,000,001 - $6,000,000
$80,000,001 - $85,000,000    $6,000,001 - $7,000,000     $90,000,001 - $95,000,000    $6,000,001 - $7,000,000


      Earn-out payments shall be calculated on a pro rata basis based on the
Revenue received for the applicable Revenue Period. For example, if Revenue for
the 2002 Revenue Period is equal to $57,500,000, Seller will be entitled to an
earn-out payment equal to $750,000. Any earn-out payments due Seller shall be
paid by Buyer within ninety (90) days following the end of the applicable
Revenue Period.

      For purposes of this Section 1.2(b), "Revenue" shall be equal to all
revenues from the Business received by Buyer (which for purposes of clarity
shall include the Product Lines and any improvements or replacements therefor)
during the applicable Revenue Period that are attributable to sales generated
during such Revenue Period, together with all revenues of the Business
attributable to orders received prior to the last three (3) days of the
applicable Revenue Period for inventory in stock and to orders received prior to
the last thirty (30) days of the applicable Revenue Period for product not in
stock that is shipped within forty-five (45) days after the Revenue Period.

      Buyer shall operate the Business during the 2002 and 2003 Revenue Periods
with the goal of maximizing revenue and profits of the Business during these
periods without regard to the incurrence of earn-out payments.

      For purposes of this Section 1.2(b), the term "2002 Revenue Period" shall
mean the period commencing on July 1, 2002 and ending on June 30, 2003 and the
term "2003 Revenue Period" shall mean the period commencing on July 1, 2003 and
ending on June 30, 2004.

      SECTION 1.3 Assumption of Liabilities. On the Closing Date, but effective
as of the Effective Time, Buyer shall assume and discharge only the liabilities
of Seller listed on Schedule 1.3 and any liability of Seller arising after the
Effective Time under any Contracts assumed by Buyer pursuant to the Assignment
and Assumption Agreement or the Lease Assignment and


                                       3

Assumption Agreement (other than any liability arising out of or relating to a
breach that occurred prior to the Effective Time) (collectively, the "Assumed
Liabilities").

      SECTION 1.4 Retained Liabilities. The Retained Liabilities shall remain
the sole responsibility of and shall be retained, paid, performed and discharged
solely by Seller. "Retained Liabilities" shall mean every liability of Seller
(whether incurred prior to or following the Effective Time) other than the
Assumed Liabilities.

      SECTION 1.5 Adjustments to Purchase Price. The Purchase Price shall be
subject to the following credits and adjustments:

            (a) Prorations. Operating expenses, including without limitation
rent payable under real estate and equipment leases and utilities for which
bills are received or payment became due after the Effective Time with respect
to periods both prior to and after the Effective Time will be allocated to each
of Seller and Buyer on a pro-rata basis according to the ratio of pre-Effective
Time days to post-Effective Time days. Promptly upon receipt of notice from one
party of amounts so allocated to the other, the allocable amount shall be
remitted.

            (b) Ad Valorem Taxes. Ad valorem real and tangible personal property
taxes with respect to the Transferred Assets for the calendar year in which the
Closing occurs shall be pro rated between Seller and Buyer as of the Effective
Time on the basis of no applicable discount. Promptly upon receipt of notice
from one party of amounts so allocated to the other, the allocable amount shall
be remitted.

            (c) Inventory Audit. Prior to the Closing Date, Buyer shall be
permitted to conduct an independent audit of the Inventories (defined in Section
2.17 below). Representatives of Seller shall be available to answer questions
and assist (which shall include being available to move the Inventories from
place to place during the audit) the independent auditor retained by Buyer to
conduct such audit. Promptly following the audit, which shall be completed
within six (6) business days prior to the execution of this Agreement, Buyer's
independent auditor shall calculate the value of the Inventories based upon the
physical count of the audit and the Standard Costs (defined in Section 2.17)
(the "Inventory Value"). Promptly following the determination of the Inventory
Value, Buyer shall notify Seller of the Inventory Value. In the event the
Inventory Value is less than $10,000,000, Buyer shall deduct the amount of the
deficit from the Closing Payment. If Seller, prior to the Closing, shall notify
Buyer that Seller disputes the Inventory Value, the Closing shall take place on
the basis of the determination of the independent auditor retained by Buyer,
subject to further payment by Buyer after the Closing to the extent the
Inventory Value is subsequently determined by the parties, or in the absence of
agreement by the parties, by an independent auditor selected by the parties or
selected in accordance with the rules of the American Arbitration Association if
the parties cannot agree on an independent auditor, to be higher than the
Inventory Value on which the Closing was based.

      SECTION 1.6 Allocation of Purchase Price. Within thirty (30) days after
the Closing Date, Buyer and Seller shall agree to an allocation of the Purchase
Price to the various classifications of Transferred Assets in accordance with
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). The
values to be reflected will be established as a result of good faith bargaining.
In reporting the transactions contemplated by this Agreement to


                                       4

the Internal Revenue Service, Buyer and Seller or Shareholder shall use such
values, and cooperate with each other in meeting the requirements of the Code
and the regulations promulgated thereunder. Each of Buyer and Seller or
Shareholder shall timely complete a Form 8594, Asset Acquisition Statement,
consistent with such allocation, shall provide a copy of such Form to the other
party, and shall file a copy of such Form with its Federal income tax return for
the period up to the Effective Time. The parties shall not take any position
with any tax or other governmental or regulatory authority which is inconsistent
with such allocation.

      SECTION 1.7 Sales Taxes. Any sales, use or transfer taxes required to be
paid in connection with the transactions contemplated by this Agreement shall be
the responsibility of Seller.

      SECTION 1.8 Adjustment for Solectron and UPG Manufactured Goods. For
purposes of this section "Gross Margin" shall be the aggregate customer revenues
from Solectron and UPG manufactured products ("Customer Revenues") less the
aggregate Solectron or UPG invoices with respect to such products for the period
beginning at Closing and ending December 31, 2002. In the event Gross Margin is
less than 35.8%, Shareholder shall pay Buyer an amount equal to Customer
Revenues times the difference between 35.8% and the actual Gross Margin up to a
maximum of Eight Hundred Thousand Dollars ($800,000). From and after December
31, 2002, Shareholder shall pay said sum to Buyer within thirty (30) days of
receipt of an invoice from Buyer. Buyer may, at its option, exercise a right of
offset against any payments due Shareholder or Seller from Buyer pursuant to
Section 1.2(b) of this Agreement or under the Transition Services Agreement.

                                   ARTICLE 2

                    REPRESENTATIONS AND WARRANTIES OF SELLER
                                 AND SHAREHOLDER

      As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Seller and Shareholder, jointly and
severally, represent and warrant to Buyer as follows:

      SECTION 2.1 Organization and Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction, with full corporate power and authority to conduct its business as
it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all of its obligations under the
Contracts (as defined in Section 2.19 below). Seller is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where failure to obtain such qualification
would not have a material adverse effect on the Business or its financial
condition. Schedule 2.1 contains a complete and accurate list of Seller's
jurisdiction of incorporation and any other jurisdiction in which it is
qualified to do business as a foreign corporation.

      SECTION 2.2 Corporate Power and Authority. Seller (a) has the power and
authority to execute, deliver and perform this Agreement and the other
agreements, schedules, documents and instruments contemplated hereby to be
executed and delivered by it (collectively, the


                                       5

agreements, schedules, documents and instruments contemplated by this Agreement
shall constitute the "Documents") and to consummate the transactions
contemplated hereby and thereby, and (b) has taken all necessary corporate and
shareholder action to authorize and approve the execution, delivery and
performance of this Agreement and the Documents and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the Documents
have been duly and validly executed and delivered by Seller and, subject to due
execution and delivery by Buyer, constitute valid and binding obligations of
Seller, enforceable against Seller in accordance with their terms.

      SECTION 2.3 Books and Records. The books of account and other financial
records of Seller relating to the Business, all of which have been made
available to Buyer, are complete and represent actual, bona fide transactions
and have been maintained in accordance with sound business practices, including
the maintenance of an adequate system of internal controls. The minute books of
Seller, which have been and will be made available to Buyer and its
representatives, contain accurate records of all meetings held of, and corporate
action taken by, the shareholders, the board of directors and committees of the
board of directors of Seller.

      SECTION 2.4 Validity, Etc. Except as set forth on Schedule 2.4, neither
the execution and delivery of this Agreement or the other Documents to which
Seller is a party, the consummation of the transactions contemplated hereby or
thereby, nor the performance of this Agreement or the Documents in compliance
with the terms and conditions hereof and thereof by Seller will, directly or
indirectly (with or without notice or lapse of time) (i) violate, conflict with
or result in any breach of the Certificate of Incorporation, bylaws or any
resolutions adopted by the board of directors or shareholders of Seller, (ii)
violate, conflict with or result in a breach, default or termination under any
contract or agreement to which Seller is party or give rise to any right of
termination, cancellation or acceleration of the maturity of any payment date of
any of the indebtedness or other obligation of Seller, except for such defaults
(or rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in writing and provided to Buyer, (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller, (iv) result in the creation of any Claim upon the
Transferred Assets, or (v) result in any shareholder of Seller having the right
to exercise dissenter's appraisal rights. Except as set forth on Schedule 2.4,
Seller is not and will not be required to obtain any consent or approval from or
to provide any notice to any Person (as defined in Section 3.4) in connection
with the execution and delivery of this Agreement or the consummation or
performance of the transactions contemplated by this Agreement and the other
Documents.

      SECTION 2.5 Broker's or Finder's Fee. Except as set forth on Schedule 2.5,
no agent, broker, Person or firm acting on behalf of Seller is, or will be,
entitled to any commission or broker's or finder's fees from Seller, or from any
Person controlling, controlled by or under common control with Seller, in
connection with any of the transactions contemplated by this Agreement and the
other Documents.

      SECTION 2.6 Capitalization, Shareholders, Subsidiaries and Investments.
The authorized equity securities of Seller consist of one thousand (1000) shares
of common stock, $1.00 par value per share, of which 1 share is issued and
outstanding. Shareholder is the sole shareholder of Seller and owns one hundred
percent (100%) of the issued and outstanding capital stock of Seller free and
clear of all Claims. There are no contracts or agreements, whether written or
oral, relating to the issuance, sale or transfer of any equity securities or
other securities


                                       6

of Seller. Seller has no subsidiaries and does not own, directly or indirectly,
any capital stock or other equity or ownership or proprietary interest in any
other corporation, partnership, association, trust, joint venture or other
entity.

      SECTION 2.7 Financial Statements. Seller has previously furnished to
Buyer, and attached hereto as Schedule 2.7 are, the unaudited balance sheet of
the Business (the "Balance Sheet") as at December 31, 2001 (the "Balance Sheet
Date"), the related unaudited income statement for the fiscal year then ended,
and the unaudited balance sheet of the Business as at February 28, 2002 and the
related unaudited income statement for the two (2) months then ended. Except as
set forth on Schedule 2.7, all such financial statements (the "Financial
Statements") were prepared from the books and records of Seller in accordance
with Seller's historical policies and procedures consistently applied and fairly
present the financial position and results of operations, changes in
shareholders' equity and cash flows of Seller as of the respective dates of and
for the periods referred to in such Financial Statements.

      SECTION 2.8 Absence of Certain Changes and Events. Since the Balance Sheet
Date, except as set forth on Schedule 2.8, Seller has not (i) incurred any
material liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) outside of the ordinary course of business consistent
with past practices, (ii) canceled any indebtedness owing to it or any claims
that it might have possessed or waived any material rights of substantial value,
(iii) sold, leased, encumbered, transferred or otherwise disposed of, or agreed
to sell, lease, encumber, or otherwise dispose of its assets outside the
ordinary course of business consistent with past practice, (iv) permitted any of
its assets to be subjected to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, (v) made any material capital
expenditure or commitment therefor, (vi) paid any bonuses, salaries or other
compensation to any shareholder, director, officer or employee, other than in
the ordinary course of business consistent with past practices, (vii) entered
into any employment, severance or similar contract with any director, officer,
shareholder or employee; (viii) declared or paid any dividend or made any
distribution on any shares of its capital stock, or redeemed, purchased or
otherwise acquired any shares of its capital stock or any option, warrant or
other right to purchase or acquire any such shares, (ix) borrowed or agreed to
borrow any funds, made any loan to any Person or guaranteed or agreed to
guarantee any obligations of others, (x) written off as uncollectible any notes
or accounts receivable, except write-offs in the ordinary course of business
charged to applicable reserves, (xi) made any material change in any method of
accounting or auditing practice, (xii) otherwise conducted the Business or
entered into any transaction, except in the ordinary course consistent with past
practices, or (xii) agreed, whether or not in writing, to do any of the
foregoing.

      SECTION 2.9 Absence of Undisclosed Liabilities. Except (i) as and to the
extent of the amounts specifically reflected or reserved against in the Balance
Sheet, and (ii) liabilities and obligations incurred in the ordinary course of
business and consistent with past practice, Seller has no material liabilities
or obligations of any nature whether absolute, accrued, contingent or otherwise.

      SECTION 2.10 Employment and Labor Matters.

            (a) Schedule 2.10 lists each officer and employee of Seller
(including any retired employee or any employee on leave of absence or layoff
status but excluding employees


                                       7

at the Rock Falls plant) exclusively involved in the Business on the date
hereof, along with the amount of the current annual salaries and total
compensation paid or due for services to each officer, or employee for the most
recent fiscal year end.

            (b) Except as set forth on Schedule 2.10, Seller is not a party to
or bound by any collective bargaining agreement with any labor organization,
group or association covering any of its employees, and to the Knowledge (as
defined in Section 10.1) of Seller there is no current attempt to organize
Seller's employees by any Person, unit or group seeking to act as their
bargaining agent. There are no pending or, to the Knowledge of Seller,
threatened charges (by employees, their representatives or governmental
authorities) of unfair labor practices or of employment discrimination or of any
other wrongful action with respect to any aspect of employment of any person
employed or formerly employed by Seller. Within the last two years, Seller has
received no written notice of the scheduling by any governmental agency or
authority, of any union representation election relating to the employees of
Seller or any organizational effort with respect to any of such employees, or
any investigation of Seller's employment policies or practices by any
governmental agency or authority. Seller is not currently involved in labor
negotiations with any unit or group seeking to become the bargaining unit for
any employees of Seller. Within the last two years, Seller has not experienced
any material work stoppages.

            (c) Seller has complied in all material respects with all laws and
regulations relating to the employment of labor, including, without limitation,
any provisions thereof relating to wages, hours, benefits, worker's
compensation, employment practices, terms and conditions of employment,
immigration, collective bargaining, equal opportunity or similar laws and the
payment of social security and similar taxes, and is not liable for any material
arrears of wages or any material taxes or penalties for failure to comply with
any of the foregoing.

      SECTION 2.11 Real Property. Seller owns no real property used in the
Business.

      SECTION 2.12 Powers of Attorney; Absence of Limitations on Competition;
Guarantees. Except as set forth in Schedule 2.12, (i) no power of attorney or
similar authorization given by Seller presently is in effect or outstanding;
(ii) no contract or agreement to which Seller is a party or is bound or to which
Seller's properties or assets are subject limits the freedom of Seller to
compete in any line of business or with any Person; and (iii) Seller is not a
party to or bound by any guarantee of any debt or obligation of any other
Person.

      SECTION 2.13 Governmental Approvals. No registration or filing with, or
consent or approval of or other action by any Federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by Seller of this Agreement.

      SECTION 2.14 Compliance with Law; Licenses and Permits. Except as set
forth on Schedule 2.25 regarding environmental matters, Seller is substantially
in compliance with all laws, ordinances, legal requirements, rules, regulations
and orders (collectively, "Legal Requirements") applicable to it, its
operations, properties, assets, products and services, including, but not
limited to, all Legal Requirements related to import, export and other customs
Legal Requirements related to the Business. Seller has not received any notice
or other communication (whether oral or written) from any governmental body or
any other Person


                                       8

regarding (i) any actual, alleged, possible or potential violation of, or
failure to comply with any Legal Requirement, or (ii) any actual, alleged,
possible or potential obligation on the part of Seller to undertake, or to bear
all or any portion of the cost of, any remedial action of any nature. Seller
possesses all franchises, permits, licenses, certificates and consents required
from any governmental or regulatory authority in order for Seller to carry on
the Business as currently conducted and to own and operate its properties and
assets as now owned and operated except for those franchises, permits, licenses,
certificates or consents which Seller's failure to so possess would not have a
material adverse effect on the Business or its financial condition.

      SECTION 2.15 Employee Benefits.

            (a) Set forth on Schedule 2.15 is a list of all pension, profit
sharing, retirement, deferred compensation, stock purchase, stock option, stock
appreciation right, employee stock ownership, incentive, bonus, vacation,
severance, change-in-control, disability, hospitalization, medical insurance,
life insurance, fringe benefit, welfare and other employee benefit plans,
programs, policies or arrangements pursuant to which Seller or its ERISA
Affiliates provide (directly or indirectly, individually or jointly through
others) benefits or compensation to or on behalf of employees, directors or
independent contractors or former employees or former directors or former
independent contractors of Seller (or its ERISA Affiliates) exclusively involved
in the Business, whether formal or informal, whether or not written ("Employee
Plan"). Seller shall furnish to Buyer true, complete and accurate copies of each
written Employee Plan and related trust agreement, a complete and accurate
description of each unwritten Employee Plan, a current copy of each summary plan
description, all insurance contracts relating to Employee Plans, and all annual
reports filed with respect to each Employee Plan for the last four years. Seller
shall maintain the Employee Plans listed on Schedule 2.15 in full force and
effect until the Effective Time. Except as set forth on Schedule 2.15, Buyer
shall not have any obligation or liability of any kind or nature for any
compensation or benefits of any kind or nature to the employees or consultants
of Seller for services rendered prior to the Effective Time.

            (b) For purposes of this Section 2.15, the term "ERISA" shall mean
the Employee Retirement Income Security Act of 1974, as amended, and the term
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with Seller is treated as a single employer under
section 414(b), (c), (m), (o), or (t) of the Internal Revenue Code.

      SECTION 2.16 Assets.

            (a) The Transferred Assets constitute all of the assets, tangible
and intangible, of any nature whatsoever, necessary to operate the Business in
the manner presently operated by Seller and include all of the operating assets
of Seller, except in each case, the Excluded Assets and the Contracts and Leases
which are being dealt with pursuant to Section 1.1(c) and 1.1(e).

            (b) Seller has good and marketable title to or a valid leasehold
interest in all of the Transferred Assets, free and clear of all Claims.

            (c) Schedule 2.16 contains a true and complete list of all of the
Transferred Assets which are proprietary molds, key tooling or fixed assets with
an individual net book value


                                       9

of greater than $25,000.00, whether owned or leased. All of Seller's fixed
assets, whether owned or leased, are adequate and usable for the purposes for
which they are currently used.

      SECTION 2.17 Inventories.

            (a) All inventory of Seller used in connection with the Business,
including all finished goods, work-in-process, raw materials, spare parts and
other materials and supplies to be used or consumed by Seller in the production
of finished goods (collectively, the "Inventories") (a) consist of items which
are good and merchantable within normal trade practice, and (b) are of a quality
presently usable or salable in the ordinary course of business consistent with
past practice.

            (b) No previously sold Inventories are subject to returns in excess
of those historically experienced by Seller. Inventories now on hand that were
purchased subsequent to the Balance Sheet Date were purchased in the ordinary
course of business at a cost not exceeding market prices prevailing at the time
of purchase. All Inventories have been valued at Seller's standard cost which
standard costs have been approved by Buyer (the "Standard Costs").

            (c) A listing of the Inventories of Seller and their respective
Standard Costs, as of the Closing Date, is attached to Schedule 2.17. All
Inventories are located in California, Florida, Illinois, North Carolina, Texas
or Mexico.

      SECTION 2.18 Insurance. Seller is, and will be through the Closing,
insured with insurers in respect of its properties, assets and businesses as set
forth on the attached Schedule 2.18. The insurance policies listed on Schedule
2.18 are (i) valid, outstanding and enforceable, (ii) are issued by an insurer
that is financial sound and reputable; and (iii) taken together, provide
adequate insurance coverage of the assets and operations of Seller for all risks
normally insured against by a Person carrying on the same business or businesses
as Seller in the same location. Such insurance shall remain in full force and
effect with respect to all events occurring prior to the Effective Time. Except
as set forth on Schedule 2.18, Seller (i) has not failed to give any notice or
present any claim under any such policy or binder in due and timely fashion,
(ii) has not received notice of cancellation or non-renewal of any such policy
or binder, (iii) is not aware of any threatened or proposed cancellation or
non-renewal of any such policy or binder, and (iv) has not received notice of
any insurance premium which will be materially increased in the future. There
are no outstanding claims under any such policy which have gone unpaid for more
than 45 days as to which the insurer has disclaimed liability.

      SECTION 2.19 Outstanding Contracts. Schedule 2.19 sets forth a list of all
existing contracts, agreements, leases (other than real property leases),
commitments, licenses and franchises related to the Business, which involve
obligations or commitments by Seller of $50,000 or more and are not cancelable
by Seller without penalty within thirty (30) days, along with a list or copy of
all of purchase orders being transferred by Seller to Buyer hereunder (together
with those not required to be listed because of the amount involved,
collectively, the "Contracts"), whether written or oral. Seller has delivered or
made available to Buyer true, correct and complete copies of all of the
Contracts specified on Schedule 2.19 which are in writing, and such schedule
sets forth a complete description of all Contracts which are not in writing. All
of the Contracts on Schedule 2.19 are in full force and effect and enforceable
in accordance with their terms. Seller and, to the Knowledge of Seller, each
other party thereto has


                                       10

materially performed all the obligations required to be performed by it, has
received no notice of default and is not in default (with due notice or lapse of
time or both) under any of these Contracts. Seller has no Knowledge of any
significant breach by the other party to any of the Contracts to which Seller is
a party. No written notice of termination of, or any threat to terminate, any of
the Contracts has been given or received by Seller.

      SECTION 2.20 Outstanding Leases. Schedule 2.20 sets forth a list of each
agreement by which Seller leases each parcel of real property (the "Real
Property") used in connection with the Business (collectively, the "Leases").
Seller has delivered or made available to Buyer true, correct and complete
copies of all of the Leases specified on Schedule 2.20. All rents due under the
Leases have been paid. All of the Leases are in full force and effect and
enforceable in accordance with their terms. Except as set forth on Schedule
2.20, Seller, and to the Knowledge of Seller, each other party thereto has
performed all the obligations required to be performed by it, has received no
notice of default and is not in default (with due notice or lapse of time or
both) under any of the Leases. Seller has no Knowledge of any breach or
anticipated breach by the other party to any of the Leases. No written notice of
termination of, or any threat to terminate, any of the Leases has been given or
received by Seller.

      SECTION 2.21 Foreign Person. Seller is not a foreign person as that term
is defined in Section 1445(f)(3) of the Code and applicable regulations.

      SECTION 2.22 Significant Customers. Set forth on Schedule 2.22 is a true
and correct list of Business' twenty (20) largest customers, based upon the
amount of revenues attributable to such customers for the most recent twelve
(12) month period ending December 31, 2001, together with the amount of services
attributable to such customers expressed in dollars and as a percentage of total
sales and services.

      SECTION 2.23 Taxes.

            (a) All federal, state, local and foreign tax returns and tax
reports and customs reports or filings (collectively "Tax Returns") required to
be filed by Seller on or before the date hereof have been timely filed with the
appropriate governmental agencies in all jurisdictions in which such returns and
reports are required to be filed and all amounts shown as owing thereon or
actually owed have been paid. All taxes, including, without limitation, income,
accumulated earnings, property, sales, use, franchise, capital stock, excise,
license, value added, fuel, customs, employees' income withholding and social
security taxes (collectively, "Taxes"), which have become due or payable or are
required to be collected by Seller or are otherwise attributable to any periods
ending on or before the Closing Date and all interest and penalties thereon,
whether disputed or not, have been paid. Seller currently is not the beneficiary
of any extension of time within which to file any Tax Return. There are no
Claims on any of the Transferred Assets that arose in connection with any
failure (or alleged failure) to pay any Tax, and Seller has no Knowledge of any
basis for assertion of any claims attributable to such Taxes, which, if
adversely determined, would result in any such Claim.

            (b) Seller has delivered or made available to Buyer copies of, and
Schedule 2.23 contains a complete and accurate list of, all Tax Returns filed
since January 1, 1999. Schedule 2.23 contains a complete and accurate list of
all Tax Returns of Seller that have been audited or are currently under audit
and accurately describes any deficiencies or other amounts


                                       11

that were paid or are currently being contested. To the Knowledge of Seller, no
undisclosed deficiencies are reasonably expected to be asserted with respect to
any such audit. Seller has no Knowledge that any governmental body or authority
is likely to assess any additional Taxes for any period for which Tax Returns
have been filed. Seller has not given or been requested to give waivers or
extensions of any statute of limitations relating to the payment of Taxes of
Seller for which Seller may be liable.

            (c) The charges, accruals and reserves with respect to Taxes on the
books and records of Seller are adequate (determined in accordance with GAAP)
and are at least equal to Seller's liability for Taxes.

            (d) All Taxes that Seller is or was required by law to withhold,
deduct or collect have been duly withheld, deducted and collected and, to the
extent required, have been paid to the proper governmental body or authority.

            (e) There is no tax sharing arrangement, tax allocation agreement,
tax indemnity obligation or similar written or unwritten agreement, arrangement,
understanding or practice with respect to Taxes that will require any payment by
Seller.

            (f) Seller has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662.

      SECTION 2.24 Litigation. Except as set forth on Schedule 2.24, there is no
(i) action, suit, claim, proceeding or investigation pending or, to the
Knowledge of Seller, threatened against the Business at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding pending against the Business, or (iii) governmental
inquiry pending or, to the Knowledge of Seller, threatened against or involving
the Business. There are no outstanding material orders, writs, judgments,
injunctions or decrees served upon Seller by any court, governmental agency or
arbitration tribunal against Seller. Seller is not in default with respect to
any material order, writ, injunction or decree served upon it from any court or
of any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. There is no
material action or suit by Seller pending or threatened against any third party.

      SECTION 2.25 Environmental Matters. Except as disclosed in Schedule 2.25:

            (a) The Seller has at all times conducted its operations in
substantial compliance with, and all equipment is in substantial compliance
with, all applicable Environmental Laws. There is no pending or, to the
knowledge of Seller, threatened claim, lawsuit, agency proceeding, or other
action or proceeding arising under Environmental Laws concerning the Transferred
Assets or operation of the Transferred Assets. Except as set forth on Schedule
2.25, none of the equipment contains any Hazardous Material.

            (b) As used in this Section 2.25, the term "Environmental Law" shall
mean any federal, state, local, or other law, ordinance, code, regulation, order
or decree issued, promulgated or entered into by any governmental entity,
relating to the environment, preservation or reclamation of natural resources,
or to Hazardous Materials.


                                       12

            (c) As used in this Section 2.25, the term "Hazardous Materials"
shall mean any flammables, explosives, radioactive materials, asbestos, presumed
asbestos-containing material, polychlorinated biphenyls ("PCBs"), pollutants,
contaminants, hazardous wastes, toxic substances or related materials, urea
formaldehyde, petroleum and petroleum products.

      SECTION 2.26 Intellectual Property.

            (a) The term "Intellectual Property Assets" means all intellectual
property that is owned, licensed (as licensor or licensee) or utilized by Seller
or in which Seller has a proprietary interest and which is used in the Business
(other than licenses for commonly available software programs under which Seller
is a licensee), including, without limitation:

                  (i) all assumed fictional business names, trade names,
            registered and unregistered trademarks, service marks and
            applications (collectively, "Marks");

                  (ii) all patents, patent applications and inventions and
            discoveries that may be patentable (collectively, "Patents");

                  (iii) all registered and unregistered copyrights in both
            published works and unpublished works (collectively, "Copyrights");

                  (iv) all rights in mask works;

                  (v) all know-how, trade secrets, confidential or proprietary
            information, customer lists, software, technical information, data,
            process technology, plans, drawings and blue prints (collectively,
            "Trade Secrets").

            (b) Schedule 2.26 contains a complete and accurate list and summary
description, including royalties paid or received by Seller with respect to the
Business for the last two years, and Seller has delivered to Buyer accurate and
complete copies, of all Seller contracts relating to the Intellectual Property
Assets. Except as set forth on Schedule 2.26, there are no outstanding and, to
Seller's Knowledge, no threatened disputes or disagreements with respect to any
such contract.

            (c) Except as set forth on Schedule 2.26, the Intellectual Property
Assets are all those necessary for the operation of the Business as it is
currently conducted. Except as otherwise provided in Schedule 2.26, Seller is
the owner or licensee of all right, title and interest in and to each of the
Intellectual Property Assets, free and clear of all Claims, and has the right to
use without payment to another Person, all of the Intellectual Property Assets.

            (d) Schedule 2.26 contains a complete and accurate list and summary
description of all Patents used exclusively in the Business. All of the issued
Patents used in the Business are currently in compliance with formal Legal
Requirements (including payment of filing, examination and maintenance fees and
proofs of working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety (90) days after
the Closing Date.

            (e) Schedule 2.26 contains a complete and accurate list and summary
description of all Marks used exclusively in the Business. Except as otherwise
provided on


                                       13

Schedule 2.26, all Marks used in the Business have been registered with the
United States Patent and Trademark Office, are currently in compliance with all
formal Legal Requirements (including the timely post-registration filing of
affidavits of use and incontestability and renewal applications) are valid and
enforceable and are not subject to any maintenance fees or taxes or actions
falling due within ninety (90) days after the Closing Date.

            (f) Schedule 2.26 contains a complete and accurate list and summary
description of all Copyrights used exclusively in the Business. All registered
Copyrights used in the Business are currently in compliance with all formal
Legal Requirements.

            (g) Schedule 2.26 contains a complete and accurate list and summary
description of all Licensed Assets being transferred to Buyer pursuant to the
License Agreement. Seller has the right to enter into the License Agreement and
license the Licensed Assets to Buyer free and clear of all claims and without
payment of any license fee.

            (h) There are no pending or, to the Knowledge of Seller, threatened
proceedings or litigation or other adverse claims affecting or with respect to
any of the Intellectual Property Assets. There is, to the Knowledge of Seller,
no reasonable basis upon which a claim may be asserted against Seller for
infringement of any Intellectual Property Assets of any other Person. To the
Knowledge of Seller, no Person is infringing the Intellectual Property Assets.

      SECTION 2.27 No Material Adverse Change. Since the Balance Sheet Date,
there has not been any material adverse change in the Business, operations,
assets, results of operations or condition (financial or otherwise) of Seller,
and no event has occurred that is reasonably likely to result in such a material
adverse change.

      SECTION 2.28 Product Warranty. To the Knowledge of Seller, Seller does not
have any liabilities for product warranties other than those set forth in the
terms and conditions of sale furnished to Buyer.

      SECTION 2.29 Product Liability. To the Knowledge of Seller, Seller does
not have any liability arising out of any injury to individuals or property as a
result of the ownership, possession or use of any product manufactured, sold,
leased or delivered by Seller in connection with the Business.

      SECTION 2.30 Certain Practices. To the Knowledge of Seller, none of
Seller's directors, officers or employees have, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended; established or maintained
any unlawful or unrecorded fund of corporate monies or other assets; made any
false or fictitious entry on the books or records of Seller or any subsidiary;
given any favor or gift which is not deductible for federal income tax purposes;
or made any bribe, kickback, or other payment of a similar or comparable nature,
whether lawful or not, to any person or entity, private or public, regardless of
form, whether in money, business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.


                                       14

                                   ARTICLE 3

                  REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER

      As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Shareholder represents and warrants to
Buyer as follows:

      SECTION 3.1 Organization and Qualification. Shareholder is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to conduct its
business as it is now being conducted.

      SECTION 3.2 Corporate Power and Authority. Shareholder (a) has the power
and authority to execute, deliver and perform this Agreement and the Documents
contemplated hereby to be executed and delivered by it and to consummate the
transactions contemplated hereby and thereby, and (b) has taken all necessary
corporate and shareholder action to authorize and approve the execution,
delivery and performance of this Agreement and the Documents and the
consummation of the transactions contemplated hereby and thereby. This Agreement
and the Documents have been duly and validly executed and delivered by
Shareholder and, subject to due execution and delivery by Buyer, constitute
valid and binding obligations of Shareholder, enforceable against Shareholder in
accordance with their terms.

      SECTION 3.3 Validity, Etc. Except as set forth on Schedule 2.4, neither
the execution and delivery of this Agreement or the other Documents to which
Shareholder is a party, the consummation of the transactions contemplated hereby
or thereby, nor the performance of this Agreement or the Documents in compliance
with the terms and conditions hereof and thereof by Seller will, directly or
indirectly (with or without notice or lapse of time) (i) violate, conflict with
or result in any breach of the Certificate of Incorporation, bylaws or any
resolutions adopted by the board of directors or shareholders of Seller, (ii)
violate, conflict with or result in a breach, default or termination under any
contract or agreement to which Seller is party or give rise to any right of
termination, cancellation or acceleration of the maturity of any payment date of
any of the indebtedness or other obligation of Seller, except for such defaults
(or rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained in writing and provided to Buyer, (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller, or (iv) result in the creation of any Claim upon the
Transferred Assets. Shareholder is not and will not be required to obtain any
consent or approval from or to provide any notice to any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of the transactions contemplated by this Agreement and the other
Documents.

      SECTION 3.4 Relationships with Affiliates. Except as disclosed in Schedule
3.4, Shareholder has no interest in any property (whether real, personal or
mixed and whether tangible or intangible) used in or pertaining to the Business.
Neither Shareholder nor any Affiliate (defined below) of Shareholder during 2001
engaged in any transaction or series of related transactions with the Business
involving more than $60,000 other than business dealings or transactions
disclosed in Schedule 3.4, each of which has been conducted in the ordinary
course of business with Seller at substantially prevailing market prices and on
substantially prevailing market terms. An "Affiliate" is as defined by the
Securities and Exchange Commission.


                                       15

                                   ARTICLE 4

                     REPRESENTATIONS AND WARRANTIES OF BUYER

      As an inducement to Seller and Shareholder to enter into this Agreement
and to consummate the transactions contemplated hereby, Buyer represents and
warrants to Seller and Shareholder as follows:

      SECTION 4.1 Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.

      SECTION 4.2 Corporate Power and Authority. Buyer (a) has the corporate
power and authority to execute, deliver and perform this Agreement and the
Documents to be executed by it and to consummate the transactions contemplated
hereby and thereby, and (b) has taken all necessary corporate and shareholder
action to authorize and approve the execution, delivery and performance of this
Agreement and the other Documents and the consummation of the transactions
contemplated hereby and thereby. This Agreement and the other Documents to which
Buyer is a party have been duly and validly executed and delivered by Buyer and,
subject to due execution and delivery by Seller and Shareholder, constitute
valid and binding obligations of Buyer, enforceable against Buyer in accordance
with their terms.

      SECTION 4.3 Validity, Etc. Neither the execution and delivery of this
Agreement or the other Documents to which Buyer is a party, the consummation of
the transactions contemplated hereby or thereby, nor the performance of this
Agreement or the other Documents to which Buyer is a party in compliance with
the terms and conditions hereof and thereof by Buyer will violate, conflict with
or result in any breach of the Certificate of Incorporation or bylaws of Buyer
or any writ, injunction, judgment, decree, order, statute, rule or regulation
applicable to Buyer. SECTION 4.4 Broker's or Finder's Fee. No agent, broker,
Person or firm acting on behalf of Buyer is, or will be, entitled to any
commission or broker's or finder's fees from Buyer, or from any Person
controlling, controlled by or under common control with Buyer, in connection
with any of the transactions contemplated herein.

                                   ARTICLE 5

                            COVENANTS AND AGREEMENTS

      SECTION 5.1 Required Approvals. As promptly as practicable after the date
of this Agreement, Seller shall make all filings and give all notices that are
required by law to be made in order to consummate the transactions contemplated
by this Agreement and the other Documents (including all filings under the Hart
Scott Rodino Act). Seller and Shareholder shall also cooperate with Buyer and
its representatives with respect to all filings that Buyer elects to make or,
pursuant to applicable law, shall be required to make in order to consummate the
transactions contemplated by this Agreement and the other Documents. Seller and
Shareholder shall use their Best Efforts to obtain all consents of third parties
that are required in connection with this transaction, unless otherwise waived
by Buyer.


                                       16

      SECTION 5.2 Employees And Employee Benefits.

            (a) Information on Active Employees. For purposes of this Agreement,
the term "Active Employees" shall mean all employees employed by Seller or an
Affiliate in connection with the Business immediately prior to the Effective
Time who are:

                  (i) bargaining unit employees currently covered by a
            collective bargaining agreement, or

                  (ii) employed exclusively in the Business as currently
            conducted, including employees on temporary leave of absence,
            including family medical leave, military leave, temporary disability
            or sick leave, but excluding employees on long-term disability
            leave.

            (b) Employment of Active Employees by Buyer.

                  (i) Buyer will have reasonable access to the facilities and
            personnel records (including performance appraisals, disciplinary
            actions, grievances and medical Records) of Seller or an Affiliate
            for the purpose of preparing for and conducting employment
            interviews with any Active Employees it chooses to interview. Buyer
            shall offer employment to the Active Employees listed on Schedule
            5.2, but is not otherwise obligated to hire any Active Employee. Any
            Active Employees to whom Buyer has made an offer of employment that
            has been accepted to be effective as of the Effective Time shall be
            referred to as the "Hired Active Employees". Buyer shall give
            service credit for service with Seller for purposes of Buyer's
            benefit plans, arrangements, policies and procedures, including, but
            not limited to (i) eligibility to participate and qualify for
            benefits under all of Buyer's "employee welfare benefit plans", and
            (ii) eligibility to participate and vesting under Buyer's "employee
            pension benefit plans" as defined under ERISA. Provided, however,
            that Buyer shall not give service credit for service with Seller for
            purposes of any of Buyer's severance plans, arrangements, policies
            and procedures and benefit accrual or calculation purposes unless
            the employment of a Hired Active Employee is terminated within the
            first twelve (12) months of employment with Buyer, in which case
            Buyer shall give two (2) weeks service credit for each year of
            service with Seller. Effective immediately before the Effective
            Time, Seller will terminate the employment of all of its Hired
            Active Employees. Buyer shall be given a reasonable opportunity to
            hire any Active Employees being retained by Seller for purposes of
            the Transition Services Agreement upon the completion of that
            agreement and any such employees hired by Buyer shall be considered
            Hired Active Employees.

                  (ii) Neither Seller nor Shareholder nor their Affiliates shall
            solicit the continued employment of any Active Employee (unless and
            until Buyer has informed Seller in writing that the particular
            Active Employee will not receive any employment offer from Buyer in
            accordance with the above provisions). For a period of two (2) years
            after the Closing, neither Arris Group, Inc., the parent of the
            Shareholder (the "Shareholder Parent"), nor any of its subsidiaries
            will knowingly hire any other Hired Active Employee (unless and
            until that Employee


                                       17

            has been terminated by Buyer) or in any manner induce or attempt to
            induce any employee of Seller to terminate his or her employment
            with Buyer.

                  (iii) It is understood and agreed that (A) Buyer's obligation
            to extend offers of employment as set forth in this section shall
            not constitute any commitment, contract or understanding (expressed
            or implied) of any obligation on the part of Buyer to a post-Closing
            employment relationship of any fixed term or duration or upon any
            terms or conditions other than those that Buyer may establish
            pursuant to individual offers of employment, except as otherwise
            provided herein, and (B) employment offered by Buyer is "at will"
            and may be terminated by Buyer or by an employee at any time for any
            reason (subject to any written commitments to the contrary made by
            Buyer or an employee and applicable law, to the provision of
            severance benefits in accordance with Buyer's plans and practices,
            and the collective bargaining agreement, if applicable). Nothing in
            this Agreement shall be deemed to prevent or restrict in any way the
            right of Buyer to terminate, reassign, promote or demote any of the
            Hired Active Employees after the Closing or to change adversely or
            favorably the title, powers, duties, responsibilities, functions,
            locations, salaries, other compensation or terms or conditions of
            employment of such employees.

            (c) Salaries and Benefits.

                  (i) Seller shall be responsible for (A) the payment of all
            wages and other remuneration due to Active Employees with respect to
            their services as employees of Seller through the Effective Time,
            including pro rata bonus payments and all vacation pay earned prior
            to the Effective Time; (B) the payment of any termination or
            severance payments and the provision of health plan continuation
            coverage in accordance with the requirements of COBRA and Sections
            601 through 608 of ERISA; and (C) any and all payments to employees
            required under the Worker Adjustment and Retraining Notification Act
            (the "WARN Act.").

                  (ii) Seller shall be liable for any claims made or incurred by
            Active Employees and their beneficiaries through the Closing Date
            under the Employee Plans. For purposes of the immediately preceding
            sentence, a charge will be deemed incurred, in the case of hospital,
            medical or dental benefits, when the services that are the subject
            of the charge are performed and, in the case of other benefits (such
            as disability or life insurance), when an event has occurred or when
            a condition has been diagnosed that entitles the employee to the
            benefit.

            (d) Seller's Retirement and Savings Plans. All Hired Active
Employees who are participants in Seller's retirement plans shall retain their
accrued benefits under Seller's retirement plans as of the Closing Date, and
Seller (or Seller's retirement plans) shall retain sole liability for the
payment of such benefits as and when such Hired Active Employees become eligible
therefor under such plans. All Hired Active Employees shall become fully vested
in their accrued benefits under Seller's retirement plans as of the Closing
Date, and Seller will so amend such plans if necessary to achieve this result.


                                       18

            (e) No Transfer of Assets. Neither Seller nor Shareholder nor their
respective Affiliates will make any transfer of pension or other employee
benefit plan assets to Buyer, until such time as approved by Buyer.

            (f) General Employee Provisions.

                  (i) Seller and Buyer shall give any notices required by law
            and take whatever other actions with respect to the plans, programs
            and policies described in this Section 5.2 as may be necessary to
            carry out the arrangements described in this Section 5.2.

                  (ii) Seller and Buyer shall provide each other with such plan
            documents and summary plan descriptions, employee data or other
            information as may be reasonably required to carry out the
            arrangements described in this Section 5.2.

                  (iii) If any of the arrangements described in this Section 5.2
            are determined by the Internal Revenue Service or other governmental
            body to be prohibited by law, Seller and Buyer shall modify such
            arrangements to as closely as possible reflect their expressed
            intent and retain the allocation of economic benefits and burdens to
            the parties contemplated herein in a manner that is not prohibited
            by law.

                  (iv) Except as disclosed in Schedule 5.2(b)(iv), Seller has no
            foreign born Hired Active Employees who are employed in the United
            States pursuant to a work visa.

                  (v) Buyer shall not have any responsibility, liability or
            obligation, whether to Active Employees, former employees, their
            beneficiaries or to any other Person, with respect to any employee
            benefit plans, practices, programs or arrangements (including the
            establishment, operation or termination thereof and the notification
            and provision of COBRA coverage extension) maintained by Seller.

            (g) Incentive Arrangements. For the 2002 and 2003 Revenue Periods,
Buyer will establish incentive arrangements for the achievement of revenues and
gross profits on an aggregate basis during the Revenue Period for the Hired
Active Employees who had incentive plans for the year prior to the Closing
consistent with Buyer's current incentive plans for employees in similar
positions.

      SECTION 5.3 Customer and Other Business Relationships After the Closing,
Seller and Shareholder shall cooperate with Buyer in its efforts to continue and
maintain for the benefit of Buyer those business relationships of Seller
existing prior to the Closing and relating to the business to be operated by
Buyer after the Closing, including relationships with lessors, employees,
regulatory authorities, licensors, customers, suppliers and others. Seller will
refer to Buyer all inquiries relating to the Business, other than Retained
Liabilities. Neither Seller nor any of its officers, employees, agents or
shareholders shall take any action that would tend to diminish the value of the
Transferred Assets after the Closing or that would interfere with the


                                       19

business of Buyer to be engaged in after the Closing, including disparaging the
name or business of Buyer.

      SECTION 5.4 Tax Returns. After the Closing, Seller shall prepare, at its
sole expense, and timely file all of Seller's required Tax Returns, including,
but not limited to, any short period returns and returns in the normal course.
Seller and/or Shareholder, as applicable, shall be responsible for the payment
of all amounts due or actually owed under such Tax Returns, and shall indemnify,
defend and hold Buyer harmless against all Taxes due from or assessed against
Seller.

      SECTION 5.5 Employment Tax Reporting.. Following the Closing Date, Buyer
and Seller shall abide by the alternate procedure for employment tax reporting
set forth in Section 5 of IRS Revenue Procedure 96-60 with respect to the filing
of all applicable Form W-2s, 941s or other related employment tax filings for
2002.

      SECTION 5.6 Payment of Liabilities. Seller shall pay and satisfy in full
all the Retained Liabilities.

      SECTION 5.7 Covenants of Seller and Shareholder.

            (a) Confidential Information and Trade Secrets. Seller and
Shareholder hereby agree that they and each of their respective directors,
officers, shareholders and employees shall not disclose to any Person any
confidential and trade secret information, including, but not limited to,
matters of a technical nature, such as formulae, "know how," computer programs,
systems and software (including, without limitation, documentation and related
source and object codes), product sources, product research and designs, and
matters of a business nature, such as its customer lists, customer contact
information, on-site program and support materials, training programs and
associated materials, pricing lists, contracts, sales reports, sales, financial
and marketing data, systems, forms, methods, procedures, and analyses, and any
other proprietary information, whether communicated orally or in documentary or
other tangible form, primarily concerning the Business (hereinafter,
collectively referred to as "Confidential Information"). Seller and Shareholder
recognize that Seller has invested considerable amounts of time and money in
attaining and developing the Confidential Information, and any unauthorized
disclosure or release of such Confidential Information in any form would
irreparably harm Buyer. Notwithstanding the foregoing, the obligations imposed
by this Section shall not apply, or shall cease to apply, to any Confidential
Information if and when, but only to the extent that, such Confidential
Information: (i) was, or becomes through no breach of Seller or Shareholder
hereunder, known to the public; or (ii) becomes known to Seller or Shareholder
from a source other than Buyer under circumstances which, to the Knowledge of
Seller and Shareholder, do not involve any breach of any confidentiality
obligations between such source and Buyer. In addition, it shall not be a breach
of Seller's and Shareholder's obligations hereunder for Seller or Shareholder to
disclose Confidential Information where, but only to the extent that, such
disclosure is required by law or applicable legal process.

            (b) Non-Competition Covenants. Seller and Shareholder operate the
Business throughout the United States of America, India and Mexico (the
"Territory"). In consideration of the rights granted hereunder, Seller and
Shareholder agree that during the Non-Compete Period (as defined below) neither
they, Shareholder Parent nor any other subsidiary of Shareholder


                                       20

Parent shall (without the prior written consent of Buyer), in any manner,
directly or indirectly, engage in, have any equity or profit interest in, make
any loan to or for the benefit of, guaranty the repayment of funds by, or render
any services of any executive, marketing, sales, administrative, supervisory or
consulting nature to any business conducting operations in the Territory which
are competitive with the Business, except as set forth on Schedule 5.7, except
as contemplated by the Distribution Agreement (defined in Section 6.3 below) or
except for an interest that is acquired as part of an acquisition or merger and
divested within six (6) months of acquisition.

            (c) Non-Solicitation and Other Covenants. Seller and Shareholder
further agree that during the Non-Compete Period, neither they, Shareholder
Parent nor any other subsidiary of Shareholder Parent shall, without the prior
written approval of Buyer, directly or indirectly, acting either alone or in
concert with others: (i) solicit, divert or appropriate or attempt to solicit,
divert or appropriate any customers, clients, or suppliers of Seller for the
purpose of providing services competitive, with the Business, except as set
forth in Schedule 5.7, except as contemplated by the Distribution Agreement or
except in the case of an acquisition which is being divested as provided above;
or (ii) at any time publicly disparage Buyer or any of its shareholders,
directors, officers, employees or agents.

            (d) Non-Compete Period. As used herein, "Non-Compete Period" shall
mean the period beginning on the Closing Date and ending on the third (3rd)
anniversary of the Closing Date.

            (e) Severability. If any court shall in any proceeding refuse to
enforce Section 5.7(b) in whole or in part because the time limit, geographical
scope or any other element thereof is deemed unreasonable in the jurisdiction of
that court, it is expressly understood and agreed that Section 5.7(b) shall not
be void but, for the purpose of such proceeding, such time limit, geographical
scope or other element shall be deemed to be reduced to the extent necessary to
permit the enforcement of Section 5.7(b) to the maximum extent allowable in that
particular jurisdiction. The foregoing, however, is not intended to and shall
not in any way affect, invalidate or limit the remaining provisions of Section
5.7(b) or affect, invalidate or limit the validity or enforceability of Section
5.7(b) as written in any other jurisdiction at any time.

            (f) Injunctive Relief. Seller and Shareholder hereby agree that any
breach or threatened breach by Seller or Shareholder of Section 5.7(a), Section
5.7(b) or Section 5.7(c) of this Agreement will irreparably injure Buyer and
that any remedy at law for any breach or threatened breach by Seller or
Shareholder of the provisions contained in Section 5.7(a), Section 5.7(b) or
Section 5.7(c) hereof shall be inadequate, and that Buyer shall be entitled to
injunctive relief in addition to any other remedy they might have under this
Agreement or at law or in equity without the necessity of (i) proving monetary
damages or the insufficiency thereof.

      SECTION 5.8 Further Assurances. Buyer, Seller and Shareholder shall
cooperate reasonably with each other and with their respective representatives
in connection with any steps required to be taken as part of their respective
obligations under this Agreement, and shall (a) furnish upon request to each
other such further information; (b) execute and deliver to each other such other
documents; and (c) do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement,
the other Documents and the transactions contemplated hereby and thereby.


                                       21

      SECTION 5.9 Best Efforts. Seller and Shareholder shall use their Best
Efforts to cause the conditions in Article 6 to be satisfied.

                                   ARTICLE 6

                        CONDITIONS TO BUYER'S OBLIGATIONS

      The obligations of Buyer to make deliveries to Seller pursuant to Section
1.2 hereof and to consummate the other transactions contemplated hereby is
subject to the satisfaction, on or before the Closing Date, of the following
conditions each of which may be waived by Buyer in its sole discretion:

      SECTION 6.1 Consents. Except as set forth on Schedule 2.4 hereof, ,
Schedule 6.1 contains a complete list of all consents or approvals required in
connection with the consummation of the transactions contemplated by this
Agreement or the other Documents. All consents and approvals set forth on
Schedule 6.1 shall have been obtained and shall be in full force and effect.

      SECTION 6.2 Solectron Manufacturing Services Agreement. Buyer and
Solectron shall have executed and delivered a Manufacturing Services Agreement,
in substantially the form attached hereto as Exhibit D (the "Solectron
Manufacturing Services Agreement").

      SECTION 6.3 Distribution Agreement. Telewire Supply, a division of
Telewire International, Inc., a subsidiary of Shareholder, shall have executed
and delivered to Buyer a Distribution Agreement in substantially the form
attached hereto as Exhibit E (the "Distribution Agreement").

      SECTION 6.4 Transition Services Agreement. Buyer and Shareholder shall
have executed and delivered a Transition Services Agreement in substantially the
form attached hereto as Exhibit F (the "Transition Services Agreement").

      SECTION 6.5 Opinion of Counsel to Seller and Shareholder. Buyer shall have
received from James E. Knox, counsel to Seller and Shareholder, an opinion,
dated as of the Closing Date, in form and substance reasonably satisfactory to
Buyer and in substantially the form of Exhibit G.

      SECTION 6.6 Approval of Board of Directors of Buyer and Approval of . The
Board of Directors of Buyer and the Chief Executive Officer of shall have
approved this Agreement and the transactions contemplated hereby.

      SECTION 6.7 Amendment to Certificate of Incorporation. Seller shall have
prepared for filing Certificate of Amendment to its Certificate of Incorporation
changing its name to a name other than "Keptel, Inc."

      SECTION 6.8 Closing Documents. Seller shall have delivered all of the
resolutions, certificates, documents and instruments required by this Agreement.


                                       22

                                   ARTICLE 7

                       CONDITIONS TO SELLER'S OBLIGATIONS

      The obligation of Seller to transfer the Transferred Assets to Buyer and
the obligations of Seller and the Shareholder to consummate the other
transactions contemplated hereby is subject to the satisfaction, on or before
the Closing Date, of the following conditions, each of which may be waived by
Seller or Shareholder in their sole discretion:

      SECTION 7.1 Solectron Manufacturing Services Agreement. Buyer and
Solectron Corporation shall have executed and delivered the Manufacturing
Services Agreement.

      SECTION 7.2 Distribution Agreement. Buyer shall have executed and
delivered the Distribution Agreement.

      SECTION 7.3 Transition Services Agreement. Buyer shall have entered into
the Transition Services Agreement.

      SECTION 7.4 Opinion of Stites & Harbison. Seller and the Shareholder shall
have received from Stites & Harbison, PLLC, counsel to Buyer, an opinion dated
as of the Closing Date, in form and substance reasonably satisfactory to Seller
and the Shareholder, and to the following effect:

            (a) Buyer is a corporation validly existing and in good standing
under the laws of the State of Delaware;

            (b) Buyer has the corporate power and authority to execute, deliver
and perform the Agreement and the other Documents to which it is a party. The
Agreement and the other Documents to which it is a party have been duly and
validly executed and delivered by Buyer and constitute the legal, valid and
binding obligations of Buyer, enforceable against Buyer in accordance with their
terms; and

            (c) The execution, delivery and performance of the Agreement and the
other Documents to which Buyer is a party, and the consummation of the
transactions contemplated hereby and thereby in compliance with the terms and
conditions hereof and thereof by Buyer will not (i) violate, conflict with or
result in any breach of the Certificate of Incorporation or bylaws of Buyer,
(ii) to the knowledge of counsel, violate, conflict with or result in a breach,
default or termination under any contract or agreement to which Buyer is a party
or give rise to any right of termination, cancellation or acceleration of the
maturity of any payment date of any indebtedness or other obligations of Buyer,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained in
writing and provided to Seller, or (iii) to the knowledge of counsel, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Buyer.

      SECTION 7.5 Closing Documents. Buyer shall have delivered all of the
resolutions, certificates, documents and instruments required by this Agreement.


                                       23

                                   ARTICLE 8

                   THE CLOSING AND CERTAIN CLOSING DELIVERIES

      SECTION 8.1 Time and Place of Closing. Upon the terms and subject to the
satisfaction of waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place at the offices of the Seller at ___.m. on the date hereof (the
"Closing Date"). The transactions contemplated in this Agreement shall be
effective as of 12:01 A.M. on the Closing Date (the "Effective Time").

      SECTION 8.2 Deliveries by Seller and the Shareholder. At the Closing,
Seller and/or Shareholder, as appropriate, will deliver or cause to be delivered
to Buyer the following:

            (a) the Bill of Sale required by Section 1.1(c);

            (b) the Assignment and Assumption Agreement required by Section
1.1(c);

            (c) the Distribution Agreement required by Section 6.3;

            (d) the Transition Services Agreement required by Section 6.5;

            (e) Articles of Amendment to Seller's Certificate of Incorporation;

            (f) a copy of the resolutions of the Board of Directors and
shareholder of Seller adopting and approving this Agreement and the transactions
contemplated hereby; and

            (g) all other documents, instruments and writings required to be
delivered by Seller at or prior to the Closing Date pursuant to this Agreement
or otherwise required in connection herewith.

      SECTION 8.3 Deliveries by Buyer. At the Closing, Buyer will deliver the
following to Seller:

            (a) the payment required by Section 1.2(a) above;

            (b) the Assignment and Assumption Agreement required by Section
1.1(c) above;

            (c) a certificate from an authorized representative of Buyer
certifying satisfaction of the conditions precedent in Sections 6.2 and 6.6;

            (d) the Distribution Agreement required by Section 7.2 above;

            (e) the Transition Services Agreement required by Section 7.4;

            (f) a copy of the resolutions of the Board of Directors of Buyer
adopting the Agreement and authorizing the transactions contemplated hereby; and


                                       24

            (g) all other documents, instruments and writings required to be
delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or
otherwise required in connection herewith.

                                   ARTICLE 9

                          SURVIVAL AND INDEMNIFICATION

      SECTION 9.1 Survival. All representations, warranties and indemnification
obligations contained in this Agreement and the other Documents shall survive
the Closing of the purchase of the Transferred Assets contemplated by this
Agreement for a period of three (3) years, except that (a) claims, if any,
asserted in writing prior to such third anniversary identified as a claim for
indemnification pursuant to this Article 9 shall survive until finally resolved
and satisfied in full; and (b) customs, tax, or environmental representations
and warranties contained in Section 2.14, Section 2.23 or Section 2.25,
respectively, and any claims resulting from a breach thereof shall survive for
the full period of the applicable statute of limitations, and until finally
resolved and satisfied in full if asserted in writing on or prior to the
expiration of any such period. The representations and warranties shall not be
affected or otherwise diminished by any investigation at any time by or on
behalf of the party for whose benefit such representations and warranties were
made.

      SECTION 9.2 Indemnification by Seller and the Shareholder. Subject to the
terms and limitations in this Article 9, Seller and Shareholder, jointly and
severally, shall indemnify, defend, and hold Buyer, its directors, officers,
shareholders and successors and assigns (the "Buyer's Indemnitees") harmless
from, against and with respect to any claim, liability, obligation, loss,
damage, assessment, judgment, cost and expense of any kind or character,
including reasonable attorneys' fees and expenses (the "Buyer Damages"), arising
out of or in any manner incident, relating or attributable to:

            (a) any inaccuracy in any representation or breach of any warranty
of Seller or the Shareholder contained in this Agreement;

            (b) any failure by Seller or Shareholder to perform or observe, or
to have performed or observed, in full, any covenant, agreement or condition to
be performed or observed by it under this Agreement;

            (c) liabilities or obligations relating to, or arising out of, the
operation of the Business prior to the Effective Time, whether or not such
liabilities, obligations or claims were known on such date, but excluding the
Assumed Liabilities and matters for which Seller and Shareholder are to be
indemnified pursuant to Section 9.4;

            (d) any brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding made, or alleged to have been
made, by any Person with Seller or Shareholder (or any Person acting on their
behalf) in connection with any of the transactions contemplated by this
Agreement;

            (e) any liability under the WARN Act or any similar state or local
Legal Requirement that may result from an "Employment Loss," as defined by 29
U.S.C. Section 2101 (a)


                                       25

(6), caused by any action of Seller prior to the Closing or by Buyer's decision
not to hire previous employees of Seller to whom Buyer has not agreed to offer
employment; or

            (f) any current or former Employee Plan established or maintained by
Seller or an Affiliate.

      SECTION 9.3 Notice to Seller, Etc. If any of the matters as to which
Buyer's Indemnitees are entitled to receive indemnification under Section 9.2
should entail litigation with or claims asserted by parties other than Seller,
Buyer shall give Seller prompt notice thereof and Seller shall have the right,
at its expense, to control such claim or litigation upon prompt notice to Buyer
of its election to do so. To the extent requested by Seller, Buyer, at its
expense, shall cooperate with and assist Seller, in connection with such claim
or litigation. Buyer shall have the right to appoint, at its expense, legal
counsel to consult with and remain advised by Seller in connection with such
claim or litigation. Seller shall have final authority to determine all matters
in connection with such claim or litigation; provided, however, that Seller
shall not settle any third party claim without the consent of Buyer, which shall
not be unreasonably denied or delayed.

      SECTION 9.4 Indemnification by Buyer. Buyer shall indemnify, defend, and
hold Seller, Seller's directors and officers, Shareholder and their respective
successors and assigns (the "Seller's Indemnitees") harmless from, against and
with respect to any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense of any kind or character, including reasonable
attorneys' fees and expenses (the "Seller Damages"), arising out of or in any
manner incident, relating or attributable to:

            (a) any inaccuracy in any representation or breach of warranty of
Buyer contained in this Agreement;

            (b) any failure by Buyer to perform or observe, or to have performed
or observed, in full, any covenant, agreement or condition to be performed or
observed by it under this Agreement;

            (c) the failure of Buyer to pay or perform the Assumed Liabilities
subsequent to the Closing Date;

            (d) liabilities or obligations relating to or arising out of the
operation of the Business after the Effective time including, without
limitation, those arising from the sale of products or use of materials included
in the Inventory; or

            (e) any brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding made, or alleged to have been
made, by any Person with Buyer (or any Person acting on its behalf) in
connection with any of the transactions contemplated by this Agreement.

      SECTION 9.5 Notice to Buyer, Etc. If any of the matters as to which
Seller's Indemnitees are entitled to receive indemnification under Section 9.4
should entail litigation with or claims asserted by parties other than Buyer,
Seller shall give Buyer prompt notice thereof and Buyer shall have the right, at
its expense, to control such claim or litigation upon prompt notice to Seller of
its election to do so. To the extent requested by Buyer, Seller and Shareholder,
at


                                       26

their expense, shall cooperate with and assist Buyer, in connection with such
claim or litigation. Seller and Shareholder shall have the right to appoint, at
its expense, legal counsel to consult with and remain advised by Buyer in
connection with such claim or litigation. Buyer shall have final authority to
determine all matters in connection with such claim or litigation; provided,
however, that Buyer shall not settle any third party claim without the consent
of Seller, which shall not be unreasonably denied or delayed.

      SECTION 9.6 Limitations on Indemnification. Notwithstanding anything in
this Agreement to the contrary, the aggregate liability of Seller and
Shareholder under Section 9.2(a) shall be limited to thirty percent (30%) of the
amount of the Purchase Price (the "Cap") and in no event shall Seller or the
Shareholder be required to make to any Buyer's Indemnitee any payments to
satisfy its obligations under Section 9.2(a) in excess of such amount; provided,
however, that this Cap shall not apply to a breach of the representations or
warranties relating to Assets contained in Section 2.16. In no event shall
Buyer's Indemnitees be entitled to seek any relief or exercise any rights
against either Seller or the Shareholder pursuant to the terms of Section 9.2(a)
until and solely to the extent Buyer Damages hereunder exceed an aggregate
amount of $300,000; provided, however that Seller and Shareholder shall
indemnify Buyer's Indemnitees from any claims resulting from a breach of the
customs, tax environmental or product warranty representations and warranties
contained in Section 2.14, Section 2.23, Section 2.25 and Section 2.28,
respectively, from the first dollar for claims or liabilities of Seller for
which Buyer is to be held harmless pursuant to this Agreement. Notwithstanding
anything in this Agreement to the contrary, the aggregate liability of Buyer
under Section 9.4(a) shall be limited to thirty percent (30%) of the amount of
the Purchase Price and in no event shall Buyer be required to make to any
Seller's Indemnitee any payments to satisfy its obligations under Section 9.4(a)
in excess of such amount. In no event shall Seller's Indemnitees be entitled to
seek any relief or exercise any rights against either Buyer pursuant to the
terms of Section 9.4(a) until and solely to the extent Seller Damages hereunder
exceed an aggregate amount of $300,000.

      SECTION 9.7 Offset. The parties agree that each party shall be entitled to
offset any indemnity claim under Section 9.2 against any payment due to that
party under the Agreement.

      SECTION 9.8 Consequential Damages. Anything to the contrary contained
herein notwithstanding, in no event shall any party hereto be liable for
indirect, special, consequential or punitive damages arising out of a breach of
this Agreement or a representation or warranty thereof, even if advised of the
possibility of such damages; provided, however, that a party shall be entitled
to seek consequential damages relating to or arising out of such a breach if
such breach constituted fraud or bad faith.

      SECTION 9.9 Exclusive Remedy. The indemnification provisions of this
Article 9 shall be the exclusive remedy for any breach of any representation,
warranty or obligation of this Agreement, absent fraud or bad faith.


                                       27

                                   ARTICLE 10

                                  MISCELLANEOUS

      SECTION 10.1 Knowledge of Seller or Shareholder. For purposes of this
Agreement, the term "Knowledge" when applied to Seller or Shareholder, shall
mean the current, actual knowledge of the President of Seller and the President
and Chief Financial Officer of Shareholder after conducting a reasonably
comprehensive investigation regarding such fact or matter.

      SECTION 10.2 Knowledge of Buyer. For purposes of this Agreement, the term
"Knowledge" when applied to Buyer, shall mean the current, actual knowledge of
the President of Buyer after conducting a reasonably comprehensive investigation
regarding such fact or matter.

      SECTION 10.3 Best Efforts. For purposes of this Agreement, the term "Best
Efforts" shall mean the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to achieve that result as
expeditiously as possible; provided, however, that a Person required to use Best
Efforts under this Agreement will not be required to take actions that would
result in a material adverse change in the benefits to such Person of this
Agreement and the transactions contemplated hereby or to dispose of or make any
change to its business, expend any funds or incur any other burden, except for
nominal funds or burdens.

      SECTION 10.4 Schedules. The disclosures in the Schedules must relate only
to the representations and warranties in the section of the Agreement to which
they expressly relate and not to any other representation or warranty in this
Agreement. In the event of any inconsistency between the statements in the body
of this Agreement and those in the Schedules (other than an exception clearly
and expressly set forth in such in the Schedules with respect to a specifically
identified representation or warranty), the statements in the body of this
Agreement shall control.

      SECTION 10.5 Publicity. Any public announcement or similar publicity with
respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as the parties mutually
determine, subject to the obligation of each party to disclose material matters
under the securities laws and the rules of the relevant exchanges. Seller and
Buyer shall consult with each other concerning the means by which Seller's
employees, customers, suppliers and others having dealings with Seller will be
informed of this Agreement and the transactions contemplated hereby, and Buyer
shall have the right to be present for any such communication.

      SECTION 10.6 Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) sent by recognized overnight courier, (iii) made by facsimile transmission,
or (iv) sent by registered or certified mail, return receipt requested, postage
prepaid.


                                       28

      If to Buyer:





      With a copy, which shall not constitute notice, to each of:





      If to Seller or the Shareholder:

            Arris International, Inc.
            11470 Technology Circle
            Duluth, GA 30097
            Attention: __________________
            Facsimile  __________________

                  with a copy, which shall not constitute notice, to:

            Arris International, Inc.
            11470 Technology Circle
            Duluth, GA 30097
            Attention: Larry Margolis
            Facsimile (678) 473-8470

All notices, requests, consents and other communications hereunder shall be
deemed to have been given (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, (iii) if made by telecopy or facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, or (iv) if sent by registered or certified
mail, on the fifth business day following the day such mailing is sent. The
address of any party herein may be changed at any time by written notice to the
parties.

      SECTION 10.7 Entire Agreement. This Agreement and the other Documents
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral or written
agreements and understandings relating to the subject matter hereof. No
statements, representation, warranty, covenant or agreement of any kind not
expressly set forth in the other Documents shall affect, or be used to
interpret, change or restrict, the express terms and provisions of this
Agreement.

      SECTION 10.8 Modifications and Amendments. The terms and provisions of
this Agreement may be modified or amended only by written agreement executed by
all parties hereto.

      SECTION 10.9 Assignment/Binding Effect. Neither this Agreement, nor any
right hereunder, may be assigned by any of the parties hereto without the prior
written consent of the


                                       29

other parties. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective heirs, personal representatives,
successors and permitted assigns.

      SECTION 10.10 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement shall be construed to create any rights or obligations except among
the parties hereto, and no Person shall be regarded as a third-party beneficiary
of this Agreement.

      SECTION 10.11 Governing Law. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed by
the internal laws of the State of Delaware without giving effect to the conflict
of law principles thereof.

      SECTION 10.12 Severability. In the event that any tribunal of competent
jurisdiction shall finally determine that any provision, or any portion thereof,
contained in this Agreement shall be void or unenforceable in any respect, then
such provision shall be deemed limited to the extent that such tribunal
determines it enforceable, and as so limited shall remain in full force and
effect. In the event that such tribunal shall determine any such provision, or
portion thereof, wholly unenforceable, the remaining provisions of this
Agreement shall nevertheless remain in full force and effect.

      SECTION 10.13 Interpretation. The parties hereto acknowledge and agree
that: (i) the rule of construction to the effect that ambiguities are resolved
against the drafting party shall not be employed in the interpretation of this
Agreement, and (ii) the terms and provisions of this Agreement shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.

      SECTION 10.14 Headings and Captions. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only and
shall in no way modify, or affect, or be considered in construing or
interpreting the meaning or construction of any of the terms or provisions
hereof.

      SECTION 10.15 Terms. Common nouns and pronouns refer to the masculine,
feminine, neuter, singular and plural, as the identity of the Person may in the
context require. Any reference to the Code or other statutes or laws include all
amendments, modifications, or replacements of the specific sections and
provisions concerned.

      SECTION 10.16 Reliance. The parties hereto agree that, notwithstanding any
right of any party to this Agreement to investigate the affairs of any other
party to this Agreement, the party having such right to investigate shall have
the right to rely fully upon the representations and warranties of the other
party expressly contained herein.

      SECTION 10.17 Expenses. Except as otherwise provided herein, each party
shall pay its own fees and expenses (including the fees of any attorneys,
accountants, appraisers or others engaged by such party) incurred in connection
with this Agreement and the transactions contemplated hereby whether or not the
transactions contemplated hereby are consummated.


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      SECTION 10.18 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, shall be deemed to constitute
one and the same Agreement.

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                                   SIGNATURES

      Buyer, Seller and Shareholder have caused this Agreement to be executed by
the duly authorized officer of Buyer, Seller and Shareholder, as applicable, as
of the day and year first above written.

                          Buyer:
                                        By: ____________________________________
                                        Its:____________________________________


                          Seller:       KEPTEL, INC.

                                        By: ____________________________________
                                        Its:____________________________________


                     Shareholder:       ARRIS INTERNATIONAL, INC.

                                        By: ____________________________________
                                        Its:____________________________________


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